Aged Care Reform: Projecting Future Impacts
AGED CARE REFORM:PROJECTING FUTURE IMPACTSRESEARCH PAPER 11SEPTEMBER 2020
The Royal Commission into Aged Care Quality and Safety was established byLetters Patent on 8 October 2018. Replacement Letters Patent were issued on6 December 2018, and amended on 13 September 2019 and 25 June 2020.The Honourable Tony Pagone QC and Ms Lynelle Briggs AO have been appointedas Royal Commissioners. They are required to provide a final report by26 February 2021.The Royal Commission releases consultation, research and background papers.This research paper has been prepared by Deloitte Access Economics for theinformation of Commissioners and the public. The views expressed in this paperare not necessarily the views of the Commissioners.This paper was published on 7 September 2020. Commonwealth of Australia 2020ISBN 978-1-921091-36-0 (online)With the exception of the Coat of Arms and where otherwisestated, all material presented in this publication is providedunder a Creative Commons Attribution 4.0 International licence.For the avoidance of doubt, this means this licence only appliesto material as set out in this document.The details of the relevant licence conditions are available onthe Creative Commons website as is the full legal code for theCC BY 4.0 licence www.creativecommons.org/licenses .The terms under which the Coat of Arms can be used are detailedon the Department of the Prime Minister and Cabinet website www.dpmc.gov.au/government/commonwealth-coat-arms .
Aged care reform: projecting future impactsAged care reform: projectingfuture impactsA report for the Royal Commissioninto Aged Care Quality and SafetyJuly 20201
Aged care reform: projecting future impactsThis report has been prepared by Deloitte Access Economics for theinformation of the Royal Commission into Aged Care Quality and Safety andthe public. The views expressed in this report are not necessarily the viewsof the Commissioners.While every effort has been made to ensure the accuracy of this document,the uncertain nature of economic data, forecasting and analysis means thatDeloitte Access Economics is unable to make any warranties in relation tothe information contained herein. Deloitte Access Economics, its employeesand agents disclaim liability for any loss or damage, which may arise as aconsequence of any person relying on the information contained in thisdocument.
Aged care reform: projecting future impactsContentsGlossaryiExecutive summaryii12Australia’s future aged care needs – baseline scenarioA package of reform for high quality 345BackgroundThe reform agendaStructure of the reportModel overviewData sources9912Australia’s future aged care needs143.13.23.33.43.53.6141516171920Population ageingThe need for careAged care provisionAged care workforce needsCare qualityGovernment fundingA package of reform for high quality care224.14.24.34.44.54.6222627303233Reforms consideredProjected care recipientsAged care workforce requirementsEducation and trainingCare qualityImplications for the Government BudgetPaying for high quality care365.136Funding optionsLimitation of our workGeneral use restriction3838
Aged care reform: projecting future impactsChartsChart 3.1 : Changes in the population aged 65 Chart 3.2 : Age specific disability rates over timeChart 3.3 : Disability rates for Australians aged 65 Chart 3.4 : Aged care recipients by program - baselineChart 3.5 : Aged care workforce - baselineChart 3.6 : Wages in aged care compared with the wider economy baselineChart 3.7 : Quality of care: staff time per aged care recipient baselineChart 3.8 : Quality of care: ‘points’ per aged care recipient - baselineChart 3.9 : Commonwealth expenditure on aged care by program baselineChart 4.1 : Change in aged care recipients by program – 4 starscenarioChart 4.2 : Quality of care: staff time per aged care recipient afterreformsChart 4.3 : Additional aged care workforce required – 4 star scenarioChart 4.4 : Wages in aged care compared with the wider economy –4 star scenarioChart 4.5 : Quality of care, additional ‘points’ per aged care recipient– 4 star scenarioChart 4.6 : Change in total Commonwealth expenditureChart 4.7 : Difference from baseline in Commonwealth expenditureby aged care program – 4 star e 4.1 : Policy reforms considered in the modellingTable 4.2 : Total projected active direct care staff in aged careTable 4.3 : Projected active direct care staff in aged care – 3 starscenarioTable 4.4 : Projected active direct care staff in aged care – 4 starscenarioTable 4.5 : Projected active direct care staff in aged care – 5 starscenarioTable 4.6 : Projected student graduations in aged care relevantqualifications – 3 star scenarioTable 4.7 : Projected student graduations in aged care relevantqualifications – 4 star scenarioTable 4.8 : Projected student graduations in aged care relevantqualifications – 5 star scenarioTable 4.9 : Projected post-reform Commonwealth aged careexpenditure – 3 star scenarioTable 4.10 : Projected post-reform Commonwealth aged careexpenditure – 4 star scenario23293030303131313535
Aged care reform: projecting future impactsTable 4.11 : Projected post-reform Commonwealth aged careexpenditure – 5 star scenarioTable 5.1 : Funding options consideredTable 5.2 : Required percentage point changes to tax rates353637FiguresFigure 2.1 : Key model relationships10
Aged care reform: projecting future impactsGlossaryiAcronymFull nameABSAustralian Bureau of StatisticsACATAged Care Assessment TeamACFIAged Care Funding InstrumentAIHWAustralian Institute of Health and WelfareAN-ACCAustralian National Aged Care ClassificationANZSICAustralian New Zealand Standard IndustrialClassificationCESConstant Elasticity of SubstitutionCHSPCommonwealth Home Support ProgrammeCMSCentres for Medicate and Medicaid ServicesCTPCapacity to Pay CohortsDESEDepartment of Education Skills and EmploymentDOHDepartment of HealthDSSDepartment of Social ServicesDTTLDeloitte Touche Tomatsu LimitedDVADepartment of Veterans AffairsENEnrolled NurseFTEFull Time EquivalentGDPGross Domestic ProductGFSGovernment Finance StatisticsGPGeneral PractitionerGVAGross Value AddedHCPHome Care PackageHILDAHousehold Income and Labour DynamicsHTMLHyper Text Markup LanguageIOInformal Only careLHSLeft Hand SideNCVERNational Centre for Vocational Education ResearchNDIANational Disability Insurance AgencyNDISNational Disability Insurance SchemePAYGPay As You GoPCAPersonal Care AssistantRHSRight Hand SideRNRegistered NurseSDACSurvey of Disability Ageing and CarersVHCVeterans’ Home Care
Aged care reform: projecting future impactsExecutive summaryThe terms of reference of the Royal Commission into Aged Care Quality andSafety (the Commission) includes consideration of the future challenges andopportunities for delivering accessible, affordable and high quality aged careservices in Australia in the context of changing demographics andpreferences, in particular people's desire to remain living at home as theyage.In its interim report the Commission identified a pattern of societal neglectsurrounding aged care that has left services fragmented, unsupported andunderfunded. There is a need for significant reform to improve the qualityof aged care and ensure older Australians have access to the care theyneed.Understanding how potential reforms might impact on the operations of thesector, its workforce and required levels of funding are important parts ofthe overall picture of the future of aged care in Australia. With that in mind,the Royal Commission asked Deloitte Access Economics to develop adetailed economic scenario model of the aged care sector to help inform theCommission’s work.The model is designed to consider the impact of policy change over theperiod to 2050 presented relative to a baseline scenario defined by theassumption that current aged care policy will remain unchanged. It’sacknowledged that policy will change over time which is why the baselinescenario should be viewed as a neutral reference case rather than anattempt to accurately forecast the future of the sector. The baseline doesnot attempt to incorporate policy changes that have or may come about asa result of Coronavirus (COVID-19) on the aged care sector or the broadereconomy.Australia’s future aged care needs – baseline scenarioThe baseline scenario foresees strong growth in demand for care acrossresidential aged care, Home Care Packages (HCP) and the CommonwealthHome Support Program (CHSP) as the Australian population ages. The risein demand is tempered by an improvement in the physical health of olderAustralians over time and it is expected that a preference for ageing in thehome will persist.The Commonwealth Home Support Programme will remain the largestprogram in terms of recipients to 2050. However, Home Care Packages willexperience the strongest growth, particularly in the early years given asignificant rise in the supply of packages under currently announced policy.Quality of care is expected to gradually rise over time and productivityimprovements enables this to occur despite a slow reduction in staff timespent with each care recipient per day.Workforce pressure is expected to persist in the sector as demand forworkers grow significantly faster than economy wide employment growth.This will induce wages to rise faster in this sector than the broader economyto attract qualified staff.ii
Aged care reform: projecting future impactsWith this in mind, not only will a larger number of older Australians requirecare, but the cost of that care will rise as the sector grapples with rapidgrowth.Figure A: Aged care recipients in major programmes – 030Residential care20342038Home Care2042204620500CHSP (RHS)On the other hand, older Australians will also be better placed to contributeto the cost of their own care as the superannuation system matures. Andthe cost burden is further reduced as people shift from residential aged careto Home Care Packages.On balance, the result of these trends is that government funding of agedcare will take up a growing share of national income over time.Notably, the expected rise in costs relative to the size of the economy islower than projected in the 2015 Intergenerational Report 1. This is due tothe fact that the baseline scenario accounts for the improvement indisability rates over time and a preference away from Residential Caretowards less resource intensive Home Care les/2019-03/2015 IGR.pdfiii
Aged care reform: projecting future impactsFigure B: Commonwealth expenditure on aged care by program - baseline1.6%% 0Residential care2034Home Care2038CHSP204220462050OtherA package of reform for high quality careThe package of reforms presented in this report includes a number ofpotential options aimed at improving aged care in Australia. These areoptions that staff of the Commission have asked Deloitte Access Economicsto model in order to understand the future impact of changes to the agedcare system. The options have been incorporated into a single set of resultsoutlining an alternative future for aged care in Australia.The scenario considers the impact of a package of wide-reaching reformswhich the Royal Commission is considering. The reforms cover:-Improvements to care quality, staffing and trainingAspects of regulation and system navigationAvailability of different types of careHealth service provisionFunding levels and allocation mechanismsIt should be noted that under this package of reforms aged care continuesto be provided through three main programs: residential care, HCP andCHSP. Integration of these programs is not one of the options consideredand may alter the results.Much of the reform package is focused on improving the quality of careavailable to aged care recipients – particularly in Residential Care – andincreasing the availability of Home Care Packages. Most of the changescome at a cost to the Australian Government – some through the aged caresystem and a smaller amount through Medicare and other governmentprograms.The reform package encourages a greater number of people into the agedcare system and causes a significant shift in the allocation of recipientsacross programmes. In particular, there’s a substantial shift away fromResidential Care towards Home Care Packages.iv
Aged care reform: projecting future impactsThe modelling has considered an increase in residential care staffing to 3, 4and 5 star levels in the CMS system 2. Changes in recipient numbers for the4 star scenario are presented in Figure C, with the changes starting in2022. Residential Care recipients reduce immediately as a larger number ofpotential new recipients choose to stay in community care and the sectorfaces significant workforce constraints in response to the implementation ofmandated increases in staff time per recipient. The workforce constraint israpidly unwound but the ongoing preference for Home Care Packages growsover time.Figure C: Aged care recipients, change relative to baseline - 4 star ,000-60,000-80,0002018202220262030Residential care2034Home Care2038204220462050CHSP (RHS)Source: Deloitte Access Economics ModellingRecipients of Home Care Packages rise rapidly as existing supply caps in theprogramme is unwound and a number of services previously provided underCHSP are shifted to Home Care Packages. However, the balance betweenthese two community programs shift in the following years as recipientsfavour CHSP to a greater degree given the programme has become free ofcharge for recipients. This effect subsides over time and is completelyremoved around 2030 at which point the CHSP program services all eligibleindividuals.From a quality perspective, the reform package causes a substantial rise inthe quality of care provided in Residential Care and the highest Home CarePackage level 4 to support recipients with the highest needs.The reform package exerts additional pressure on the aged care workforce,particularly for enrolled nurses as care requirements rise. Wages in thesector rise to attract more workers from other sectors and throughadditional training.2A nursing home quality rating system developed by the Centers for Medicate &Medicaid Services in the US (see d-Certification/CertificationandComplianc/FSQRS)v
Aged care reform: projecting future impactsIncreasing demand for aged care, increasing quality requirements and atighter workforce all leads to increases in the cost of care. However, theshift away from resource intensive Residential Care towards Home CarePackages tempers the overall level of funding required for this package ofreforms.The scenario specifies that aged care providers will be fully compensated foradditional costs incurred due to the policy changes described above. Assuch, the Government bears the full cost of the reform package.Taken together, the reforms in this package see the sector incur additionalcosts in 2050 of: 0.3% of GDP or around a fifth of the projected baseline aged carebudget in the 3 star scenario. 0.5% of GDP or around a third of the projected baseline aged carebudget in the 4 star scenario. 0.8% of GDP, or around half of the projected baseline aged care budgetin 2050 in the 5 star scenario.In each case that total includes additional health expenditure outside ofaged care amounting to approximately 0.04% of GDP.Expenditure on Residential Care sees the biggest increase, despite fewerrecipients. Spending on Home Care Packages also rises strongly relative tothe baseline, but lower costs per recipient relative to residential care limitthe overall increase in that program.Figure D: Government cost of aged care reform package – 4 star scenario0.6%% ntial care20302034Home Care2038CHSP204220462050Other aged careThere’s a large variety of ways government can fund the additionalexpenditure required for the reform package including: implementing a newtax, increasing existing taxes, broadening the base of existing taxes or cutexpenditure in other areas. The scope of this analysis only considers twofunding options: an increase to the Medicare Levy or an equal increase toincome tax rates across all thresholds.vi
Aged care reform: projecting future impactsAssuming that: the required increase in tax rates will remain steady overthe forecast period, and a Commonwealth bond rate of 3% per annumprevails for the forecast period, then the results included in Table A willensure there’s no material change in government debt over the forecastperiod due to the proposed package of reforms.Table A: Required percentage point changes to tax ratesReform packageFunding option3 star4 star5 starIncrease in Medicare levy0.51%0.89%1.31%Increase income tax0.58%1.01%1.48%Source: Deloitte Access Economics ModellingThis is a substantial rise in tax rates. As a comparison, the Medicare Levywas recently raised by 0.5% to cover part of the cost of the NDIS. Incometaxes will need to be increased by a slightly higher rate than the MedicareLevy because it covers a lower base due to the income tax free thresholdthat is in place.Deloitte Access Economicsvii
Aged care reform: projecting future impacts1 Introduction1.1BackgroundThe terms of reference of the Royal Commission into Aged Care Quality andSafety (the Royal Commission) includes consideration of the futurechallenges and opportunities for delivering accessible, affordable and highquality aged care services in Australia in the context of changingdemographics and preferences, in particular people's desire to remain livingat home as they age.In its interim report the Commission has identified a pattern of societalneglect surrounding aged care that has left services fragmented,unsupported and underfunded. There is a need for significant reform tocreate the better future aged care system which Australians aspire to.Understanding how potential reforms might impact on the operations of thesector, its workforce and required levels of funding are important parts ofthe overall picture of the future of aged care in Australia. With that in mind,the Royal Commission asked Deloitte Access Economics to develop adetailed model of the aged care sector over coming decades to explore thefuture economic and budgetary implications of various reforms.Detailed modelling is an important tool for understanding the impact ofalternative policies on a system as complex as Australia’s aged caresector. A consistent view of the future requires the simultaneous analysisof the need for care, the cost of that care, financing arrangements and therequired workforce.1.2The reform agendaThis report considers the impact of a package of wide-reaching reformswhich the Royal Commission is considering. The reforms cover:-1.3Improvements to care quality, staffing and trainingAspects of regulation and system navigationAvailability of different types of careHealth service provisionFunding levels and allocation mechanismsStructure of the reportThis report outlines the model and its results. It is organised into fivechapters: 8Chapter 2 provides a brief outline of the model.Chapter 3 explores a potential future for aged care in Australia undercurrent policy settings.Chapter 4 describes the impact of the package of reforms which theRoyal Commission is considering to create a better future aged caresystem in Australia.Chapter 5 considers possible options for the additional funding requiredto support those reforms.
Aged care reform: projecting future impacts2 MethodologyAustralia’s aged care system is complex, and the range of potential reformsexamined in this r
3.1 Population ageing 14 3.2 The need for care 15 3.3 Aged care provision 16 3.4 Aged care workforce needs 17 3.5 Care quality 19 3.6 Government funding 20 4 A package of reform for high quality care 22 4.1 Reforms considered 22 4.2 Projected care recipients 26 4.3 Aged care workforce requirements 27 4.4 Education and training 30
Indirect employment in aged care 3 Contents 1. About this study 4 Defining key concepts and the study's scope 8 2. Current employment arrangements in aged care 12 The aged care workforce: an overview 12 Indirect employment in aged care 15 Regulation of indirect employment in aged care 19 3. Impacts of indirect employment in aged care 22
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(Aged Care Assessment Program) is an important part of Australia’s aged care system. The Commonwealth engages each state and territory government to manage the day-to-day operations of the ACAP and Aged Care Assessment Teams (ACATs or in Vi
Safety Commission from 1 January 2019. The Commission will bring together the functions of the Australian Aged Care Quality Agency, the Aged Care Complaints Commissioner, and, from 1 January 2020, the aged care regulatory functions of the Department of Health. This 2018-19 Corporate Plan takes account of this changed operating environment and
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The percentage of adults aged 65 and over who ever had a pneumococcal vaccine was highest among those who were aged 75 and over, non-Hispanic white, and not poor. Nearly two-thirds of adults aged 65 and over ever had a pneumococcal vaccine (63.6%) (Figure 2). The percentage of women aged 65 and over who ever had a pneumococcal vaccine (64.2%)
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