Aged care changes: Government releases Taskforce Report and recommendations

Article published on: 12-03-2024

The Government has just publicly released the Final Report of the Aged Care Taskforce, which was completed in December 2023. The Aged Care Taskforce was established to review various elements of the aged care system. This includes funding arrangements (which are currently met overwhelmingly by the Government) to ensure the sustainability of the system, and the provision of high-quality care. Currently the residential care sector is suffering large and unsustainable losses, with two-thirds of providers reporting a net loss. 

Key take-outs

The report proposes a number of key changes, including the:

• calculation of home care and residential care co-contributions
• phase out of lump sum RADs, and 
• reintroduction of a retention amount.

It doesn’t make specific and detailed recommendations in relation to the practical operation of any proposed changes. The report establishes seven overarching principles (outlined at the end of this article) and makes 23 specific recommendations in relation to:

• both home care and residential aged care services
• Government and resident funding, and
• the simplicity, transparency and fairness of the fee system.

Taskforce recommendations

The recommendations below are of key interest for financial advisers. Note that it’s recommended any changes only apply to new residents and existing residents will be grandfathered under their existing arrangements. 

Home care

Home care services should be available on a fee-for-service basis to ensure:

•  care receivers only pay for services received, and 
• a fair and increased contribution (relative to current arrangements) is made by those who can afford it. 

Currently, only 5% of total home care funding is from individual’s contributions.

Residential care - funding

General recommendations

• The Government should continue to be a key contributor to funding aged care, and a specific tax or levy to fund the system should not be adopted.
• Residents should make a fair co-contribution to their care and accommodation costs based on their means, with a strong safety net for low-means individuals.
• Liability for fees could be anchored to Age Pension status and possibly homeownership, to increase fairness, simplicity and transparency of costs for consumers, particularly in the planning stages. There could potentially be separate means-testing arrangements for self-funded retirees.
• The Government should consider improved funding arrangements to cover everyday living and accommodation costs of aged care residents. This will ensure the sector remains viable.
• The Government should fully fund the cost of care, less the proposed increased resident co-contribution. Alternatively, if full coverage of costs by the Government is not adopted (ie ensuring the provider isn’t making a loss), the removal of annual and lifetime caps on the means-tested fee should be considered.

Recommendations relating to accommodation fees

• Phase out of RADs: Lump sum RADs should be phased out by 2035 (pending a review of the system in 2030), with a transition to a rental only style model. This would reduce the liquidity risk that currently exists, as well as the disparity between full RAD payers and those who pay a non-refundable daily accommodation payment (DAP). While RAD payers receive the full amount back upon exit and therefore don’t make a direct contribution to the cost of their accommodation, residents who pay a DAP make a significant annual contribution to their accommodation costs. The Taskforce acknowledges the interaction with the Age Pension (where RADs are currently fully exempt) and indicates further consultation is required. 
• Reintroduce a retention amount: Service providers should be required to retain a portion of a RAD paid (similar to the previous ‘retention amount’) to help plug the current funding gap, and to reduce the impact of DAP payers subsidising RAD payers. A cap should apply to the number of years a RAD is subject to retention to protect long-term residents. 
• DAP as focus of accommodation fees, with indexation: The current system calculates the RAD equivalent (DAP) based on an interest rate at the time of entry. It’s recommended that the new fee model have accommodation fees based on a DAP, with any conversion to a RAD not linked to an interest rate. DAPs should be subject to indexation twice per year, with an exception for full Age Pensioners. This approach will support a future transition to a rental only model.
• Increase maximum RAD limit: The maximum RAD that can be charged without additional approvals (which the Report notes that providers are deterred from doing due to costs and the time involved) should be reviewed and increased. While a specific figure isn’t proposed, the Report notes that in 2021/22, 31% of rooms were priced either at or above the current maximum of $550,000, and that should the maximum RAD have been indexed in line with construction costs, it would now be approximately $810,000. Increasing the maximum RAD would provide service providers with capital to undertake new construction.
• Protection of low means residents: Additional safeguards should be introduced to protect low-means residents, including those making a co-contribution to their care costs.

Taskforce Principles

The 23 specific recommendations are bundled under seven primary Principles. These are:

• Principle 1: The aged care system should support older people to live at home for as long as they wish and can do so safely. 
• Principle 2: Aged care funding should be equitable, easy to understand and sustainable. 
• Principle 3: The Government is and will continue to be the major funder of aged care. Government funding should be focused on care costs, as well as delivering services in thin markets. Personal co-contributions should be focused on accommodation and everyday living costs with a sufficient safety net. 
• Principle 4: The residential sector should have access to sufficient capital to develop and upgrade accommodation, including in rural and remote areas and First Nations communities. 
• Principle 5: Aged care funding should be sufficient to deliver person-centred, quality care by a skilled workforce. 
• Principle 6: Aged care funding should support innovation to improve aged care services and their relationship with the health and hospital systems. 
• Principle 7: There should be transparency and accountability for how aged care funding is received and spent while minimising regulatory burden.

Next steps

The Government will now consider the recommendations provided by the Taskforce. No formal announcement had been made at the time of publication relating to next steps. The Government has confirmed that in line with the recommendation, it will not seek to introduce a levy to fund the system, or amend the assessment of the family home. With a new Aged Care Act coming into effect from 1 July 2024, it’s anticipated the Government may announce proposed changes based on the Report in the May Federal Budget.