Green Paper – Aged care costs set to rise
Finity & Actuaries Institute report findings
A green paper prepared by Finity for The Actuaries Insititute released today, reveals Aged Care funding will be placed under significant challenges as costs over the next 30 years are projected to peak earlier and higher than anticipated.
The Green Paper, “Aged Care Funding: Assessing the Options and Implications”, finds a potential challenge in Commonwealth Government funding at 2040/41 with a short fall of about $9 billion in 2020/21 dollars (nearly 0.4% of GDP), notwithstanding the significant additional funding announced this year.
“Our research indicates that the cost and funding pressures at government and society levels will be significantly greater than currently projected, and that these will be most acute over the coming 20 years due to the safety nets and projected demographic, social and health trends. This is when the Baby Boomer generation is expected to reach extreme old age,” the paper said.
“The current policy settings are likely to result in significant pressures on the Commonwealth budget over time,” it noted.
In its paper, the Institute said the Aged Care sector’s current funding, which covers home care and support through to more intensive services provided at residential accommodation facilities, accounts for 1.6% of GDP (or around $32 billion per annum).
But over the next 20 years as Baby Boomers age and need access to more services, the figure will rise to 2.9% of GDP.
Annual system costs will increase by 7% over two decades before easing back to around 5% per annum. This growth is even stronger than that projected in the Government’s Intergenerational Report. Aged Care would likely be the fastest growing major line item in the federal Budget over much of that period, compared with 5.7% each year for health and less than 4% for most other areas.
“The question of what is a sustainable and equitable sharing of funding between individuals and government requires further investigation. This is particularly so given the anticipated individual asset accumulation in the coming 20 years through superannuation and other investments, many or all of which will have been supported by tax concessions. We have to ensure that the system is sustainable and can adapt to needs of current and future generations,” said co-author Gillian Harrex, a Principal at the Finity actuarial firm.
The Green Paper was commissioned by the Actuaries Institute and written by Finity actuaries Andrew Matthews, Gillian Harrex, Hadyn Bernau and Kylie Hogan as part of the profession’s contribution to public policy. It examines funding issues associated with Aged Care, following the recent Royal Commission into Aged Care Quality and Safety which highlighted a large number of challenges in the sector, including how best to fund it.
Access the report, media information and summary podcast here