QUESTION

OUR TOPIC IS: THE AGE CARE IN AUSTRALIA. AND PLEASE DO THE ASSIGNMENT FOLLOWING THIS:
What is the being asked ? Two parts:
(i) the relevant facts and viewpoints pertaining to the issue
(ii) the advantages and disadvantages of each policy option – in particular the implications for equity and economic efficiency
Suggested format
– Introduction, give your essay plan, 100-150 words
– Part i) facts and viewpoints, give the facts and viewpoints (policy positions of different interest groups ) but try to conclude by answering “What are the issues?” – 500-600 words
– Part ii)
Analyse the efficiency & equity of two policy approaches
Evaluate the two policies – 1000 words

SOLUTION

1. Introduction

Like many developed countries Australia is also faced with the problem of ageing population, thus making policy and health care for the aged a priority for the Australian government. Various policy measures have been undertaken by the government aimed to provide social support or residential health care or care through discounting services for the aged. While some policies have been successful the others have been faced with implementation challenges or deficiencies in the policy.

The paper examines the policy measures undertaken by the Australian government to provide care to the aged. It also analyses the success of the policies and the challenges faced by the policies in the implementation process.

2. Need to provide Care to the Aged

Like many developed countries Australia is also faced with the problem of ageing population, thus making policy and health care for the aged a priority for the Australian government. With increased longevity and high fertility rates implies large numbers of aged population in the future. According to an estimate in 2001 there were 2.4 million persons over the age of 65 years forming 12.5% of the population this number is likely to increase by 2021 to about 18% of the total population. Though there is not an increase in the number but there is an increase in proportion of population that can be classified as aged. This proportion of the population cannot be ignored. Thus, the need to provide care to the aged has become increasingly important to meet the people’s expectation to provide care in the old age.

As the numbers of the aged grow there is also a change in the aspirations of the group from the policy makers. It also has to be noted that the nature of health care which would be provided to the group would vary in different groups, creating diversity in the group. For instance a group of aged may require health care in hospitals. The health status of each may vary, therefore the government needs to formulate policies so that the needs of all the groups can be accommodated and social welfare can be equally distributed among the most that need it the most.

The aged persons requiring care according to estimates 90% of those are pensioners. Health care services are huge cash outflows thus burdening the population with excessive expenses. The pensioners can be classified as relatively poor on the income hierarchy tree. Therefore there is a need of concentration of government policy considering the income factor of the population.

There is also a rise in the health care needed by the aged in the special groups like the disabled or those suffering from mental illnesses. This has been the result of increase in the life expectancy of the population. Thus with rising diverse needs of the aged population ,the government is expected to fulfil the demands and expectations of the groups making policy making a key issue for the government to support the aged population.

(www.agedcare.org.au – accessed on 4/5/2012)

3. The Australian Government Policy to Support the Aged and its Strengths

With the ageing concerns of the of the Australian population like many developed countries have increased the Australian government’s policy measures to provide health care as well as support care to the aged. The rise in the aged population over the years likely has increased the proportion of population in the aged group. Therefore the need and the expectation of this group of population from the government have been increasing. As a result the government has adopted several policy measures to support this section of the population. The proportion of persons aged 80 years or more is likely to increase from 3.3 % in 2002–03 to 9.1% by 2044–45, thus putting an increased pressure on the government to increase the expenditure on age care in particular residential aged care, in particular residential aged care. This group is the main user of the aged care services as well as the main beneficiary of any policy measures undertaken by the government. Thus the increase in the number of aged has resulted in the increase in the number of policy measures needed to support the group (Tannous and Luo, 2006)

Therefore to support the group the following policy measures have been undertaken by the Australian government.

3.1 Increase in the Resource Allocation

With the launch of the Aged Care Act the Australian government’s expenditures on the provision of resources for the purpose has been increasing continuously. In 2008-2009 the expenditure increased to $9.1 billion from $8.1 billion in 2007-2008, implying an increase of over 9% over a year’s span. This trend has continued till 2012 despite the growing fiscal deficits of the government the government has made appropriate resource allocations to support the aged. However, it is argued by many critics that the allocations made are often insufficient to support the large population in the group and also because aged care is expensive. The government has supported the expenditures and largely financed the expenditures through the tax revenues.  As the government has experienced an increase in the tax revenues the resource allocation has also increased proportionately. But the financial crisis has increased the economic burden on the consumer and has led to the reduction in the tax receipts over the years 2010-2012. Total tax receipts have been revised to $9.8 billion in 2010‑11 and $6.6 billion in 2011‑12. The write downs of $16.3 billion of tax receipts over the two years period have accounted for a downward revision of $12.4 billion for 2013. Therefore financing the aged care bill through tax revenues may create pressure on the government thus other methods should also be used.

(www.budget.gov.au- accessed on 4/5/2012)

3.2 The Provision of Grants and Subsidies

The government provisions for the care for the aged seem to be highly subsidised. This can illustrated through with the comparison of the expenditures when compared between public and private residential care for the aged. The private residential home largely operates on the principle of profit maximization. On the other hand the government organizations are non-profit entities aimed at the maximization of social benefits, hence proving that the government sector is highly subsidised in comparison to the private sector.

In 2011 The New South Wales government aimed to provide individualised arrangements through extensive consultations. These consultations were launched by the minster of Disability Services; Over 3000 persons participated in the process and based on the individual consultations the grants to individuals were made. The community relations department of the New South Wales has also invited grants from the community to support the social welfare schemes of provide care to the aged.

(www.ncoss.org.au- accessed on 4/5/2012)

3.3 Healthy Aging Savings Accounts

The Australian government is increasing the investment of the population in Healthy Aging Saving Accounts. The HASA is a voluntary scheme being offered to citizens of the economy to save for old age and retirement care. Individuals are being encouraged to invest in these accounts and the government is offering them a tax rebate of 15%. Balances in the HASA’s accounts can be invested in the other activities and the gains from those investment activities would be automatically added to the HASA accounts at the reduced tax balance rates.

Greater flexibility in the saving system has been introduced with the HASA accounts, for instance it gives parents flexibility to invest in their children’s accounts to save for their future or the cares could contribute to the accounts of the person receiving HASA care. The HASA scheme is a tax haven for individuals as any income received through the HASA is not subject to the health tax provisions. This acts as a motivation and enables individuals to consider the HASA scheme.

The HASA scheme reduces the future health care burden of the individuals which may incur in the future as it enables the accumulation of funds at the earlier stages of life which can be effectively utilised at the latter stages. The only disadvantage of the scheme is that it is privately owned and operated by many service providers. Therefore the high costs uncertainties associated with the private sector cannot be ignored. The government should effectively work to make the HASA scheme more flexible such that transfer payments can be smoothened and the funds can be utilised by the individual when in need with ease.

(National Seniors Australia, 2010)

3.4 Investment in Long Term Insurance Care (LTIC)

The investment in the long term insurance care allows the people to insure themselves from the future risk of needing high cost aged care. This is similar to most of the insurances that people undertake, to safeguard themselves against other risks.

Many developed countries have already offered these schemes to their citizens and have been met with success. In Australia the scheme is relatively new and is likely to gain momentum gradually over the years. Germany introduced mandatory LTIC for most of its population in 1995 this has encouraged a culture of saving for the old age care in the population. The LTCI schemes are both public as well as private. The choice of the LTCI is determined by the income and needs of the population. The higher income earner opts for the private LTCI schemes and the government and salaried employees largely invest in the government schemes. Whatever the case may be this has ensured that 90% of the German population is covered by insurance which is an indicator of the massive success of the scheme. Similar schemes have been implemented by the governments across all developed countries like Japan, US and UK. The example of these countries is now being followed by the developing countries like India and China to encourage saving for old age care.

In Australia, high incentives for this scheme are likely to be introduced and are more likely to be provided by the private insurance companies like the German case. The determination of the premiums is based on an analysis of the mean tests rather than undertaking the risk analysis by the insurance companies. More over private enterprise schemes are more efficient than the public schemes, since the competition ensures both a greater degree of options as well as fair distribution of services among the consumers. The privately run schemes are also likely to reduce the efficiency loss that may be imposed through such schemes.

(National Seniors Australia, 2010)

The policy decisions undertaken by the Australian government create efficiency in services being provided to the aged. While some of the schemes may directly benefit the users as the services being provided are at subsidised rates, and others may be long term investments to provide for age care in the future. Though the policies have been formulated for the purpose of maximization of public welfare some inefficiency in the system are prevalent and have been discussed below.

4. The Weaknesses of the Current System

The current aged care system in Australia has been inherent with certain weaknesses. These weaknesses have resulted in the creation of economic inefficiency in the system. The age care system has largely been formulated and funded by the government but provision of unfair subsidies results in the creation of economic inefficiency. Some of the weaknesses of the system have been highlighted below:

4.1 Lack of Funding

The biggest problem of the sector has been the continuous lack of funds faced by the system and the inability of the government to provide subsidies to meet with the growing needs and demands of the age care sector. However the 2004 federal budget provided some relief to the citizens. The government undertook the recommendations made by the Hogan Review of Pricing Arrangements in Residential Aged Care; these were particularly to provide residential care to the aged. These measures were largely short term in nature and would be able to support the sector in the short run; however the long run viability is questionable. There have been no budgetary measures undertaken to support the sector.

4.2 Over Regulation of the Sector

Another weakness of the current system is that it seems to be overly regulated by the government. There are too many systems and policies that overlap this make the system inefficient. The regulations are largely similar but have certain different aspects. These regulations are far too detailed and need to be simplified so that efficiency in the sector can be restored.

(www.agedcare.org.au – accessed on 4/5/2012)

For example let us consider the example of the Residential Aged care facilities being provided by the government. These facilities operate in a highly regulated structure at the national, state or and local areas and have certain standards and guidelines imposed on them by the government. The regulations incorporate all respects from the building and design of the, type of residents that can be cared for as well as the nature of the type of services being provided. The intensity of the care provided differs from area to area based on then regulations and the support provided by the local government. Thus the over regulations creates economic in efficiencies in the system. The occupational health and safety (OHS) has by tradition fallen in the territory of the state governments in Australia. Regulations of OHS in Australia have been imposed through the legal enactment and the enforcement apparatus associated with it. Whereas the duty care of the employees and their roles and responsibilities fall under the purview of the Commonwealth Department of Health and Family Services 1996 and Industry Commission 1995. Thus there are too many bodies regulating the same sector which creates economic inefficiency.

(Tannous and Luo, 2006)

4.3 Funding through Subsidies

Under current system is largely funded by tax revenues, where the government pays to for the residential care for the aged. These revenues are used subsidise the sector and pay for the care of the aged. The high costs incurred to pay for the care of the aged is imposed on the tax payers. This creates an economic disparity among the social groups in the society, thus eventually resulting in the burden of the subsidy falling on the tax payer. Therefore until the efforts to increase the tax revenues are not made the current system would be economically inefficient and would continue to borne high costs to the tax payers. The economic efficiency loss can be illustrated with the help of a graphical presentation.

Figure 1: Existence of Dead Weight loss and a result of funding through Revenues

When the funding is done through revenues it results in the loss of efficiency as a result in dead weight loss. As a result of tax, the tax payer is forced to pay a higher price which is inclusive of tax; the normal price charge is lower. Thus at the quantity supplied is lower if the funding would be done through the tax revenues, creating loss of efficiency because of existence of the dead weight loss.

In the above figure: If the market is in equilibrium the Price P should be charged i.e. is at the point of intersection of the demand and supply curve. But however if taxation is imposed the price p + t is charged resulting in the loss on quantity supplied , and the existence of the dead weight loss which is a loss of efficiency.

The economic inefficiencies are also created if the system is funded through when the services are provided in kind rather than cash. The in kind provision of the services results in the higher loss of economic efficiency. The cash transfers ensure a more equitable distribution not however loss of efficiency still exists, but the efficiency loss is lesser.

(Tannous and Luo, 2006)

4.4 Employment and Workforce Issues

A highly skilled work force is required to provide care to the aged in Australia. The skilled workforce comprises of doctors and nurses which are required to care for the aged. Australia is already facing workforce issues; Australia is currently faced with a shortage of doctors and nurses that are required to provide high quality health care to the aged. The workforce shortage that already exists is likely to intensify in the future. Thus the quality of workforce needs to be improved with the government aims to provide quality care to the aged.

(www.agedcare.org.au – accessed on 4/5/2012)

4.5 Lack of Research and Development Expenditure

Commentators and analysts have often complained of the lack of research and development expenditure incurred to develop the facilities and health care for the aged. A greater investment in the research and development would result in greater efficiency in the sector and as well improve the quality of care provided. Higher investment would also benefit the community as a whole as the benefits can be reaped in the form of better health care, residential facilities as well as increased life expectancy of the aged.

(www.agedcare.org.au – accessed on 4/5/2012)

5. Conclusion

Like many developed countries Australia is also faced with the problem of ageing population, thus making policy and health care for the aged a priority for the Australian government. For this purpose various policy decisions have been undertaken by the Australian government. Though many of the schemes introduced may be privately run and operated the Australian government has played an active role in regulation and the implementation of the policies to maximise social welfare.

But despite the best efforts of the Australian government, the policies are inherent with some weaknesses .This has resulted in the loss of economic efficiency and creating a burden on the government’s fiscal load. The subsidization of the care being provided to the aged may be economically not feasible in the long and particularly in the current economic scenario where the economies are trying emerge out of the financial crisis. The receipts of the government have faced a decline in the current fiscal therefore the grant and subsidy load can further worsen the situation. Therefore it is important to consider other funding options to introduce efficiency in the aged care sector. Regulations must be relaxed so that privatization can ensure automatic creation of economic efficiency and the fair distribution of the services and welfare. Therefore efforts of the government should be targeted at the maximization of social welfare at minimal social and economic costs.

6. References

• National Seniors , Australia. “The Future of the Aged in Australia .” National Seniors Australia 1.1 (2010): 1-54. www.nationalseniors.com.au. Web. 5 May 2012.
• Discussion , Paper. “Aged Care and Community Services Australia.” agedcare 1.1 (2005): 1-16. Print.
• Tannous, Kathy , and Kehui Luo. “Ownership of Residential Aged Care Facilities in Australia .” Macquarie Economics Research Papers 1.1 (2006): 1-30. http://www.businessandeconomics.mq.edu.au. Web. 5 May 2012.
• “Budget Strategy and Outlook 2011-12 – Budget Paper No. 1 – Statement 5: Revenue.” 2011–12 Commonwealth Budget – Home. N.p., n.d. Web. 5 May 2012. <http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst5-01.htm>.
• “NCOSS AGEING & DISABILITY UPDATE 10 April 2012 Privacy Awareness Week 29 April – 5 May.” www.ncoss.org.au/. N.p., n.d. Web. 5 May 2012. <http://www.ncoss.org.au/resources/DNF/eupdates/120410-E-update.>.
• Australian , Government. “Report on the Operation of the Aged Care Act 1997 1 July 2008 – 30 June 2009.” /www.health.gov.au. Version 1. Australian Government , 5 June 1997. Web. 4 May 2012. <http://www.health.gov.au/internet/main/p
• “Department of Health and Ageing – 2. Older Australians and Residential Aged Care in Australia.” Department of Health and Ageing – Welcome to the Department of Health and Ageing. N.p., n.d. Web. 5 May 2012. <http://www.health.gov.au/internet/main/publishing.nsf/Content/ageing-iar-review-framework.htm~ageing-iar-review-framework-2.htm>.

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