Senior Lecturer Laurel Hixon
In its boldest recommendation, the Productivity Commission explicitly considers the different parts of aged care, namely care (including personal and health care), everyday living expenses and accommodation differently. This acknowledges the varying roles of the private market and of public risk-sharing.
With regard to both health care and retirement income, the Australian government has taken the approach of moving greater responsibility “off budget” and on to the individual and private sectors through private health insurance subsidies and mandatory superannuation schemes.
As aged care services interface with the health care system and aged care financing is closely linked to aged care pensions, it follows then that policymakers are likely to consider the same strategy—i.e. greater reliance on individuals and the private insurance sector—for addressing the future growth associated with the services needed to care for an ageing population.
On the financing side, one of the most hotly debated topics was whether or not a proposal should be put forward for insuring the risk of aged care and, if so, should it fall in the private or public domain, and should it be mandatory or optional. In medical care, it has been well demonstrated that if a person does not know when or whether they will need care, and the cost of that care is expensive, then insurance is needed to spread the risk over people.
Yet, aged care is different from medical care in a number of important ways. What the Productivity Commission acknowledges is that certain aspects of aged care are similar to medical care and the risk of that care should be spread over the largest population and the rest should remain a private responsibility.
There are, however, two issues at play in insuring risks. One is spreading the cost of care over the widest population, the other is spreading the cost of care over time. The Productivity Commission supports retaining the pay-as-you-go tax financed scheme which spreads the risk over people, but not time. Then, with the accommodation and every living expenses which are predictable, the Productivity Commission supports these costs be covered privately within certain limits.
Moreover, the Productivity Commission acknowledges that a variety of non-traditional funding schedules be put forward. Specifically, they recommend government-sponsored equity release schemes under which money could be drawn down from the equity in a person’s home to pay the predictable living and accommodation costs.
Senior Lecturer Laurel Hixon is a Research Associate from the Australian Institute for Population Ageing Research at the Australian School of Business.