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A leap of faith

If the market solves the funding and planning problems of aged care, why hasn’t it worked in the US, asks Michael Fine

If you work in aged care you probably already have an opinion on the PC draft. If not, there’s plenty about it in this edition of INsite.

Many of the recommendations will no doubt be welcomed, particularly where they consolidate and extend successful existing initiatives and policy. Examples include the single gateway, acknowledgment of wage disparity, and proposals around greater choice.

But the jolly consensus on change is likely to evaporate when readers start to realise the cost of this vision and the implications of the proposals for providing more choice. Put simply, the PC seems to consider that government can’t plan services and should give up trying to do so. Nor, with more people ageing, can government continue to underwrite the funding of aged care for all – which is predicted to rise from 1 per cent of GDP today to reach 1.5 by 2050, just under the amount required today in Denmark and about half that of Sweden or the Netherlands.

Instead, what they call for is a market approach, in which there will no longer be any constraints, such as planning ratios. Instead, the system will sort out its own balance between need, demand and supply, as care providers compete for approved customers and charge what they think the market will bear.

This would mean there would be greater choice for the higher income users – although they will have to pay for it. Most older people, it seems, would fit into the category for much of the time as a variety of cunning ways to release the value of a person’s home are identified. For those without such independent means, or those who have used up the capital in their housing, the PC recommends a safety net.

As part of the reforms, block funding paid to service providers would cease except in a few instances where a special case could be made. Any government subsidies should instead be paid on behalf of the consumer. These could be paid in full or topped-up by consumers as they wish, so that providers would be able to offer enhanced care products to those who need them and in the process fund better pay and conditions for staff.

This is where the draft report calls for a leap of faith. The problems identified with the existing system stem from the current government policies, so the reasoning goes. For the true believers in the market, the solution must therefore be to take responsibility away from government and make the system more responsive to consumer choice.

For those who lack faith, where is the evidence that this will work? Hidden away in Appendix C, ‘International Experience’ is a discussion of the way that aged care is financed and operated in a large number of other countries. Like Australia, most of them have some market elements in aged care. But only one has so fully embraced the market approach.

The country that seems to embody the market system the PC wishes to adopt is the US. As shown in Figure C3, expenditure on aged care in both Australia and the US is currently approximately equal, at 1 per cent of GDP. There are two big differences. Here, the cost includes community care, and this is not included in the US figures, and indeed there is no national program. In the US a great proportion of total care costs are paid by families, leading to great problems with the dreaded ‘asset rundown’. Nursing staff are often paid very well, but non-nursing staff are often so poorly paid that many consumers fear inviting them into their own home.

If the market solved the funding and planning problems of aged care, why hasn’t it worked in the US? Why has it been necessary for government to take such an active role in developing the system in Australia? If you work in aged care, you probably already have an opinion on that.

Associate Professor Michael Fine is head of the Department of Sociology and deputy director, Centre for Research on Social Inclusion, Macquarie University

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