How much will baby boomers bear?

Who should pay for aged care in Australia?

Aged Care Royal Commission
Aged care funding has come under the royal commmission spotlight.

Aged care funding has come under the royal commmission spotlight.

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Royal Commission examines the complex issue of aged care funding

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How much are baby boomers prepared to bear, or how much should they be forced to bear towards the cost of their future aged care? Should the rich pay more for their aged care or should taxpayers foot the bill? Should the family home be considered an asset or be protected as an inheritance to be passed on to children and grandchildren?

During a week-long hearing into the funding, finance and prudential regulation of aged care, the Royal Commission into Aged Care Quality and Safety was regaled with opinions and theories about the sector's current and possible future funding.

Aged care, finance and health experts, former politicians and seniors' advocates spoke about the "horrible" complexity of the current system, which was described as unsustainable, not working and containing a high level of uncertainty for people.

Despite recent reports indicating that while crying poor, many for-profit and not-for-profit aged care providers are making money - in some cases lots of money - some witnesses said the sector is vastly underfunded but disagreed on the best way of providing adequate financial resources.

Former Productivity Commmissioner Michael Woods said many people in aged care had limited income and assets and they should be supported to stay at home for as long as possible, or to receive 24-hour professional care. But for those who had accumulated wealth above a certain level there was little argument as to why they should be spared from drawing on their income and assets.

"My broad view is, across the board, that we should have a situation where those who have the capacity and the income to contribute and afford the services that they need as they age, they should be making a contribution and we should have a fair and equitable safety net for those who do not have the financial means to be able to do so," he said.

University of NSW economist John Piggott suggested a "hypothecated levy" could be invested in an aged care fund managed by the Future Fund.

Former Treasury secretary Ken Henry supported the concept of a levy but said it should be run "very lean".

He said the current aged care system was overwhelming for those who find themselves confronting it; and it's complexity, particularly the financial arrangments, exposed people to "enormous risk".

The system, he said, contained a very high level of uncertainty for people.

"People who are elderly, people who are vulnerable, people who are suffering emotional and psychological stress. Many, of course, unfortunately are mentally impaired to some extent, too many have little or inadequate family support and they confront the aged care system knowing nothing about it, knowing that they have no real option but to throw themselves into the system because it's quite simply impossible for them to continue to look after themselves. And they're bewildered.

"This system is unsustainable. It's underfunded, it's under-resourced and it will not be tolerated. In particular, it will not be tolerated by the baby boomers themselves when they find themselves in this system."

He said people should be also be able to obtain private insurance to pay for a higher standard of care than was funded by government.

Former prime minister Paul Keating suggested a HECS-style funding model (post-funded) where people were extended loans to pay for their aged care and the costs were recovered from their estates when they died, thus reducing the burden on younger Australians.

If a person did not have assets at their death, the Commonwealth would pick up the loans.

"So in other words, we're not forcing anyone out of their home in old age, we're not obliging aged persons to negatively mortgage their home, you're not asking members of families to chip-in and pay for their relatives in their accommodation or their care, and so I think such a system has a lot of advantages," Mr Keating said.

"The main one is you don't have that fiscal bar on the adequacy of funding that's necessary that we do see now with the big waiting list on home support - home care packages.

"The assets of a person maintain them in later life."

Mr Keating agreed to a comment from commissioner Tony Pagone that post-funding had a problem in that people would be encouraged to divest themselves of assets before they got into the system. He said that would have to be addressed by policy.

"I think it 's completely competent for the government to think about a set of anti-avoidance measures."

Former treasurer Peter Costello said the means-tested income and assets forms needed to be simplified. He had attempted to fill in the forms for members of his family and suggested the royal commissioners try to do the same.

"I think there are over 100 questions and 27 pages and, you know, I think I'm reasonably financially literate. I had a lot of trouble filling it in. I don't know how a person going into a nursing home would ever be able to fill it in.

"We're talking about people who might be 80 or 90 years of age. How do they do this?"

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