The Economics of Aged Care, Speech to the Committee for Economic Development (CEDA), Four Seasons Sydney
**check against delivery**
It’s great to be here speaking at my second CEDA event. The first was in Melbourne. It was before our first Budget, and before the aged care changes on the first of July. So a fair bit has happened since then.
Can I acknowledge the great contribution that CEDA makes to both social policy and economic policy debate in Australia.
And can I also acknowledge the work that CEDA is doing and the paper that CEDA has released in relation to federation and its challenges. It will be an important contribution to the national debate that the Prime Minister has kicked off.
Could I acknowledge a few important people here today:
- Peter Wills AC, Governor of the CEDA Board of Governors;
- the CEO of CEDA, Professor the Hon Stephen Martin, former distinguished Speaker of the House of Representatives;
- Lee Kelly, the CEO of CEDA here in New South Wales;
- the chair of the session, Dr Linda Swan;
- that serial contributor to public life – Kathryn Greiner AO – good to see you Kathryn; and
- my old mate Jim Longley, who I’m working very closely with on disability issues.
As a minister in the Abbott government I have, as touched on briefly by Linda, three prime responsibilities. Three pretty straightforward ones.
I’m the Minister responsible for the NDIS, and I’m the Minister responsible for ageing.
Linda said that I had described those as easy – it’s important to put that in context. That’s just a comparative statement – it’s in comparison to my other role as Manager of Government Business in the Senate. Which of course is the easiest role of all!
And I might just make two brief observations about my role as Manager of Government Business.
Like everything in politics – whether it be in a local branch, whether it be at a state conference, or on the floor of the Australian Senate – we are governed by the iron laws of arithmetic.
What that means is that you need 50 per cent plus one. In the Senate that means 39 out of 76 Senators.
The other thing in relation to the role of Manager of Government Business is, with dealing with colleagues, as with all relationships, you’ve got to deal with people not where you would like them to be, but where they are.
And when you do that, you can get good outcomes, and we already have, with the repeal of the carbon tax, the repeal of the mining tax, and the legislating of our direct action plan.
So we’ve got about 120 of about 150 pieces of legislation that have been introduced into the Senate through. So we do have a workable Parliament.
But onto what I guess you could describe as my day job – my portfolio responsibilities, where we have brought together for the first time disability, ageing and carers in the one portfolio, in the one department, under the one minister.
With Kevin Andrews we, in the social services portfolio are responsible for about $125 billion dollars worth of Commonwealth expenditure, which is about a quarter of the Commonwealth Budget. It’s more than the combined budgets of New South Wales and Victoria. So it’s a pretty big gig.
As some of you would have heard me say before, for me, the stuff that is in our portfolio is really the core business of government.
And I think what’s in my part of the portfolio is the core of the core – and that is providing some extra assistance to people who face extra challenges for reasons beyond their control.
This is why we have governments. It’s why we pay taxes.
The community rightly expects in aged care that government will make a contribution and will have an involvement.
But what should that role be?
Should government merely police standards? Or just be a banker of sorts to the sector?
What are the expectations we should place on providers? And what should be the responsibilities of the individual?
Particularly, as I think we all agree, we want to age well – that’s something we aspire to. And as Linda said, it’s something that we can plan for. In contrast to disability, where usually you acquire a disability in a way that you could not have envisaged.
There has been a lot of change over the last 18 months. Most of it has been bipartisan. But there is a lot of unfinished business that we have.
No Good Social Policy without Good Economic Policy
It’s worth reflecting that expenditure on Aged Care currently accounts for around 1 per cent of GDP, and that this is likely to almost double by 2050.
The Government’s contribution, or as I prefer to say, the Australian taxpayer contribution, accounts for about 3.6 percent of all our revenues; that’s about $ 15.3 billion a year.
It’s also important to recognise that consumers also make a significant contribution beyond taxation, with Aged Care participants paying around $4.4 billion last financial year.
Many of you would also have heard me say before that good economic policy and good social policy are not alternatives. They are two sides of the same coin.
No country can have a good social policy without a good economic policy to sustain that.
In that light, I have had to make some difficult decisions in my first twelve months as minister for ageing. And I think it’s important to see those against the backdrop of the fiscal situation we inherited.
You would have all heard the figure of $667 billion in gross projected debt. $1 billion each month on interest payments alone.
Each portfolio area has had to make a contribution to addressing this situation, and I’d like to take a minute or two to put some of these decisions that I’ve taken in context. They won’t necessarily be news to those who work in the sector but may be of interest to those who don’t.
In the budget we announced that from January next year, the federal Government will stop paying the payroll tax supplement to eligible aged care providers.
By way of background, I think we all appreciate that payroll tax is a state tax base.
The history of this payroll tax supplement is that States generally provide some payroll tax exemption for not-for-profit providers. The supplement was an effort to level the field for the for-profit providers. But, the payment of the payroll tax supplement effectively was an uncapped, indirect transfer of revenue from the Australian Government to the states and territories. Put differently, it is in effect the Australian Government providing an exemption to state and territory taxes.
We took the view that the level of government that has responsibility for administrating a particular tax base should not only have responsibility for its application, but also for any exemptions, including exemptions relating to competitive neutrality issues.
This is not an insignificant amount of money we are talking about. It’s a saving of over $650 million over the forward estimates. But the decision will provide greater clarity as to what are the respective roles of each level of government.
There was another decision that I took that was probably unexpected, and that was in relation to the Dementia and Severe Behaviours Supplement, which I announced at the end of June would be concluding.
Governments can come up with good ideas and the previous government had a reasonable idea, and that was that there should be some additional support for those aged care providers who look after those residents who exhibit severe behaviours related to dementia.
The previous government estimated that in the first year of the supplement that there would be around 2,000 people who would trigger eligibility for aged care providers. What ended up happening was 29,000 people as triggers.
The budget of the previous government for this last financial year was $11.7 million. Instead, it came in at more than $110 million.
And over the forward estimates, instead of costing the $52 million that was budgeted, it was going to cost $780 million. And over ten years, it was going to cost $1.5 billion.
So I looked at the option of re-crafting it, but in the end concluded that the supplement in its current form was not salvageable. It was not a problem of the government’s making, but one we had to address.
It’s important to emphasise that the Supplement was only ever intended to provide a bit of extra support for providers who give care to people with severe behaviours.
It was never the core funding for people with dementia. We have a range of ways that people with dementia are supported. In fact, it’s part of the core business of aged care, providing care for people with dementia.
But I have commissioned a Ministerial Dementia Forum which has met, and will be providing me with advice shortly as to what could be a viable and sustainable alternative to the Dementia and Severe Behaviours Supplement.
I mention those things to indicate that we’ve got to make sure that we have a sustainable environment for the aged care sector. And it’s important to take those decisions into account alongside others which have been taken in the budget context.
In the budget we have boosted grants and subsidies by 2.4%for aged care providers through the repurposing of the workforce supplement – which was a previous government initiative that was an industrial mechanism dressed up as a boost to providers.
Over five years from 2013-14, $1.5 billion will be redirected into the general pool of aged care funding. And we’re also increasing the viability supplement for rural and remote providers by 20 per cent.
It is important that we look at difficult decisions alongside some of the other positive things that are happening.
I also think it’s important that we learn the lessons of the Dementia and Severe Behaviours Supplement. I think it wasn’t a model for partnership between government and providers. It wasn’t a model at any time, through inception and implementation to cessation.
Some providers have queried what the fate of the Dementia and Severe Behaviours Supplement might mean for the higher accommodation supplement. What it means is it has to be monitored and operate within its funding allocation.
For those who might not be familiar, from 1 July 2014, facilities that are newly built or significantly refurbished on or after 20 April 2012 qualify for a higher level of accommodation supplement, which is paid for residents with low means.
This will be a significant boost to the industry, but I have asked the Department and the Aged Care Sector Committee, which is one of our advisory bodies made up of providers and consumers, to monitor the supplement so that the mistakes of the past are not repeated.
I want this exercise to serve as a model of partnership between government and the sector.
Anyway, enough about what’s happened to the sector over the past year or so.
Customer Choice: The Real Reform
To the future.
I think ageing itself is being redefined. The wave of baby boomers coming through the system will see those who are over 65 increase from 3.3 million in 2013 to 4.6 million in twenty years.
There are 3 key demographic aspects of this ageing population we need to consider.
Firstly, the proportion of our population that will be older – that is over 65 – will rise from 14 per cent in 2013 to 17 per cent in twenty years.
Secondly, the characteristics of this population. Older Australians are not all the same. Their values, their attitudes, their expectations vary.
Grouping all Australians aged 65 and over into one category is spanning an age range of almost 40 years. It’s a bit similar to lumping Generation Y and Baby Boomers into one category.
An 85 year old was born around the time of the Great Stock Market Crash, They had their life shaped by World War II, and grew up enduring the hardships of post war rationing.
Whereas a 65 year old was born the year Menzies took office. They were the first generation to grow up with television, and may well have been in the front row at the Sunbury Music Festival.
One group, instilled with a work ethic borne from a period of deprivation, helped to build the post war foundation we currently benefit from. And the other rode a period of social and political change culminating in a much more consumer led society, perhaps a more informed society.
Mainstream culture – once the sole domain of the young – is being held onto by the baby boomers as they hit older age.
And I guess it’s kind of cute that tomorrow night The Rolling Stones will play here in Sydney – Mick’s voice willing.
This band toured here in the same week we converted to decimal currency in 1966. They’re still going strong and still attracting baby boomers to their shows.
Although I’ve got to say it is still one of the great mysteries in life as to how Keith is still with us!
If there was a band that really epitomised the shift from a wartime generation to one with more of a consumer focus, it’s the one that penned ‘I can’t get no satisfaction’.
And it is this generation who will redefine ageing and by extension aged care services. They will want to continue to live their life the way they always have.
As a Government and as service providers, we will need to respond to this expectation.
The third key demographic issue is geography; where people will choose to live their later years.
As Professor Graeme Hugo has noted ‘the jury is still out on this question’.
What used to be known as the seachange effect – popularised by that show with Sigrid Thornton; which has been so prevalent in our thinking for the last twenty years may in fact be waning.
There is evidence to suggest we are experiencing more of a streetchange effect, as older Australians either return to be closer to their family and services, or move from the family home to a more manageable apartment or townhouse; often in the same neighbourhood.
You only have to drive in from the airport to here to see the massive boom in apartment construction.
All we can be sure of is the distribution of Australians 65 and over will be very different in twenty years’ time.
And yet, Aged Care infrastructure is location specific. The question is; will this be mismatched with the location of older Australians.
Governments can continue to try and second guess what older Australians want. We can continue to ration their beds and hand them out like taxi licences.
Or we can aim to ultimately get out of the way; let the consumers decide what they want and allow the market to supply what is needed.
As Ian Harper says in his recent Competition Review paper;
‘Success in the market should be driven by consumer interests not the special interests of suppliers and providers.’
The vulnerability of people who use services funded by government has sometimes been argued as a reason why they couldn’t be open to competition.
But I think that access and choice are as relevant to vulnerable Australians – those on low incomes – as for those who can afford to be totally self-sufficient.
Harper goes on to say;
‘They too should enjoy the benefits of choice, where this can reasonably be exercised, and service providers that respond to their needs and preferences’.
I think we’re seeing that with the rollout of the NDIS. A model where the Government directs its funding to the people in need and lets them choose what services they want.
The individual directs that funding to the provider of their choice. Dollars should follow need. And I think care should follow choice.
We’re seeing some changes already. The aged care landscape has shifted with large for-profit providers going to market, making it easier for them to access needed capital.
As one stockbroking firm has stated, there is a ‘smorgasbord of opportunities’ in the sector, as the population ages and public and private dollars converge in the market.
The Chair of Estia Health and former Ramsay CEO Pat Grier has compared the aged care sector now to where the private hospital sector was 20 years ago; on the brink of a new era, filled with possibilities and new business challenges.
The sector has asked for reform, the sector wants reform. But that is going to mean changes to traditional business models and strategies.
And providers, whether for-profit or not-for-profit, will have to adapt to evolving financial and business models.
An Aged Care Agenda
If we are to move to a consumer-led market we need to change the system further.
A legislated review of the current aged care changes, examining whether “further steps could be taken to change key aged care services from a supply driven model to a consumer demand driven model”, must occur by 2017.
But maybe we can move a little more quickly or, at least, start to shape our thinking about what a better system might look like.
Today I want to touch lightly on what those further changes might be.
Firstly, we need to rethink aged care regulation and remove unnecessary red tape.
I know every single government says that, so don’t judge us on what we say, judge by what we ultimately do.
Most agree that the aged care system is over regulated; it can stifle innovation and it can constrain the ability to provide people with the services they want.
This isn’t about removing all regulation in a sector with vulnerable people whose interests need to be ensured. Of course, we need an appropriate regime of safeguards. But we do need to rethink regulation to make sure it is fit for purpose.
We have started to do this in a few small ways. We’ve removed the duplicative building certification and we’ve streamlined the process for higher accommodation charging.
The Government has also introduced legislation to remove the cumbersome key personnel reportingrequirements, and is looking at further things that we can do.
And as part of that exercise, Minister Andrews has established the Innovation Hub to test what else can be done. The hub will trial a range of red tape reductions including longer accreditation periods, better and more appropriate financial reporting and streamlined ACFI Reviews.
Secondly, we need a bit more independence in certain elements of the aged care system. We need independent assessment of people’s needs.
Last month I announced that from 1 July next year, for instance, assessments for the Commonwealth Home Support Programme will be undertaken by My Aged Care and its associated network of regional assessment services, or RAS.
We need an independent assessment of people’s needs. Through this process the individual’s eligibility and needs will be assessed independently from service delivery.
A competitive tender process is currently underway to select organisations to provide the regional assessment services.
The third change needed is for the funding to follow the consumer.
Ten years ago my colleague, the Foreign Minister Julie Bishop, in her then capacity as the Minister for Aged Care, was foretelling that;
“a person needing care could, with advice from families and professionals, decide how to spend the dollars ear-marked for their long term care”.
I think, as with the NDIS; the time for this idea has come.
Home care packages are progressively moving to consumer directed delivery.
The intent is to give consumers more control, through identifying how much money they are entitled to, and how those dollars are spent
However, even with this consumer-directed care, unlike the NDIS, government funding still goes to the provider.
Ultimately public and private dollars need to follow the individual rather than the provider.
And the easiest place to start this is in packaged care.
The next logical step is to give the consumer full control of their package and let them direct how and with whom it is spent to meet their assessed needs.
Why not let the packages we currently have – and the 80,000 new ones coming on line over the next ten years – operate this way and move a step closer to that consumer led market to which we aspire.
And while we are talking about supporting people at home I also think it’s time to contemplate simplifying the funding programme structure.
People are either supported at home or in residential care. Our funding structures should mirror this by consolidating the home care package programme and the home support programme.
Then we need to look to free up supply in residential care.
Aged care is asystem with a set number of places offered in defined geographic areas.
The changing geographic distribution of older people; and the challenge of planning for it means that it’s time to rethink the model.
Within the existing taxpayer envelope, we should look to open up supply to allow residential providers to make business decisions, based on market intelligence, about where to build a residential care service.
We should look towards that direction.
And then allow them to attract customers through price and through service.
I think there’s an important caveat here, and that is that not all areas of Australia may be in a position to deliver this form of market-based aged care. So we need to keep an open mind as to whether we manage some parts of the nation differently if we think this sort of approach wouldn’t work.
For all of this proposed change that I’ve outlined, we need informed consumers.
The My Aged Care Gateway is providing a new level of information about aged care services. It’s baby steps, and there’s further to go, but hopefully there will be greater transparency about aged care services and better information about what’s on offer.
We know consumers are using the information that’s currently there on the Gateway to compare services and make decisions. And their decisions are possibly starting to effect market behaviour.
Residential care accommodation prices are starting to reflectother accommodation prices in the neighbourhood – as indeed it should, given it is an accommodation purchase.
My Aged Care needs to become the virtual market place where consumers and providers – or demand and supply – meet.
A Trip Advisor for aged care services, if you will.
That’s why I have charged the Department to expand My Aged Care to list all aged care services whether or not they are government funded. We want consumers to have maximum information about all providers.
Implemented in stages as the IT is developed we will start to see other services listed from 1 July next year.
And finally we need a modern market quality assurance system.
Traditionally when governments and sectors talk about quality they are really talking about safety.
Safety obviously is critical but it isn’t the only – or even the most important – way to define and measure quality.
A more sophisticated definition of quality should be meeting or exceeding your customer’s expectations.
Ultimately the customer’s definition of what is quality is the only one that really matters.
‘Trip Advisor’ style capacities on the My Aged Care will develop ratings for the quality of providers and their services, according to what matters to consumers; rather than what Departments and providers think they should be.
And we should embrace this development while at the same time ensuring that safety is a given and isn’t compromised.
I think what I have outlined briefly today represents what consumers tell me they want. And that is to be the masters of their own lives and decisions.
I think it’s what providers tell me they want – to be the masters of their own business and to be in control of more decisions that affect them.
As the responsible Minister, it is what I would like the Government to move closer towards – to move closer towards that vision of greater consumer choice, of the money following the individual, of businesses freed up to do what they do best.
I can’t promise that all of this will be achieved this year or the next.
But what I can promise that today is the start of a conversation about how we might get to the destination that we ultimately all would like to reach together.