Medicare-style levy or tax rise could fund aged care reforms

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Medicare-style levy or tax rise could fund aged care reforms

By Julie Power

A dedicated levy - similar to Medicare - or a 1-2 per cent increase in personal taxes have been floated as two ways to pay for much-needed reforms to aged care.

To overhaul a system described last year as in a "shocking state of neglect" would require $10 billion to $20 billion more a year, the Royal Commission on Aged Care Quality and Safety reported on Wednesday.

Reforms to aged care are desperately needed but they will be expensive, warned the Royal Commission on Aged Care Quality and Safety on Wednesday.

Reforms to aged care are desperately needed but they will be expensive, warned the Royal Commission on Aged Care Quality and Safety on Wednesday. Credit:Nine

It is the first time it has provided an estimate of the cost of the overhaul required to improve quality and safety.

A paper released by the commission on Wednesday estimated these "fundamental reforms" would very likely cost double the $27 billion spent by government and consumers.

The commissioners said the sector needed "a secure and sustainable source of funding now and into the future".

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"With the changing age profile of our working population, and the growing number of people aged over 85 years, the pressure on aged care spending will only increase," it said.

Presently, about 75 per cent of funding comes from the federal government with the remainder from users.

In the discussion paper on how these reforms should be funded, the commission noted "human beings are generally poor at assessing personal risks and ... and planning for the future".

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"We tend to think that bad things can’t happen to us and we put things off," it said.

The commission's interim report released last year found "unacceptable and system-wide problems with aged care in Australia". Improvements would be "expensive" and "require a significant injection of additional funding", the commissioners said.

Although the commission won't report until the end of 2020, it has identified an urgent need to reduce the wait for higher level care at home; to prevent the reliance on chemical restraints in aged care facilities; to prevent younger people with disabilities going into care, and to provide more and better qualified staff for aged care facilities.

The paper floats a range of funding approaches. They range from minimal changes where people pay for aged care as they need it. This approach tended to be "inherently short-term" in outlook.

It also discusses "social insurance models" involving mandatory personal contributions to pooled funds similar to the existing Medicare or compulsory superannuation. These models are used for aged care in other countries, including Germany, Japan, Korea and the Netherlands.

If aged care was to be funded by increased taxation, preliminary analysis by the commission suggested the cost of the reforms would require a 1 to 2 per cent increase in personal tax rates.

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Calling for submissions by August 4, the commission also suggested a range or a mix of financial approaches. For instance, it could be paid by an insurance scheme, similar to compulsory third party motor vehicle insurance.

The paper quotes Ian Yates, the chief executive of the Councils on the Ageing (COTA) who told the Herald it was time for a serious discussion about how these reforms should be funded. "What are we prepared to pay for and who pays for it? Those are the issues," he said.

Mr Yates said the paper provided the first indication as to the cost of the reforms being considered. COTA believed a mix of private and public funding would be required.

The paper also floats changes to income and means testing of payments, which Mr Yates described as "inconsistent, incoherent and unfair."

The commission acknowledged the anomalies. Its studies showed the public was prepared to contribute more to get higher quality aged care.

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