Opinion article

The aged care balancing act in the 2020-21 Federal Budget

University of Technology Sydney Professor of Health Economics, Michael Woods, considers the likely outcomes of the upcoming Federal Budget for aged care funding and discusses the opportunities for reform.

While 2020 has been a very difficult year for all sectors of society and the economy, COVID-19 has had a particularly profound impact on older people and their families and friends. The Federal Government’s 2020-21 Budget for subsidised aged care services and their regulation faces competing agendas. It will need to find a careful balance between funding urgent improvements to residential care and the expansion of home care, preserving some future policy and fiscal space to respond to the Aged Care Royal Commission’s recommendations and weighing up the long-term fiscal sustainability of making significant changes to base funding levels.

Pre-COVID-19, the aged care sector was already under scrutiny by the Royal Commission and was being criticised for the unacceptable quality of care being provided by some staff in some aged care homes, and failures of governance and culture by some providers and the regulatory regime. The pandemic’s stress-testing of the whole sector has exposed even more vulnerabilities.

We can expect the 2020-21 Budget to crystalise much of the increased funding that the Federal Government has had to pour into the sector in recent times. A significant focus will be on measures that promise improvements in the quality of services being delivered.

Some of this quality-related expenditure is expected to be of a short-term duration (further COVID outbreaks permitting), but there will also need to be a permanent increase in the number of care staff and their training. Presumably such an increase will have associated accountability measures that ensure the extra funding directly benefits aged care consumers rather than the providers’ bottom lines.

However, this extra funding may not translate into an overhaul of the indexation arrangements currently used by the Government to compensate providers for rising costs. While this is long overdue, it may have to wait until at least the 2021-22 Budget.

A second very likely Budget outcome will be greater resourcing for the regulation of quality and safety in aged care. The Government will not be able to withstand the mounting criticism of the current low level of inspections of aged care homes and home care providers, and the poor record of averting failures of both quality and safety.

It is expected that the Budget will bring forward more home care packages to help older people avoid or defer entry to aged care homes. The government is unlikely, however, to fully meet COTA’s demand for an extra $2.5 billion so that no consumer will need to wait more than 60 days for a package at their assessed level. To the government’s credit, it has been progressively ramping up the number of packages, but other parts of the system need to be reformed to maximise the benefit of this expenditure. Given the more than one billion dollars of unspent funds being held in the already-allocated packages, there needs to be a detailed review of the current assessment processes. If older people are being assessed as being eligible for taxpayer-funded subsidies that exceed their current and expected future needs and their own financial circumstances, significant changes must be made.

Room for change

The Government may wish to use the Budget to get on the front foot and pre-empt the Royal Commission in several strategic areas, all of which have been recognised for a decade as being needed.

One initiative that has broad support is the funding of aged care navigators to help older people as their needs increase. This would address the ongoing concerns about the complexity of accessing the subsidies available to eligible older people, and understanding their own obligations to make a contribution where they can. The Government has been funding a series of navigator pilots and may take this opportunity to scale-up the initiative to a nation-wide program of assistance.

A second pre-emptive decision would be to confirm the Government’s existing in-principle support for replacing the current allocation of ‘bed-licences’ to owners of aged care homes. Instead, residential care entitlements could be granted to older people in need, as currently happens with home care packages. This would transfer choice and control to consumers, free up successful providers to expand where there was a demand for their quality aged care homes and services and put market pressure on poorer performing providers to improve or leave the sector. In the last couple of weeks the Government has released an impact analysis of this reform (led by this writer), which supports such a change, noting that under current policy settings this initiative is unlikely to result in any fiscal risks for the foreseeable future.

Another reform that has been advocated for many years, and is broadly supported by the current Royal Commission, is the merging of most of the current services available through the Commonwealth Home Support Program and the Home Care Packages. Eligible older people would be able to access a continuous, tailored and seamless series of subsidised home-based services that adjusts as their needs change. However, the Government may wish to pause this change until the Royal Commission has reported, and thereby be able to respond positively to the principle, and perhaps even the detail, of the ensuing recommendation.

There has been a well recognised reform pathway for subsidised aged care for a decade now, and the Royal Commission is likely to add weight, impetus and some degree of redesign to the various proposals. The Government will need to carefully weigh up its immediate response to each measure given the historic dimensions within which this 2020-21 Budget is being framed.


About the authors

Michael Woods

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Michael Woods is a Professor of Health Economics at the Centre for Health Economics Research and Evaluation (CHERE) at the University of Technology Sydney. He is on the Board of the Australian Digital Health Agency and is a member of the Aged Care Financing Authority. He was previously Deputy Chairman of the Productivity Commission and Presiding Commissioner on over 20 national Inquiries. His focus is on the reform of aged care and palliative care, improving the efficiency and effectiveness of the health workforce and the economics and financing of health systems. He specialises in policy development and program evaluations. He has led many commissioned research projects for Commonwealth Departments and has been an Independent Reviewer for the COAG Health Council.

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Anton Hutchinson

23/03/2021 at 12:49:21 PM

There is a well accepted fact that residential care has been grossly underfunded since 2015 and a much increased budget is required to deliver appropriate care. The Royal Commission was split about how to fund same so I need to ask... Why are the liberals pushing through considerable tax cuts when they really need the tax to fix the problem they created.

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