Why everyone should care about aged care funding

The first of July always brings changes: some big, some small. This year the changes to indexation for aged care funding – the main source of care funding – were just 0.7 per cent for complex healthcare and 1.4 per cent for activities of daily living and behaviours. This small change has the peak bodies up in arms.

Sean Rooney, chief executive of Leading Age Services Australia, says: “Lack of adequate funding is placing at risk our industry’s ability to deliver accessible, affordable, quality care and services. Providers are on the borderline of being viable.”

Aged care groups are up in arms about the small funding increases this year.

Aged care groups are up in arms about the small funding increases this year.

This idea of providers not being viable flies in the face of the general consumer sentiment that aged care facilities are “cash cows” with operators “raking in huge profits” through a combination of government funding and income earned on accommodation deposits.

Stewart Brown, a leading accounting firm, conducts an annual financial performance survey of the industry. It has found that, while the top quartile of operators are making an average profit of $12,000 per bed per year, more than two in five aged care facilities are operating at a loss.

So what does residential aged care cost, and who pays what?

When we break it down there are fundamentally two costs: accommodation and care.

Accommodation costs can be paid as a refundable deposit (RAD), a daily payment (DAP) or a combination of the two. The daily payment is calculated at 5.96 per cent of any unpaid lump sum.

In understanding aged care funding, it is important to know that providers must keep a pre-set ratio of people who pay the market price and people who are financially disadvantaged. These “low-means residents” make a contribution to their accommodation costs based on their means, and the government tops up that contribution to a maximum of $56 a day. About 45 per cent of aged care beds are occupied by low-means residents.

The latest Stewart Brown report for the sector shows the average RAD paid was $348,019, and the average DAP (including government accommodation subsidies) was $29.91 a day. The survey found that, on average, aged care facilities were making a profit from their accommodation payments.

Let’s look now at care, which includes extras such as meal choices, activities and entertainment. The survey found that on average facilities were losing $7.30 a day for each resident – this loss was attributed primarily to a combination of static funding and increasing care costs.

The overall average result was a profit of $3.93 per resident per day – the positive average figure a result of the 57 per cent of facilities making a profit.

Grant Corderoy, senior partner of Stewart Brown, says:The financial sustainability of the aged care sector as a whole needs to be fully understood by all stakeholders, and a robust funding and policy model supported by appropriate legislation and regulatory control is now critical.”

Pat Sparrow, chief executive of Aged and Community Services Australia, says: “We have an industry trying to do their best but that is getting tougher with increasing costs. We need to find funding solutions not just in the short term but in the medium- and long-term.

"That needs to start with identifying the cost of care and ensuring the combination of consumer and government contributions can deliver the care that’s needed and expected.”

Consequences of dwindling funding

So why should we care about aged care funding? Because funding impacts on residents. When facilities cut costs, that means reducing care hours, activities and food options. When facilities close it creates a lot of stress and can add significant costs to residents.

Longer-term, if aged care is not seen as a good investment, operators won’t build. Currently there are 43,000 approved beds unbuilt while operators consider their viability. The industry needs to add another 83,500 over the next 10 years to keep pace with demand. In any market, a lack of supply when there is increasing demand means prices go up.

Aged care residents are one of only two people to pay for aged care; the other is the government. If they pay less, you pay more. It’s that simple.

Rachel Lane is the principal of Aged Care Gurus. Next week: Noel Whittaker.

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