The savings red herring: Co-contributions could burden providers with bad debt

The Australian Government’s projection that increased consumer co-contributions will result in $18.8 billion in aged care savings could be a red herring as aged care providers face the all-too-real prospect of accumulating bad debt.

According to Kathy Eagar, Professor of Health Services Research at the University of New South Wales and Queensland University of Technology, too much reliance is being placed on older people’s ability to contribute to the cost of their aged care services.

She warned that many older people will not have the savings the government expects them to have, despite the baby boomer generation typically retiring with more wealth and assets than past generations.

“There is a general perception that the baby boomers are all cashed up going into old age. The problem is the average age of entry into aged care is about 80 for community care and 85 for residential care. By age 85, only 13% of people have more than $100,000 in superannuation,” Prof Eagar explained.

“The government has wildly overestimated the capacity of those aged 85 and over to contribute to the cost of their care. It won’t make nearly as much money from consumers as they are banking on in their forward estimates.”

Prof Eagar’s experience in the aged care sector places her in good stead to make these claims, even in retirement. She led the design of the Australian National Aged Care Classification (AN-ACC) funding model and advised on the Aged Care Royal Commission into the adequacy of residential aged care staffing.

She is concerned that a higher-than-expected number of older people will not afford the proposed co-contributions, particularly under Support at Home. Even increased funding levels might not be enough as the higher cost of living and other contribution factors could put providers and consumers in a worse position.

For ‘independence’ services like personal care, self-funded retirees could be expected to contribute up to 50% of the cost. For ‘everyday living’ services such as domestic assistance, self-funded retirees could contribute 80%.

“You’re talking about people potentially paying $30,000 or more a year in some cases. Many won’t be able to afford it,” she explained. 

“Providers have always carried some financial risk. But if a consumer can’t pay, it’s not the government that fills in the gap, it’s the aged care provider who will be responsible for collecting that debt from the consumer. 

“If they deliver a service to someone and that person doesn’t pay any fees or their contribution, it’ll be up to the provider to stop delivering the services or to deliver those services with no funding or at a reduced funding rate. The person becomes a bad debt.”

Unintended and perverse consequences

A recurring theme from industry insiders is the concern over unintended consequences caused by aged care reform. Prof Eagar shares those worries. One of the ‘perverse and unintended consequences’ she said is likely to occur is a surge in the cash economy that sees older people move away from paid help through Support at Home. 

This could see older people who need help with domestic assistance or community transport opting to pay friends, family or other contractors because their co-contribution amount is too high for a limited amount of support each week.

Additionally, Prof Eagar does not expect demand for residential care to reduce as the government predicts. 

“People have never wanted to go to residential care. Everybody wants to stay at home. People don’t go to residential care as a lifestyle choice. They go to residential care where they can no longer live safely at home. That won’t change,” she added.

“The amount of money and care hours in Support at Home is not enough to change the number of people who can stay at home versus people going into residential care. Particularly because the increase in the amount of money in the packages is almost all based on a consumer contribution, not the government paying more.”

Ultimately, her disappointment stems from the lack of innovative thinking behind the reform which she labelled ‘more of the same’ with no new approach to delivering care differently. 

“This reform is the same as what we’ve been doing for the last 20 years. It’s more money from consumers to deliver essentially the same model of care. It’s the worst features of the NDIS for old people, except they have to pay a lot of money for it,” she emphasised.

One solution she would like to see is a greater focus on funding and support for informal carers, particularly those looking after their partners. 

“If you do want to delay or prevent entry to residential aged care, you have to provide substantial support to that person’s family carer. Carers and care recipients are not seen to be a couple who need support together and the whole package includes nothing extra to really support carers,” Prof Eagar said.

“The major reason people end up going to residential aged care is that the person who is caring for them at home burns out and they can’t do it anymore. There is nothing in the new reform package that substantially increases support for carers to increase the amount of time they can continue in the caring role.”

Faster response times for assessment and reassessment would also be ideal as she highlighted the potential for massive deterioration while people wait for new or increased support.

The government hopes to reduce the wait time for Support at Home to three months by 2027. Currently, the estimated wait time for a Level 4 Home Care Package is 12-15 months, while Level 1 is 3-6 months. For those who have been assigned a Home Care Package, the average wait time for medium priority support across all levels is still 10 months.

Is Medicare the solution?

Regardless of how much someone has to pay for their care, the incoming baby boomer generation will question why they have to contribute more and what exactly they get in return. This will put providers under increasing pressure to be transparent, reliable and quality-driven every single time a consumer interacts with them. 

One solution that could see much of the confusion around co-contributions and aged care, in general, is aligning the system better with Medicare. Prof Eagar said the public understands that Medicare is a public-funded health system they may have to contribute funds when accessing services through public, private or not-for-profit organisations. 

This simple approach to aged care could unlock a more positive view of user contributions. 

“Medicare is a system the community really loves, and every opinion poll shows that Australians are prepared to contribute more money towards Medicare to get a better health system,” she said. 

“Wouldn’t it be great if people were prepared to see aged care as our public aged care system where we all contribute to it in accordance to our means, the same as Medicare. We don’t define Medicare by who delivers the care. We define Medicare by where the money comes from.”

Positioning aged care like Medicare would also enable the government to propose an aged care levy. This funding measure has been discussed in the past but was dropped in favour of consumer co-contributions as the voting public would not be fully supportive of another levy.

However, Prof Eagar believes if an aged care levy was introduced for people in their mid-40s, it would be more politically palatable as retirement is closer. 

We apologise for a previous edition of this article that included an incorrect title and spelling for Professor Kathy Eagar.