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Be careful what you wish for this Christmas

What can we learn from overseas experience with care markets?

For those interested in developing Australian aged care into what the Aged Care Roadmap has termed “a consumer-driven market-based system”, it is time to look to the US. This market has seen robust growth and a host of new businesses develop over the past 25 years.

A recent Public Policy & Aging Report, published by the Gerontological Society of America, outlines some of the market trends we should be watching.

As Pamela Doty from the US Department of Health and Human Services points out, services that have typically developed in the private pay sector, outside the more regulated system in which public payments and health insurance operate, are particularly interesting. The past five years has seen the entry of a range of new providers, termed ‘private duty home care agencies’. Many of these home care startups have been headed by entrepreneurs with venture capital funding from Silicon Valley. These new enterprises have often sought to label themselves ‘business disrupters’.

Private payment has long been a major source of funding for the American home service market. With an ageing population, growth increased 53 per cent in the six years from 2009 so that in 2015 there were an estimated 25,000 non-medical home care agencies in the US. This is predominantly a consumer funded and controlled market, with costs kept as low as possible by keeping staff costs to a minimum.

If the business model sounds familiar to Australian ears, the funding and staffing should be of real interest.

Most of these private agencies are small independents that operate in only one region. The remainder, around 30 per cent, are franchises, such as Comfort Keepers, Visiting Angels and the now international brand, Home Instead.

While home care franchises are said to be more affordable to potential owners than fast food franchises like McDonald’s, the model is the same: franchisees purchase the right to own and manage one or more local businesses branded with the corporate name.

About 70 per cent of revenues are paid by consumers or their family ‘out of pocket’. Only 10 per cent is paid by Medicaid waiver programs, which we could think of as the equivalent of our public funding. Another 10 per cent is covered by private long-term care insurance, while the remainder comes from a mixture of sources.

Costs are kept competitive by deploying staff who are largely unqualified and often placed on contracts or remunerated as independent contractors with limited hours and low hourly pay rates. The national industry average wage is $9.50 per hour and the median annual income just $13,000 p.a. But there is considerable variation between states, with some having no minimum rate set. Hourly payments (often as low as $5 or $6) in such cases are typically well below the minimum needed to live on. Most staff are women, with a disproportionate number being women of colour or immigrants, including many who are undocumented and face discrimination, exploitation and, increasingly, mass deportation.

Not surprisingly, there is a high staff turnover, compounded by regular absences and vacancies, with staff who seek to move to direct employment with consumers. Under these conditions, reliable service provision is often problematic. Many potential consumers fear receiving care in their homes, as they have heard about or personally experienced difficulties with theft, intimidation, incompetent care provision or neglect from those who work under these conditions. Others would like to have access to such care but can’t afford it.

The evidence from the US certainly demonstrates the vitality that can emerge under the pressures of a competitive market system. Alongside the entry of new market competitors, there has been a flourishing of new home care access and delivery models, as well as a range of other developments of interest such as the introduction of apps and computer programs seeking to link consumers and care staff directly. I will write about some of these in a future column.

So, can we learn anything from overseas experience with care markets?

The US experience suggests there is much to learn. We might start with an acknowledgement of the potential problems of disruptive models of care.

As we are all learning with Uber, certain private vocational colleges and other so-called disruptive innovators, there are often hidden costs associated with rule-breakers and reliance on untrained, poorly paid, unsupervised personnel.

Services that don’t have to bear the costs and charges associated with licensing and regulation need to be treated with caution in long-term care. It is important to ensure that new services entering the market are fully qualified and carefully regulated.

Cutting costs by simply reducing pay and conditions of staff is not the way to ensure sustainable, quality aged care. It is important that the Australian system of fair work, decent wages and conditions be maintained in aged care and not abandoned for some fantasy of a disruptive cheap labour model.

And finally, while there is clearly a role for private pay home cleaning and gardening services outside of aged care, it is vital that we make sure that public funding keeps up with need.

Let’s do what we can to ensure that consumers are able to actively direct whatever care they need. But simply leaving it to the market is no guarantee at all.

Michael Fine is an honorary professor at Macquarie University.

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One comment

  1. Great article, thanks Michael. In your research were there any particular services that rose to the top of utilisation beyond domestic duties? Were there any innovations or new services that would be of interest in Australia?