Will the Royal Commission and COVID-19 shift the Australian perception of aged care?
Relative to other countries, Australia has a high proportion of elderly persons living in aged-care facilities. Whilst home care, as a segment of the long-term aged-care market, has been growing, the ageing population will also continue to support demand for aged care over the long-term.
Australia has a high proportion of elderly persons in aged care
Relative to other countries, Australia has a high proportion of elderly persons living in aged-care facilities. Statistics from the OECD show that in 2016, 19.7% of Australians aged over 80 were living in aged-care facilities. This compares with an OECD average of 10.8%, 7.3% in Japan, 6.1% in the United States, 12.4% in Canada and 8.6% in South Korea. Unsurprisingly, we also have one of the lowest rates of elderly persons receiving long-term care within the home.
Our public spending on long-term care is low
Public spending on long-term care (which includes care provided in institutions, within the home or through community services) is comparatively low in Australia relative to other countries. On a per capita basis, total spending in Australia on long-term care is considerably lower than other OECD countries and accounts for a smaller proportion of GDP. Whilst there are limitations in making international comparisons due to differing definitions and gaps in data, the data does highlight that overall, there is a relatively low level of financial investment in Australia’s long-term care sector in total.
For some time, industry operators have been calling for more sustainable funding for the long-term care sector. COVID-19 has prompted an increase in sector funding totalling circa $1.6 billion in 2020 to date with an additional $746.3 million of funding announced in the Federal Budget. However, this funding is COVID-19 specific and necessary to address required changes to the sector and support operators during the pandemic.
According to research conducted by the University of Queensland for the Royal Commission into Aged Care Quality and Safety (‘the Royal Commission’), it would cost circa $621 million per annum to improve all aged-care homes to the best level measured in our current system. It also found that the highest quality aged-care homes were generally smaller in size and $3.2 billion per annum would be required for all aged-care homes to improve their quality and operate under a small-sized home model.
Could COVID-19 and the Royal Commission into Aged Care Quality drive stronger demand for home care?
Prior to COVID-19, there had been a small number of cases of mistreatment in aged-care facilities that prompted the Royal Commission. Changes to the industry are expected to occur because of the Royal Commission, with the final report scheduled for release in February 2021. The Royal Commission, while focusing on quality, safety and staffing issues, unmet needs of residents and resident isolation, also released a separate report on COVID-19 on 1 October which identified six recommendations for the Australian Government pertaining to infection control, funding, allied health and oversight of the sector.
COVID-19 has reportedly resulted in a decline in residential aged-care occupancy rates, prompting the question of whether it will be the catalyst for a permanent change in demand for home care services over residential aged care. Demand for home care has already grown considerably stronger than demand for aged care during recent years.
Between June 2017 and June 2019, the number of persons in home care increased by close to 50%, compared with growth of 2.2% in the number of persons in aged care. To support the demand, the number of operational home care providers also increased during this period by 32.2%. Between June 2019 and March 2020, there has been further growth of 28.3% in the number of persons using home care.
Part of the reason behind the shift in demand comes from the reforms to long-term care introduced in 2014 that resulted in income-tested care fees for aged care being replaced with means-tested care fees (that assess both income and assets). For many persons entering aged care after 1 July 2014, this meant that ongoing care fees would be higher.
Whilst growth in home care is not a new COVID-19 specific trend, the pandemic and the resulting negative public perception of the aged-care system could drive a more permanent shift towards stronger demand for home care going forward. The current Royal Commission has focused quite heavily on the prioritisation of home care over residential aged care.
Potentially adding further to this, or perhaps more so enabling it, is the fact that COVID-19 has also been the catalyst for many organisations to introduce more flexible working arrangements such as working from home. Whether this further enables more families to consider housing elderly relatives within their home is another factor for consideration.
It has also been reported that the Royal Commission will be considering whether family members who care for elderly relatives within the home should be able to access extra leave entitlements and mandatory flexible working arrangements. However, home care is not an option for all elderly people, whether due to financial, practicality or other reasons.
What is the cost of home care?
It was recently presented to the Royal Commission that the Federal Government provides $71 on average per person per day for home care compared to $191 on average per person per day for residential aged care. The Government contributes between $9,000 and $52,250 per participant per annum (depending on the level of care (ranging from 1 to 4)) to subsidise the cost of home care packages.
Whilst the per-participant cost of home care is more affordable for the Government than that for residential aged care, additional home care costs borne by participants can be prohibitive and out of reach for the average elderly person. The participant is required to pay fees based on the level of support, their financial situation, the service provider and the services received. Furthermore, the profitability of home-care providers has come under pressure since the sector became deregulated in 2018 and there have been recent calls from industry representatives to make some adjustments to the system (particularly surrounding the amount of unspent funds held by consumers) to ensure the sustainability of home support going forward.
Our analysis of home care providers nationally shows that whilst home care packages are generally affordable for participants requiring low levels of care, the cost for participants requiring a high level of support (such as 24-hour nursing support) is substantial and often non-viable. The Royal Commission into Aged Care Quality and Safety is expected to address the cost of home care and make recommendations for further funding to this market segment, in the release of its final report.
What is the future of aged care?
- Increased funding is required for long-term care in Australia. There are likely to be significant changes to home care and aged-care funding following the release of the Royal Commission report.
- The recently announced Federal Budget included funding for an additional 23,000 home care packages, with availability from November this year. There was limited additional funding measures for residential aged care announced in the Budget, however, this is expected to occur following the completion of the Royal Commission and be incorporated in the May 2021 Budget.
- We expect to see the proportion of elderly people in residential aged care decline over the longer-term. This will put downward pressure on demand for residential aged care. However, on the other side of the equation is the ageing population which will support demand.
- Based on current population projections from the ABS, our analysis shows that if the proportion of persons in residential aged care aged over 80 years remained at 19.7%, there could be additional demand of circa 160,000 beds by 2035. Under the assumption that the proportion gradually declines to 15.0% over this period, there would be additional demand of circa 72,000 beds by 2035. Under the assumption that the proportion declines more rapidly to the OECD average of 10.8% by 2035, demand would decline from its current level by circa 2,000 persons.
Source: ABS, AIHW, m3property Research
- Demand for home care is expected to continue to grow at a stronger rate than demand for aged care. The COVID-19 pandemic is likely to encourage some elderly persons to consider staying within their home or with family members, with the support of a home care package. The additional home care packages announced in the Federal Budget will enable this to some extent. Furthermore, increased flexibility within the workplace may make it possible for some families, who previously may not have had the capacity to do so, to house their elderly family members within their home.
- Following the 124 recommendations made to the Royal Commission, aged-care facilities may evolve to become smaller in size over time. Research presented to the Royal Commission noted that smaller facilities typically have higher levels of quality and this could lead to structural changes to the sector and a shift away from the ‘bigger is better’ approach to development.
- A shift towards home care may impact occupancy levels within residential care homes in the short term, however, Australia’s ageing population and the current need for more operational beds is continuing to be a major value driver despite the uncertainty around changes to government funding and the potential outcomes of the Royal Commission into Aged Care.