A way forward on Aged Care

Thursday, 11 August 2011  Features

A senior academic at the Australian School of Business has responded to the Productivity Commission’s report on aged care, and says that this does provide a good roadmap to pay for a greatly increased aged care burden over the next few decades.

Senior Lecturer Laurel Hixon, a Research Associate from the Australian Institute for Population Ageing Research at the Australian School of Business says "in 2050, for every aged person there will be barely half the number of taxpayers there are now. This will be the next demographic milestone to be passed by that revolutionary generation, the baby boomers."The Productivity Commission report considers calculating the different parts of aged care differently, separating personal and health care, everyday living expenses and accommodation. She says "this acknowledges the varying roles of the private market and of public risk-sharing."

Laurel Hixon adds "aged care is different from medical care in a number of important ways. What the Productivity Commission acknowledges is that certain aspects of aged care are similar to medical care and the risk of that care should be spread over the largest population and the rest should be, and must remain, a private responsibility."

"This really supports retaining the pay-as-you-go tax financed scheme which spreads the risk over people, but not time. In medical care, it has been well demonstrated that if a person does not know when or whether they will need care, and the cost of that care is expensive, then insurance is needed to spread the risk over people. Tax can step up to meet part of that cost."

"However accommodation is a different matter," she says. "It is interesting that the Productivity Commission recommends government-sponsored equity release schemes under which money could be drawn down from the equity in a person’s home to pay the predictable living and accommodation costs. While this is controversial, there really isn’t much of an alternative to addressing the future growth associated with the services needed to care for an ageing population. Really, the Commission appears to be right to expect individuals to meet this responsibility. The Commission's recommended structure is one way to unlock some of the value in people’s homes to pay for old age."

"The Australian government has taken the approach of moving greater responsibility ‘off budget’ and on to the individual and private sectors through private health insurance subsidies and mandatory superannuation schemes, and this fits with it."

Laurel Hixon was invited to be part of the Productivity Commission’s Funding Roundtable and testified before them on public and private insurance.