The 'Boomer Bulge': Ageing Policies for the 21st Century · INFORMATION AND RESEARCH SERVICES Research Paper No.41998-99 The 'Boomer Bulge': Ageing Policies for the 21st Century Greg

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INFORMATION AND RESEARCH SERVICES

Research PaperNo.4 1998-99

The 'Boomer Bulge': Ageing Policies for the21 st Century

ISSN 1328-746X

© Copyright Commonwealth of Australia 1998

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Published by the Department of the Parliamentary Library, 1998

INFORMATION AND RESEARCH SERVICES

Research PaperNo.41998-99

The 'Boomer Bulge': Ageing Policies for the 21st Century

Greg McintoshSocial Policy Group24 November 1998

Acknowledgments

The author would like to thank the following people for help in writing this paper - Denys Correll, DrJune Verrier, Carol Kempner, Nola Adcock, Peter Yeend, Adrienne Millbank, Kim Jackson, GlendaJames, Simon Lang, Lee Jones, Kate Krinks, Frank Frost and Marion Mcfutosh. A special thanks toPaul Mackey, Dale Daniels, Tony Kryger and Angela Nagy for contributing sections to the paper.

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Contents

Major Issues Summary i

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1

The Demographic Imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2

A Brief Profile of the Australian Population . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2

The Current Provision of Services/Support for the Aged. . . . . . . . . . . . . . . . . . . . . . .. 8

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8

General Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8

Housing .... : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 12

Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14

Social Welfare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15

Commonwealth Funding For The Aged. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16

Some Policy Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17

A Strategic Long-term Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17

Later RetirementlIncentives to Work for the Elderly? . . . . . . . . . . . . . . . . . . . .. 17

SuperannuationlRetirement Saving Incentives? . . . . . . . . . . . . . . . . . . . . . . . .. 18

Better Employment Opportunities for Older People? . . . . . . . . . . . . . . . . . . . . .. 19

Old AgelRetirement Levy? 20

Extending the Medicare Levy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 21

Tighter Targeting of Aged Income Support? . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22

Constraining Growth in Health Outlays? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22

More User Pays? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 25

A Higher Rate of Immigration? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26

Other? 26

The Overseas Experience: Some Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27

Two Differing Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27

Examples of Retirement Income Policies ... . . . . . . . . . . . . . . . . . . . . . . . . . .. 28

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30

Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31

.Select Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34

Ageing Policies for the 21st Century

Major Issues Summary

Australia's population is ageing and unless some policy adjustments (especially withregard to the provision and funding by government of pensions and health and long-termcare) are made there is likely to be a degree of dislocation and hardship experienced bysegments of our society.

It should be emphasised, though, that the rate of ageing of the population is occurringrelatively slowly over a long period of time (it is predicted that the proportion of thepopulation aged over 65 will increase from 12 per cent in 1997 to approximately 25 percent in 2051) and the effects of this ageing phenomenon are not likely to be as adverse assome of the doomsayers would suggest. Some countries are already more 'aged' thanAustralia will be in 15 to 20 years time and these countries have not thus far experiencedsignificant adjustment problems. Nevertheless, unless some adjustments are made in thenear term, then it is likely that much more difficult and painful decisions will have to madein the longer term. Appropriate policy adjustments now will enable long lead times forthese policies to be implemented and the 'cost' of such policies will be able to be spreadover a much greater time period and over successive generations.

A common feature of many of the world's developing countries, in response to the ageingprocess, is the progressive implementation of policies designed to reduce the level ofgovernment funded age benefits as well as extending upwards the age eligibility at whichmany of the benefits can be accessed.

Many of the services and support that exist for the elderly in Australia were developedwhen life expectancy was much shorter and when many people died within a relativelyshort period of time after becoming eligible for payments such as the Age Pension. Nowmany elderly people live well into their 80s and beyond and, as a consequence of this, thecost of government funded age support is rising rapidly. For example, outlays on the AgePension are predicted to rise from $13.4 billion in 1997-1998 to $165 billion in 20012002. Rapid economic growth, and a buoyant world economy, would help sustain suchoutlays; but such favourable economic conditions are rarely experienced for more thanshort periods of time. Prudent policy making would suggest the need for policyadjustments that take account of changing demographics and future economic downturns.

Of critical importance is the need for policies related to aged care to be consideredholistically and with the longer term in mind. Often additional spending in one area (forexample, in home and community care and fitness programs) will mean less need for


spending in other areas (for example, hospital funding) in the future, or, may at least delaythe need for such funding to a later time. Governments and policy makers with a shortterm budgetary view to policy may 'save' money in the short term but cause additional andunnecessary expenditure in the future.

Some possible policy options to respond to the ageing of the population include:

• active encouragement being given for people to remain in the workforce for longer periodsof time

• better superannuation and retirement incentives. Australia is unique in that superannuationcontributions are taxed concessionly at all three levels of the contribution cycle. Theemphasis for superannuation (apart from making it less complex) should be on strongincentives for workers to provide for their own retirement and for them to take theirsuperannuation as an 'income stream' as opposed to a lump sum. Additionally, the currentrestrictions that essentially prohibit people aged over 70 contributing to superannuationshould be lifted

• the existing Pension Bonus Scheme (that allows people to defer the age at which theyreceive the pension if they stay in the workforce, in return for a cash bonus on retirement)could be expanded and made more attractive

• additional employment opportunities for the elderly. Over the period 1973 to 1993 fulltime labour force participation by males aged 55 to 64 years declined from 79 per cent to52 per cent. If this participation rate can be lifted the calion government revenue will bereduced accordingly. Overseas programs such as the Euro Work Age program could bestudied and adapted to Australia's circumstances

• specific levies and long-term care payments could be considered. One proposal putforward recently by a group of researchers at the University of Western Sydney (the socalled Ensuring Quality of Later Life or EQOLL model) advocated that all people agedover 25 years, with an income in excess of $15000 per annum, should pay 1.1 per cent oftheir income over the period 2000 to 2011 in one of four ways to help cover the costs oflong-term care. The four options would include: 1.1 per cent of taxable income paid as asupplementary levy and added to the existing Medicare levy; 1.1 per cent of taxableincome paid to an approved life insurance fund; 1.1 per cent of income paid to anappropriate aged care insurance fund or 1.1 per cent of income paid into Continuing CareRetirement Communities

• tighter targeting of income support. Consideration could be given to tightening theexisting income and assets as they apply to Age and Service Pensions

• constraining the growth in health outlays. Expenditure on health services does tend toincrease as people age. For example, in 1993-94, 35 per cent of total health systemexpenditure was spent on people aged 65 years and over, while this group comprises less

11


than 12 per cent of the population. As well as examining a range of financing options forhealth care in the long-term it is also important that a debate be initiated on just whatAustralia's health system can realistically be expected to provide in the future. In order toensure that sufficient funding is available to provide equitable access to adequate healthservices and treatment, it is important that a dialogue be commenced on the priorities forthe allocation of resources for health care

• a range of other more minor initiatives such as the establishment of 'one stop shops' for theelderly to give seamless advice on ageing and retirement issues and additional resourcesgeared to encourage volunteerism, active ageing and the like.

The current Commonwealth Government's main long-term policy response to the issue ofan ageing population has been the establishment of the National Strategy for an AgeingAustralia. The Strategy includes provision for a wide range of consultations with all levelsof government and the community and private sectors. A number of discussion paperslooking at the host of issues involved with an ageing population are to be released overtime as part of the Strategy. The Strategy would appear to be an appropriate vehicle for theGovernment to use when it is examining issues related to ageing. However, it is importantthat the momentum that the early phases of the Strategy is likely to generate (particularlygiven that 1999 is International Year of Older Persons) is not lost and that the Strategy isgiven adequate resourcing well into the future so that it has the 'horsepower' to do what itis intended to do.

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Introduction

Australia, in common with other developed nations, is experiencing an ageing of thepopulation. This ageing phenomenon is predicted to continue, to varying degrees, well intothe next century. For example, Australian Bureau of Statistics (ABS) projections' indicatethat the proportion of the population aged over 65 years of age will increase from 12 percent in 1997 to between 24 per cent and 26 per cent by 2051. The median age of thepopulation is predicted to rise from 34 years in 1997 to 40-41 years in 2021 and 44--46 in2051. According to the ABS, the highest rates of growth in the plus 65 years age groupwill occur when the peak of the 'baby boomers' (generally considered to be those born postwar, i.e. from 1945 to the early 1960s) enters that age cohort. This is expected to happenduring the second and third decades of the next century.

On the face of it, this ageing of the population points to a society with a shrinkingproportion of the population in the workforce having to increasingly bear the burden ofsupporting a growing proportion of older non-employed people. However, opinions varyas to just what the effects of ageing will be with some commentators predicting direconsequences in terms of the costs of ageing whilst others argue that the purported'downside' effects are overstated, pointing to the fact that some overseas countries have'aged' to a far greater extent than Australia has thus far without any apparentsocial/economic dislocation. In reality, there are many factors in the future (for example,rates of economic and productivity growth, the size of the 'young' population, rates andeffects of technological change, levels of immigration, changing behaviour patterns andgovernment policy settings) that are impossible to predict accurately, so much of thecommentary can only be viewed as informed speculation. Having said that, though, therewould appear to be no doubt that the ageing process will have an effect on our societyparticularly in areas such as health provision, social security, housing and retirementincome provision.

Because this ageing trend raises many important issues for policy makers, and alsobecause 1999 has been designated as the International Year of Older Persons, it is timelythat an examination of some of these issues is undertaken. The aim of this paper is to givean overview of demographic trends as they relate to ageing, as well as look to some of thepossible policy responses that may be considered appropriate as a result of these trends.The paper also outlines the current provision of services and support for older Australiansas well as briefly examining what is happening in relevant overseas jurisdictions.

1

Ageing PoliCiesior the 21st Century

The Demographic Imperative

A Brief Profile of the Australian Population

The 1996 Census counted 17 892 423 people in Australia on census night. Of this total,50.5 per cent of people were female and 49.5 per cent were male. As well:

• the median age of the population was 34 years of age

• 21.6 per cent of the population were aged between 0 and 14 years

• 14.5 per cent were aged between 15 and 24 years

• 30.8 per cent were aged between 25 and 44 years

• 21 per cent were aged between 45 to 64 years

• 12.1 per cent were aged over 65

• the highest median age was in South Australia (35 years) whilst the lowest median agewas 29 years in the Northern Territory.2

The vast majority of the population (73.9 per cent) were born in Australia and, of thoseborn overseas, 36.2 per cent were born in the United Kingdom, Ireland and New Zealand.A total of 352 970 people identified themselves as being of Indigenous origin, with 55.8per cent of these people living in New South Wales and Queensland.3 The importance ofimmigration to the development and growth of Australia's population is illustrated by thefact that over the period 1985-1995 there was a net overseas migration gain of 979 000people, accounting for approximately 43 per cent of the total population growth over thattime.4

The Aged Population in Australia

The usual measure of just how aged a population is (the proportion of the population agedover 65 years of age) varies significantly across the eight political jurisdictions. Whilst theproportion of people aged over 65 years in 1996 was 12.1 per cent for Australia as a wholethe equivalent figure for each of the States and Territories was as follows: New SouthWales 12.7 per cent, Victoria 12.0 per cent, Queensland 12.0 per cent, South Australia13.8 per cent, Western Australia 10.5 per cent, Tasmania 12.3 per cent, Northern Territory4.9 per cent and the Australian Capital Territory 7.1 per cent.5

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A more detailed breakdown of the aged population published by the Australian Bureau ofStatistics (ABS) in 19976 shows the proportions of aged people in various age categoriesabove 65 years. According to the ABS there were, in 1997, a total of 2245068 persons inAustralia aged over 65 years of age.

Table 1 . Aged Persons, Proportion of the Total Population by Age, 1997 (per cent)

65-69 70-79 80+ Total Aged

New South Wales 3.9 6.0 2.8 12.7

Victoria 3.8 5.9 2.9 12.6

Queensland 3.5 5.3 2.5 11.2

West Australia 3.3 4.8 2.4 10.5

South Australia 4.1 6.7 3.3 14.1

Tasmania 3.9 6.1 3.0 12.9

A.C.T. 2.5 3.6 1.4 7.4

Northern Territory 1.4 1.4 0.5 3.3

Australia 3.7 5.7 2.7 12.1

. Source: Adapted from ABS, Population by Age and Sex, Catalogue No. 3201.0.

Table 1 clearly shows that the two Territories had by far the smallest proportion of theirpopulations in the aged categories, whilst of the States, South Australia had the highest.For policy makers the age group of particular relevance is the 80+ group as it is from thiscohort that the most demand for services and assistance comes. As the table shows, only2.7 per cent of the population were in this latter category in 1997. However, the EconomicPlanning and Advisory Commission (EPAcf has estimated that the proportion of thepopulation aged over 80 years of age will be between 7 to 8 per cent by 2051.

The Ageing Trend

Arguably, the most significant demographic trend is the ageing of the Australianpopulation. If one looks at changes over a relatively long period and also at the variousprojections on ageing into the next century it can be seen that issues and policies related tothe aged in Australia will become increasingly important over the next 30 to 40 years.

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The 1991 Census counted 16 852 258 people which means that there was a 6.2 per centincrease in the population over the period 1991 to 1996. The median age of the po~ulation

in 1991 was 32 compared to 34 in 1996, an increase that confirms the ageing trend.

Between 1985 and 1994 the population aged 65 and over increased by 30 per cent whilstat the same time the increase for the whole population was only 13 per cent. In terms ofthe States and Territories over the same period the greatest increases in the aged sectors ofthe population were in the ACT (65 per cent), the Northern Territory (55 per cent) andQueensland (38 per cent).9

Since 1985 the greatest rate of 'ageing' has occurred in the over 80 years age group.Between 1985 and 1994 the size of the 80+ age group increased by 48.4 per centcompared to 25.7 per cent for the 70-79 age group and 26.3 per cent in the 65-69 agegroup. Over the same period there has been an increase in the proportion of males in theaged population compared with females, although in absolute terms there are still more'aged' females than males. 10

Australian Demographic Trends 199711 describes the ageing trend as follows:

During the late 1980s and early 1990s the population aged 65 and over grew at around50,000 people per year. In the next decade this rate of increase will fall to betweeu35,000 and 50,000, as the relatively small cohorts born in the depression enter the agegroup. However, after 2008, the growth in this age group will increase rapidly. In one 12mouth period of 2025-26, the population aged 65 years and over is projected to increaseby 120,000, or 2.7 per cent. In the decade to 2028, the population aged 65 years and overis projected to increase by more than a million people, nearly a 30 per cent increase. Thisrepresents the period when the largest group of baby boomers reach retirement age.During the early 2020s, the numbers of children in the population is projected to fallbelow the number of people aged 65 and over.

The Economic Planning Advisory Commission (EPAC) Study

A major study on the effects of ageing was done by EPAC12 in the mid 1990s. Some of theimportant trends and issues raised in this study included that:

• the dependency ratio (the ratio of the young and the old to those in the workforce) ispredicted to rise from 50 per 100 people at present to 60 or more by the year 2051.Increasing the rate of net migration would only have a marginal effect in terms of helpingslow the growth rate of the dependency ratio and the most appropriate way of dealing withan ageing population is via a range of social policies

• at present approximately 19 per cent of GDP ($64 billion) is spent on government socialprograms. This is expected to increase substantially with the ageing of the populationThere will be some 'freeing' up of resources due to a decline in young-age dependency but

4


this will be more than countered by the ageing effect. Ageing of the population will alsoplace some pressures on the tax base but this may be at least partly offset by policies suchas later retirement and increasing the rate of superannuation accumulation for thosecurrent!y in the labour force

• total expenditure on education is projected to decline as a proportion of GDP because ofthe smaller proportion of young people in the population. However, this may be largelyoffset by the increased educational demands of the mature aged

• according to one projection the total cost of health care expenditure could increase fromapproximately 8.1 per cent of GDP at present to 11.1 per cent in 2051. This could see theproportion of health care expenditure that goes to the aged increase from one-third (now)to in excess of 50 per cent in 2051.B Dealing with this projected increase in expenditureson health is likely to require control of the level of expenditure rather than just changes toadministrative procedures. It is likely that there will be a need to more direct!y face theissue of health rationing

• as the ageing process increases over time the proportion of the population with a disabilityor disabilities is projected to increase from 10 per cent to 15 per cent. This is significantbecause this group of the population is likely to require intensive, high cost support

• changing demographic and social conditions (for example, more women in the workforceand people working longer) are likely to limit the number of carers available to help theaged and infirm

• as the number of people entering residential aged care establishments increases there islikely to be a consequent increase in aged housing expenditure

• changes in society over the next 50 to 60 years are likely to see major shifts in theobligations and roles for the old, the young, those in the workforce and those that areretired.

The Worldwide Ageing Trend

The ageing trend that Australia is experiencing is common to the rest of the developedworld. In fact many developed countries are much further down the ageing path and, giventhat most of these countries have 'aged' without dramatic economic and social upheaval,Australia should be able to manage the ageing process without too much dislocation andhardship. The degree of ageing and the differences between countries with respect to therate of ageing is indicated by the following statistics. In 1950 approximately 8 per cent to9 per cent of all people in America, Europe, Australia and New Zealand were aged over 65years of age. By 1993 the percentage of the population aged over 65 was 18 per cent inSweden, 16 per cent in Norway and Denmark, 13 per cent in the USA and 12 per cent inAustralia and New Zealand. 14

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In terms of future growth rates, however, Australia is one of the countries that is expectedto be experiencing a higher than average increase over the 1995-2005 period in theproportion of the population aged over 65. According to the Australian Institute of Healthand Welfare:

Japan and China lead the field with annual average rates of increase around 3%,followed by Australia, Canada and Gennany (1.7-1.8%), with virtually all the otherremaining countries at less than I%. The rate of growth in the population aged 80 andover is quite high for Australia at 3.9%, similar to that for both Japan and China. Canada,too, can expect a fairly rapid growth in this age group, with a 3% predicted rate ofincrease over the 10 years to 2005.15

The urgency with which the international community should address the various issuesrelated to ageing is highlighted by the Organisation for Economic Co-Operation andDevelopment (OECD). According to the OECD action is needed now and that:

Successful refonns will bring large rewards. They would avoid major fiscal problems,improve living standards and the quality of life, and result in a more equitable, cohesivesociety. The temptation to delay action is strong, but the message that the OECD seeks tocornmuuicate as widely as possible on behalf of its Member governments is thatsolutions will be much more difficult and painful if needed refonns arepostponed...Responding to these challenges requires action on many fronts. Spending onpublic pensions, health and long-tenn care must be contained. The structure of retirementincome must be refonned and incentives to early retirement eliminated. There must bemore support for people as they grow older, to play a productive life in the labourmarket and society. Financial market refonns are required in response to the huge growthin pension funds. Refonns that result in higher economic growth would alleviate thepressures of ageing.16

Differing Interpretations of the Ageing Trend in Australia

There are differing views within Australia on the effects and consequences of ageing andjust what is needed to be done to prepare Australia for the future. For example, theNational Commission of Audit painted a fairly bleak picture whilst Fred Argy, a formersenior Commonwealth public servant and respected economic commentator, is more·optimistic. The 1996 National Commission of Audit17 recommended that:

• The Government should urgently implement measures to reduce the potential for longerterm age related funding increases, or failing that, make allowances now in budget figuringto provide for them.

• The Government should take action now to change expectations of reliance on governmentassistance, by reducing aged and health related outlays. Suggested measures include:

while maintaining universal access to nursing homes for those in need, changefunding arrangements so that those able to contribute more towards their own care do

6

Ageing PaUciesfoT the 21st Century

so. This could be achieved by introducing means testing for nursing home benefitsand, for income poor but asset rich clients, providing scope for the Government torecover the cost of nursing home benefits from their estates

investigating the potential for financial institutions to offer cover against age relatedlong-term care requirements along the lines of a life policy to encourage those able tocontribute to their care to do so.

• The multiplicity of benefits for assisting with the cost of raising children should be reviewed forconsistency.

• The Government should comprehensively review the impact of current tax and social securityarrangements on the incentives for household saving. This review should examine options forimproving the contribution of household saving to Australia's national saving effort, including,if necessary, changes to the proposed superannuation co-contributions policy.l'

Conversely, Fred Argy maintains that the National Commission of Audit has overstatedthe potential problems arising from the ageing process. According to Argy:

An immediate point to note is that the age hump in the population only starts to show upin Australia about 15 years from now and then extends for 30 to 40 years after that.Between now and 2015, private saving seems set to increase substantially because it isthe peak saving period for baby boomers.

That aside, the future demands on government associated with increased dependencyratios have tended to be exaggerated .

First, projections far into the future are very uncertain because of unpredictable changesin technology and social preferences. Let me illustrate. The NCA [National Commissionof Audit] has estimated that public expenditures on health will increase from about 9 percent to 16 per cent ofGDP by the year 2031.19

The Economic Planning Advisory Council projected an increase of only 11 per cent.And the Australian Institute of Health and Welfare foresees a decline in healthexpenditures relative to GDP in this period (although these latter projections have beenquestioned). Where the estimates differ is in the assumptions they make about growth in(a) GDP per capita growth and (b) per capita increases in health expenditure.

Second, projections of age dependency are usually based on very conservative estimatesoflabour participation rates. Yet the prospect of fewer schoolleavers and a tighter labourmarket after 2010, and the improved health and life expectancy for older Australians areboth likely of themselves to induce further increases in labour force participation.

Third, the changing age composition of the population will produce offsetting declinesin other areas of public expenditures such as education and will almost certainly meanlower unemployment benefits (because of fewer schoolleavers looking for work).

7


Fourth, dependency ratios are very amenable to policy correction. For example, socialsecurity policy will not remain static between now and then. There could be changes inthe official retirement age for pensioners, further incentives for pensioners to postponeretirement, increases in the preservation age or restrictions on lump-sum payments (toensure the superannuation benefits are not frittered away before they reach pensionableage).

Alternatively, we could see provision for compulsory employee contributions withmatching government co-contributions (not just employer contributions), changes inmeans test provisions; and so on.

Finally, there seems to be every likelihood that in the period 2010 to 2065 when theageing of the population will occur, Australians will be much better off than we are now,and high dependency ratios may well be affordable... 20

It is obvious that there is no consensus on just how 'difficult' will be the adjustments insocial and economic terms that will need to be made as we move towards a more agedsociety. However, it would be irresponsible and naive to ignore the possible impacts of theeffects of ageing. Accordingly, it is desirable that policy challenges and options in thisregard are considered. Before this is done, however, it is worth reviewing the currentprovision of services and support for the aged in Australia.

The Current Provision of Services/Support for the Aged

Introduction

Many of the services and support that exist for the elderly in Australia were developedwhen life expectancy was much shorter and when many people died within a relativelyshort period of time after becoming eligible for payments such as the Age Pension. Nowmany elderly people live well in to their 80s (and even their 90s) and, as a consequence ofthis, the cost of government funded age support is rising rapidly. For example, outlays onthe Age Pension are predicted to rise from $13.4 billion in 1997-98 to $16.5 billion in2001-2002.21

General Overview

The provision of services and assistance to the aged comes from a complex array ofgovernment programs (Commonwealth, State and local) plus services from the voluntarysector, the private for profit sector and the private not-for-profit sector as well as care andsupport from family and friends. By far the most important source of support and

8


assistance (apart from the family and friends) provided to the aged comes from thegovernment sector.

The Commonwealth Government provides the vast bulk of income security payments(including age pensions, rent assistance, disability payments), residential servicesincluding funding for nursing homes and hostels, medical and pharmaceutical benefits,public housing (with the States) via the Commonwealth-State Housing Agreement, acutecare (with the States) hospital services and the Home and Community Care (with theStates and local government) program specifically designed to help elderly people in theirhomes.

The States and Territories also provide a host of health, housing and welfare services forthe aged. Apart from the services shared with the Commonwealth, for example the Homeand Community Care (HACC) program and public housing, they also to varying degreesprovide services such as referral and advocacy support, concessions to operators ofretirement homes and other age specific forms of accommodation, support fororganisations such as the Council on the Ageing, the regulation of private housing andland and the provision of some transport services.

The majority of the assistance and support provided is for that section of the agedpopulation that needs it the most-the frail and disabled. For many aged over the age of 65there is no need for specific assistance and with a general trend towards people livinglonger and being healthier for longer the main emphasis in terms of assistance and supportis towards the 'older' aged, that is those over 75-80 years of age. It is generally understoodthat the greatest need for support and assistance is in the last two years of a person's life.

The following three tables, adapted from Australia's Welfare 1993: Services andAssistance22 provide a summary of residential and domiciliary services available to thatportion of the aged in most need of support, the frail and disabled. The tables include thesource of funding and the service provider.

9


Table 2 - Residential Care Services Available for the Care of the Frail and Disabled Aged

Service Type Funding Source Provider Service

Nursing homelhostel care Commonwealth/State, private, Private State govtsclients in homes

Respite care in nursing homesl Commonwealth, Clients Private/State govtshostels

Regulating quality nursing Commonwealth/States Commonwealth IStateshomeslhostels

User Rights agreements Commonwealth Privatenursing homeslhostels

Ethno-specific nursing homesl Commonwealth Privatehostels

Clustering strategy in nursing Commonwealth Private/Stateshomeslhostels

Community Visitors Scheme: Commonwealth Volunteersnursing homes

Employment ATSI staff in Commonwealth Private/Statenursing homes

special hostels for ATSI Commonwealth Private

Dementia programs in hostels Commonwealth Private

Note: ATSI =Aboriginal and Torres Strait Islander

Source: Adapted from Australian Institute of Health and Welfare, Australia's Welfare 1993: Services andAssistance, pp. 201-202.

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Table 3 : Domiciliary Care Services Available for the Frail and Disabled Aged

Service Type Funding Source Service Provider

Home Nursing Commonwealth, State, Local, Private, CarersPrivate, Carers

Delivered meals Commonwealth, State, Private, Local, InformalPrivate, Informal

Home Help/maintenance Commonwealth, State, State, Local, PrivatePrivate, Informal Informal

Transport/shopping help Commonwealth, State, State, Local, PrivatePrivate, Informal Informal

Community/paramedical Commonwealth, State Statehelp

Community Care Packages Commonwealth, State State, Local, Private

Carers pension Commonwealth Commonwealth

Domiciliary Nursing benefit Commonwealth Commonwealth

Home/centre based respite Commonwealth, State, State, Local, Privatecare Private, Informal Informal

Advice on aids/equipment Commonwealth, State State

Assistancelbome Commonwealth, State Statemodifications

User Rights info re HACC Commonwealth State

Multipurpose centres Commonwealth, State State, Local, Private

Source: Adapted from Australian Institute of Health and Welfare, Australia's Welfare 1993: Services andAssistance, pp. 201-202.

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Table 4 : Residential and/or Domiciliary Services for the Care of the Frail and Disabled Aged

Service Type Funding Source Service Provider

Assessments!Aged care teams Commonwealth State

Different language information Commonwealth Commonwealth

Advocacy services Commonwealth Private

Complaints units Commonwealth Commonwealth

Source: Adapted from Australian Institute of Health and Welfare, Australia's Welfare 1993: Servicesand Assistance, pp. 201-202.

Housing

The vast majority of Australians aged over 60 years (82 per cent) occupy privatedwellings, either as an owner or purchaser and a further 11.5 per cent rent from the publicor private sectors in roughly equal proportions. The remaining 6.5 per cent23 live inhospitals, nursing homes, hostels, retirement villages and other establishments such asboarding homes, hotels and caravan parks. Thus, only a very small proportion of thepopulation aged over 60 are in specific residential aged care establishments of the typethat require large amounts of support and assistance. However, in recent years, with thetendency towards 'ageing in place' and home based care more and more older people arestaying at home for longer periods with the care and support coming to them as opposed tobeing place in institutional care.

Public Housing

The main provision of public housing for older Australians comes via the operation of theCommonwealth-State Housing Agreement (CSHA). Approximately 6 per cent24 of olderAustralians occupy public rental dwellings. Most older people in public housing movedinto their dwellings in their younger or middle adult years and have stayed there intoretirement. Specific funding for low income pensioner housing commenced via the CSHAin 1948. In that year the Pensioner Rental Housing Program was introduced so thatadditional accommodation for this group would be provided in the public sector. In the1995-96 Federal Budget approximately $50 million was allocated for the Pensioner RentalHousing Program. In the following (1996-97) Budget this Program was rolled into ageneral funding category which means that there is now no separate identifiable programfor pensioner housing.

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Ageing Policies/or the 21st Century

Residential Aged Care (Nursing Homes/Hostels)

In March 199825 there were 138 971 residents in residential care facilities (formerly callednursing homes and hostels) in Australia. This equates to only about 6 per cent of thepopulation aged 65 and over. However, as mentioned earlier even though a very smallproportion of the aged population is in residential care, it is to this area of support thatmost of the funding goes, and particularly to the high care facilities (nursing homes) whichhouse the most frail older people. As Table 526 shows, of the total of $2 984 million ofCommonwealth residential care subsidies allocated in the 1998-99 Budget, $2 262 millionwent to high care facilities (nursing homes) and $722 million went to low care facilities(hostels). In 1997 approximately half of the nursing home beds in Australia were providedby the private for profit sector, approximately 38 per cent were provided by the privatenot-for-profit sector and the rest were provided by government,27 With respect to hostels,over 90 per cent of beds are provided by the private not-for-profit sector.

Recent Commonwealth Initiatives

The Commonwealth Government announced in the context of the 1996-97 Budget thatthere would be major structural reforms to residential aged care. The reforms areessentially a fiscal response to the ageing of the Australian population and include anextension of the user pays system in the form of accommodation charges that will helpraise the funds needed to provide adequate nursing homelhostel accommodation andupgrade existing facilities. The new arrangements mean that aged people with 'sufficient'means are expected to contribute more towards their care than was formerly the case,zsThe main features of the reforms include:

• a single resident classification scale (i.e. doing away with the distinction between nursinghomes and hostels) which is used to ascertain the amount of subsidy for each resident

• the introduction of resident entry contributions for all residential care. This has seenaccommodation charges being imposed across the sector similar to those that hadpreviously been levied in hostels. The changes have seen the Commonwealth essentiallycease capital funding for aged residential care (with the exception of $10 million that isprovided for special cases such as rural and remote aged residential care) with futurecapital works expected to be funded by the revenue raised from the accommodationcharges and from the internal funds of the residential aged care providers themselves.Special provisions apply for financially disadvantaged people who are classified asconcessional residents.

• an accreditation system emphasising quality assurance. This is aimed at ensuring thatbefore residential care operators can become part of the new arrangements they will needto obtain certification and show that the quality of the care they provide is up toappropriate standards

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• income testing of residential care benefits for all residents. Prior to the reforms nursinghome residents only paid a standard fee per day towards the cost of their care and hostelresidents paid variable fees. The new system ensures that residents pay a proportion oftheir private income towards the cost of their residential care.

Health

The majority of health services for aged people in Australia are delivered by mainstreamservices such as medical practitioners and public hospitals. Older people, on average, tendto be higher users of health services. Medicare, Australia's universal health system,provides older people with equitable access to medical and hospital services at little or nocost.

The Pharmaceutical Benefits Scheme provides subsidised access to a wide range of (oftenquite expensive) pharmaceuticals, with a small co-payment of $3.20 per prescription forconcessional cardholders, including the Pensioner Concession Card and theCommonwealth Seniors Health Card. Free pharmaceuticals are provided once the safetynet of $166.40 is reached in anyone calendar year. From 1 January 1999 the eligibilityrequirements for the Commonwealth Seniors Health Card are to be relaxed, an initiativewhich is estimated to benefit an additional 220 000 non-pensioners.

The Home and Community Care (HACC) program, which is jointly funded by theCommonwealth and the States and Territories, provides frail aged people with support toenable them to continue living independently in their homes for as long as possible.HACC services include home help, personal care, meals on wheels and home nursing.Fees (but not full cost recovery) are charged for HACC services.

Private health insurance premiums are community rated, which means that people cannotbe charged a higher premium because they are older or chronically ill. Older single peoplewith a taxable income of less than $35 000 per year and couples and families with ataxable income of less than $70000 per year are eligible for the Government's privatehealth insurance incentives which commenced on 1 July 1997. This measure is expected tocease from 1 January 1999 and be replaced by a non-means tested rebate of 30 per cent ofthe premium paid for private health care.

Eligible older people· with hearing problems are provided with vouchers by theCommonwealth to access hearing services at either Australian Hearing Services or theparticipating private provider of their choice.

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Social Welfare

The Australian social security system provides a minimum level of income support forpeople who are unable, or cannot be expected to provide for themselves. The maingroupings provided with assistance are:

• the retired

• people with a disability or a medical condition which prevents them from working

• the unemployed

• people who have children in their care.

The assistance is provided in a framework designed to promote self-support throughemployment for those with the capacity to participate in the work force. The main formsof assistance for older people are the age pension, wife pension, the partner allowance andthe mature age allowance. Unlike most other overseas social security systems (see sectionon the overseas experience), Australia does not have a contributory based or nationalinsurance type system to fund payments. The contributory systems generally linkentitlement to the contributions made by the individual during their working life. Thefunding for Government social security assistance is sourced from general revenues.

Total Budget outlays for social security in 1996-97 financial year were $40.7 billion29 orapproximately 31 per cent of total national government budget outlays. Of the$40.7 billion, $13.6 billion (33 per cent) was expended on retirement incomes.

All of the payments provided for income support are means tested. The means test ismade up of both an income and assets test, with limits set at levels designed to targetpayment to those in most need. The levels are also designed to partially or totally precludepayments to those of substantial financial means considered able to support themselves.To qualify for the age pension a man must be aged 65 years or more (female aged 61 years asof July 1997) and have been in Australia as a legal resident for ten years or more. The claimfor a pension must be made in Australia, except for those countries with an internationalsocial security agreement allowing a claim to be made overseas.

As at June 1996, 2 203 180, or 12 per cent of Australia's population of 18.4 million was aged65 years or more. Of these, the number receiving a social security (or veterans affairs)income support payment pension was 1 764213, or 80 per cent. Just under two-thirds (65.4per cent) of age pension recipients receive the maximum rate of pension, with the remainingone third receiving less than the maximum rate due to the tapers that apply to the income testand the assets test. The other 438 967 (20 per cent) are self-funded retirees with income fromvarious sources, for example, investments, employment, superannuation.

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Commonwealth Funding For The Aged

As mentioned earlier it is difficult to obtain a full picture of what the Commonwealthoutlays on aged care are because much of this funding is incorporated into mainstreamprograms such as health. The main identifiable items of expenditure are age pensions andallowances, residential care subsidies for residents in nursing homes and hostels and theHome and Community Care (HACC) program. Table 5 shows that the Commonwealth, inthe 1998-99 Budget, allocated over $18.4 billion for aged care in these areas.

Table 5: Commonwealth Expenditure on Age Pensions and Aged Care

Item 1995-96 1997-98 1998-99 1999-00

(Actual) (Est.) (Budget) (Est.)

$M % $M $M $M

Age Pensions and Allowances, 12441.0 79.8 13 617.8 14413.4 14993.3and Partner Allowance

Residential Care Subsidies: Low 527.8 3.4 694.1 722.5 757.6Care Needs (Previously Hostels)

Subsidies: High Care Needs 2064.5 13.2 2238.0 2261.7 2309.6(Previously Nursing Homes)

Home and Community Based 564.1 3.6 851.6 1 018.1 1086.4Provisions (a)

TOTAL (A) 15597.4 100.0 17 401.5 18415.7 19 146.9

TOTAL COMMONWEALTH 126705.2 12.3 136613.4 141570.3 146565.9OUTLAYS (B) (b)

Note: (a) Percentage of total expenditure on Home and Community Care and Community Aged CarePackages; Nursing Care for Veterans and Dependants; and Home Nursing Service. (b)Aged pension andaged care (A) as a percentage of total Commonwealth outlays (B)

Source: Compiled from Commonwealth Budget Papers by Michael Fine in SPRC Newsletter, June 1998,p.7.

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Some Policy Options

AStrategic Long-term Approach

The transition to a sitnation where there may be more old people than young people in ourpopulation will necessarily entail a 'resources' switch towards the provision of goods andservices for the over 65s. There will also be a need for more flexibility across a range ofareas, for example, work practices, welfare provision and how the education and healthsystems are structured. Of crucial importance is the need for policies related to aged careto be considered holistically and with the longer term in mind. Often, additional spendingin one area (for example, home and community care and fitness programs) will mean lessspending in other areas (for example, hospital and nursing home care) in the futnre.Governments and policy makers with a short term (say one or two year) budgetary view topolicy may 'save' money in the short term but cause additional and unnecessaryexpenditnre in the future. Such 'short termism' should be avoided but, given the currentthree year (often less) term of federal parliaments and the cumbersome federal system, thismay be difficult to achieve in practice.

The peak body representing elderly people in Australia, the Council on the Ageing(COTA), has for some time been calling for such an approach According to COTA:

We consider that the Government should look beyond the present Budget to the longertenn. A little money spent on a proper forward planning process now will bear fruit forthe Commonwealth's fiscal position in years to come. Such long-tenn strategic planningis standard business practice. It is crucial that the Govemment should look to the futureand commit resources for the needs of an ageing Australia.3D

Later RetiremenVlncentives to Work for the Elderly?

In recent years, and particularly since the early 1980s, there has been an increase in earlyretirement (leaving the workforce prior to reaching the age of eligibility for the agepension) in Australia. In 199431 it was estimated that 74 per cent of men and 87 per cent ofwomen had already retired in the five year period before they were eligible for the old agepension. Consideration could be given to introducing a statntory retirement age but thiswould be, in all likelihood, a very unpopular move and thus it is preferable to provide arange of incentives to encourage people to stay in the workforce longer. There is awidespread perception that heading down this path will 'take jobs away' from youngerpeople but according to one source 'there is no research which substantiates thissubstitution factor. 032

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Policies designed to encourage working longer would help to reduce the calIon the publicpurse and would fit in well with a general emphasis on 'active ageing'. Many workers intheir fifties may like to 'semi-retire' rather than retire but are precluded from doing this byinflexible workplace practices which are geared to retirement or full-time work, with nooption in between. Job sharing and part-time work should be strongly encouraged andpromoted as should policies such as working from home which, for many workers, maysee them stay in work for longer periods. Other policies such as 48/52 (where workers can'purchase' extra leave over and above the usual 4 weeks per annum) and sabbaticals (whereworkers can have extra time off over and above normal leave entitlements, as is commonlyavailable in academia) are already being pursued, albeit in a very limited way, and couldbe extended through the whole workforce. Obviously many of these policies would entailworkers getting slightly less remuneration for periods of time but it should see at least aproportion of workers staying longer in the workforce.

Superannuation/Retirement Saving Incentives?

In this area it would be prudent policy to ensure that there are strong incentives for peopleto provide for their own retirement with an emphasis on the acquisition of an incomestream as opposed to a lump sum that can be 'frittered' away over a relatively short periodof time. As well, if elderly people can be encouraged to defer the take up of the agedpension by staying in the workforce the calIon the public purse can be reduced. Examplesof policy options, some of which will be unpopular and politically difficult to implement,include:

• superannuation: current superannuation arrangements in Australia are very complex andhave developed in a very ad hoc manner. The central aim of superannuation is to providean income stream in retirement. In Australia, superannuation contributions are taxedconcessionally and at all three levels of the contribution cycle, a situation that is unique inthe world. According to the Chief Executive Officer of the Association of SuperannuationFunds Australia, Phillipa Smith:

Australia has the unenviable record of 1eading' the world in taxing super, being the onlycountry that taxes superannuation at each stage of its life cycle - contributions, earningsand benefits - and for many there is an additional super surcharge. A key objective inany tax reform exercise should be to reduce this complexity and to move towards asystem where only benefits are taxed - not contributions or fund earnings.33

Given that superannuation is designed to provide resources for the future, it shouldonly be seen as providing taxation revenue to the government in the future. It shouldnot be taxed now to fund current commitments.

As well as only taxing superannuation at the point it is taken, the rate at which it istaxed should also be simplified. Currently, taxation rates on superannuation taken as a

18


lump sum can vary from 0 per cent to 47 per cent, depending on the amount of thelump sum, when it was acquired and the scheme involved. However, mostsuperannuation lump sums are taxed well below the maximum 47 per cent level. Inorder to encourage people to take their superannuation as a pension rather than as alump sum, current taxation arrangements should be altered (providing a long phase inperiod) for superannuation taken as a lump sum. If all lump sums over a certainthreshold amount (say $30000) were taxed at 35 per cent (approximately the averagemarginal tax rate) there would be a strong incentive for people to take their money asan ongoing pension. This would help reduce the number of people who take a lumpsum, spend it, and then go onto the age pension. Additionally, the Government couldlegislate to allow people over 70 years of age to contribute to superannuation as afurther measure to encourage people to stay in the workforce for longer periods. Atpresent, superannuation funds cannot accept contributions from people aged over 70,save for a few exceptional circumstances related to ill health and caring for children.

Retirement savings accounts (RSAs) were introduced in July 1997 as another vehiclefor saving for retirement. The taxation provisions on these RSAs are the same as forother superannuation arrangements. Thus, any changes to taxes on superannuationwould also apply to these accounts.

• expanding on the Pension Bonus Scheme: the Pension Bonus Scheme (introduced inJuly 1998) allows people of pension age (currently 65 for men and 61 for women) to defertaking up their pension entitlement in return for receiving an increased benefit at a laterdate. The Bonus is paid as a lump sum and is paid for each full year that the pension isdeferred due to the person staying in the workforce. Whilst in the workforce, they mustwork at least 25 hours per week. The Bonus is equivalent to 9.4 per cent of the Age orService pension that the person is entitled to for each year of deferral, multiplied by thenumber of years deferred. The longest period that the pension can be deferred for is fiveyears. Under existing arrangements the maximum lump sum that could be claimed is$21 250 which is equivalent to 47 per cent (9.4 per cent x 5 years) of the annual maximumpension ($9042), multiplied by five. If this Scheme was made more attractive (forexample, by extending the number of years that the pension can be deferred from five toeight and/or increasing the bonus percentage from 9.4 per cent to 15 per cent) then moreelderly people would be encouraged to stay in the workforce for longer periods, thusfurther reducing the calIon public revenue. The present Bonus Scheme is estimated tosave $18.4 million in 1998-1999 and $43.6 million in 1999-200034 and, if it is extended,even higher savings could be expected.

Better Employment Opportunities for Older People?

Building on the Pension Bonus Scheme could be specific policies designed to encourageolder people to stay in the workforce or rejoin the workforce. Again, this would helpreduce the call on savings and the social security system as older people stayed in jobs

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rather than retiring. The need for such policies is evident when data on work forceparticipation by the elderly is examined. Over the period 1973 to 1993, fulltime labourforce participation by males aged 55 to 64 years declined from 79 per cent to 52 per cent.3S

An example, of a specific program set up to encourage and support older people in theworkforce is the European-based EuroWork Age program:

The program is part of a wider commitment of the European Council to urge MemberStates to give special attention to the difficult situation faced by older workers...Thepurposes of EuroWork Age are to: identify and disseminate existing good practiceregarding the management of an ageing workforce and equally importantly the way inwhich older workers are managing change themselves [and] work with others to promotea policy arena in which individuals, organisations and Member States can implementaction.36

Old Age/Retirement Levy?

As is the case in many overseas countries, consideration should be given to thedevelopment of long-term private care insurance to supplement the existing arrangementsfor funding retirement incomes. Apart from the existing national health insurance scheme(Medicare), Australia does not have any broad based social insurance programs. Much ofwhat is provided is funded from general revenue and contributions to superannuationschemes.

A recent study undertaken at the University of Western Sydney (Macarthuri7 proposed acomprehensive scheme (the Ensuring Quality of Later Life or EQOLL model) forfinancing the needs of aged care well into the next century. The advantage of the EQOLLproposal is that it provides choice as to how individuals would like to help fund their carein old age as well as ensuring that the revenue raised is specifically set aside for thepurpose that it is intended:

Under the proposed EQOLL model all Australians aged over 25 and earning more than$15,000 pa. would be required to set aside 1.1% of their taxable income per annum from2000-2011 in one offour forms of aged care insurance in orderto be eligible for an arrayof aged care services and to cover their future aged care costs at no additional cost thanthe pre-l997 regime of charges. 38

The four options given under the EQOLL model would be:

• a 1.1 per cent aged care supplementary payment that would operate in a similar fashion tothe existing Medicare levy. Revenue raised from this supplementary payment would beused to pay for residential aged care services and would ensure that contributors wouldpay no more for their care than was the case prior to the Aged Care Act 1997 reforms. ThisAct included the provision for additional user fees, particularly in nursing homes and has

20


been the source of considerable controversy in the residential aged care sector. Those whopreferred not to pay the supplementary payment could avoid doing so by taking outcomprehensive aged care insurance

• an equivalent 1.1 per cent of taxable income to be invested in an approved life insurancefund similar to that offered by superannuation funds. This option would supplementexisting superannuation arrangements and could form part of future enterpriseproductivity agreements

• the taking out of appropriate aged care insurance from an approved private healthinsurance fund

• investment of at least 1.1 per cent of taxable income in Continuing Care RetirementCommunities. The investment would be permitted only in facilities that provided a rangeof full, self contained aged care and health services.

The EQOLL model, as well as suggesting ways of helping finance aged care, alsoprovides for a number of initiatives (using the additional revenue raised) to more generallyhelp the elderly contribute to Australian society. This includes:

• the allocation of 0.3 per cent of the revenue raised (about $10 million per annum) to'celebrate and promote the strengths and productivity that our country gains from oursenior citizens'

• the allocation of a further 0.3 per cent to fund a series of 'phased initiatives, beginning inthe year 2000, which relate to the experience and the likely preferences of the differentgenerations reaching the age of fIfty fIve', and

• allocating 0.1 per cent (about $3.3 million per annum) of the revenue raised to advance thecause of volunteers in Australia.39

Extending the Medicare Levy?

Failing the introduction of a comprehensive system such as that outlined above, the first'leg' of that proposal (a Medicare supplementary payment) could be introduced on its own.A long-term care component could be 'piggybacked' on to the Medicare levy andprogressively increased over a period of ten to twenty years with a view to it being at itsmaximum when the peak of the 'baby boomers' reach retirement age. Precedent for thisexists in the form of the 'gun levy' that was added to the Medicare levy following the PortArthur massacre. The advantage of this type of arrangement is that it would be simple toimplement given that the Medicare levy is already operating. It has the additionaladvantage of being a tax that is relatively well accepted by the population as whole:

21


Australians have accepted occasional increase in the Medicare levy. If one accepts theinevitability of public recognition of long-tenn care as a nonnal risk of growing old andwhich the whole population requires protection against, a further increment in the levymay be seen as an acceptable initial step towards, on the one hand, easing some of thecost of long-tenn care in Australia and, on the other, ensuring that those disabled elderlywho are living in the community have access to long-tenn care services as anentitlement.40

Tighter Targeting of Aged Income Support?

The structure of the existing income and assets test which apply to Age and ServicePensions offers considerable scope for refonn to tighten eligibility without affecting thoseelderly people who are in most need of income support. Three possible areas for refonnare:

• investments in real estate are not income tested under the extended deeming regimeintroduced in July 1996. Only actual income is considered. Real estate assets whichproduce no income or less than market income, such as holiday homes, vacant land orhobby farms could be included under the deeming provisions to encourage re-investmentin productive assets

• the family home is completely exempt under the assets test. For example, any value over$750000 or a million dollars could be included in the calculation of a pensioner's assets toencourage investment in productive assets

• the Assets Test applies to only a small portion of the pensioner population. If theallowable asset levels were reduced and the withdrawal rate under the assets test wasreduced, more people would have pensions reduced under the assets test. This changecould arguably result in a better targeted pension system.

Constraining Growth in Health Outlays?

Health financing and expenditure are policy areas where little agreement exists onproblems, directions and solutions. Health expenditure is increasing in Australia, as inmost other DEeD countries, having risen from $5.71 billion in 1975-76 to $43.07 billionin 1996-97. Expenditure on health services does tend to increase as people age. For example,in 1993-94, 35 per cent of total health system expenditure was spent on people aged 65 yearsand over, while this group comprises less than 12 per cent of the population. Some 20 percent of total health system expenditure was spent on people aged 75 years and older, althoughthis group comprises less than 5 per cent of the population.41

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Ageing Policiesfor the 21st Century

Expenditure on health is often portrayed as a 'burden' or a 'cost' and calls have been made,particularly by economic commentators, for individuals to take more responsibility fortheir own health care costs. Simplistic solutions are often proposed, such as compulsoryco-payments for medical services and means testing of access to public hospitals. Neitherthese nor similar proposals are themselves solutions to increasing health costs but could beconsidered along with other proposals, such as increasing the rate of the Medicare levy(with an accompanying decrease in personal income tax rates) to better reflect the actualcost to government of the provision of health services. Other options include currentinitiatives which aim to promote the provision of quality health services and treatment,including appropriate prescribing of medication for the elderly and evidence-basedmedicine.

It should be noted that individuals already contribute directly a substantial amount offunding to support Australia's health system. In 1995-96, for example, individualscontributed $6.3 billion by way of out-of-pocket costs for health and medical services,$4.4 billion by way of premiums paid to health insurance funds and $3.4 billion throughthe Medicare levy. Another important point to note in any discussion of health financing isthat the bulk of health expenditure is spent on a small proportion of the population, thosepeople who are chronically ill. For example, it has been estimated that nearly 50 per centof total health expenditure is spent on 10 per cent of the population.

There are three key drivers of health expenditure in Australia: expectations of consumers,advances in technology and the ageing of the population. Contrary to the claims of manycommentators, it can be argued that the ageing of the population of itself will notnecessarily pose a serious threat to health financing in Australia in the near and midfuture.42 However, when combined with the two other factors, there is little doubt thatAustralia will potentially face some difficulties if present policy settings remainunchanged.

Future Funding

It is necessary, therefore, to give consideration to how the Australian health system maybest be financed in the future. Countries often look to the international experience toinform future policy directions, however in the health care arena, there are few definitivemodels to draw upon. For example, in the 1980s and early 1990s, both the UnitedKingdom and New Zealand turned to the market and competition as a means ofcontrolling increasing expenditure by their governments on health care. The United Stateshas utilised managed care as the centrepiece of its approach to controlling increasinghealth care expenditure in both the government and non-government sectors. Singaporehas developed a somewhat unique system of health care financing which relies heavily onself-reliance.

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Both the UK and New Zealand are now withdrawing from the less successful elements oftheir experiment with the market and are moving towards cooperation rather thancompetition. In the United States, patients, providers and some legislators are becomingincreasingly concerned with the excesses of managed care. The Singapore model, whilesuperficially attractive, would require major modification before it could be seriouslyconsidered as an option for Australia.

It can be argued that prior to (or at least as well as) an examination of financing options, akey issue which requires the attention of policy makers and the community in general isthe commencement of a debate on what Australia's health system can realistically beexpected to provide in the future. This is not solely a debate about whether financing isprovided by the public sector or the private sector, although this is an importantcomponent of such a debate. Neither is it a debate about mechanisms such as co-payments,means-testing or user-pays, although again, these are components of the debate. Rather,the debate is about setting priorities for the allocation of resources for health care and,ultimately, about rationing.

Rationing Access To Care?

In relation to health care, rationing is a term which is seldom raised in Australia (with thenotable exception of commentators such as Professor Stephen Leeder and Professor PeterBaume).43 However, vigorous and occasionally fruitful debate and discussion has ensuedin other countries, including New Zealand, the United Kingdom and parts of the UnitedStates. It is inevitable that priorities are set and health services are rationed in any healthsystem because there are not sufficient funds (public or private) to provide every personwith access to every possible health intervention.44 Even the United States, with itsmassive expenditure on health care (14.2 per cent of GDP compared to Australia's 8.5 percent)45 and large non-government sector, rations access to health services quite ruthlessly,albeit largely in an implicit manner.

Health services in Australia are currently rationed implicitly through a variety ofmechanisms. The most obvious mechanism is through waiting lists for elective surgery inpublic hospitals, but other forms of rationing include the exclusion of services provided bynon-medical practitioners such as dentists, physiotherapists (some services are provided inpublic hospitals), podiatrists and chiropractors from the publicly funded Medicare and theexclusion of some pharmaceuticals, medicines and preparations from subsidy under thePharmaceutical Benefits Scheme (PBS). This situation can lead to the provision of lessappropriate care, and/or the exacerbation of conditions which remain untreated simplybecause a person lacks the ability to pay for a service which is not available underMedicare or not subsidised under the PBS. Some of the trials of co-ordinated care, whichare currently underway, are investigating the possibilities of funding access to services notcurrently covered by Medicare where these services are provided under case management.

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In order to ensure that sufficient funding is available in the future to provide equitableaccess to adequate health services and treatment, it is important to commence the buildingof a dialogue on priorities for the allocation of resources for health care which involves allthe community. The setting of priorities and the rationing of health services in Australiacurrently occurs largely in an implicit manner, involving practitioners, policy makers andadministrators. Commentators such as Professor Peter Baume argue that the prioritiesbeing set and the choices being made need to become much more transparent and explicit.Questions to be addressed include:

• which decisions should be made

• who should make these decisions, and when, and

• who will and who will not obtain services.46

Given that the community funds the Australian health system, both directly and indirectly,it can be argued that the community has both the right and the responsibility to beinvolved in the debate on these and other difficult questions. Due to their higher averageuse of health services, it can be argued that the population aged over 65 years has a greaterstake in the health system than the community in general. The imperative is even stronger,then, for this group to become involved in any discussion of the sort of health system thatis required in Australia and how much the community is prepared to pay for such asystem. Priority setting and rationing of resources for health are not optional issues. Allthat is optional is whether the community is prepared to accept the challenge of open andtransparent discussion and decision-making on these issues.

More User Pays?

There have been moves towards more user payments in parts of the aged care system inrecent years, particularly with respect to nursing home fees and charges for Home andCommunity (HACC) services. As part of the Aged Care Reform Strategy (see page 13),the current Government introduced accommodation charges for new residents in nursinghomes as well as income-based daily fees. 47 These charging arrangements are similar tothose that have been imposed in hostels for many years. At the same time the governmenthas proposed that more consistent and uniform fees be charged for HACC services in allthe States and Territories. As yet, this has not occurred, with most jurisdictions chargingless than the Commonwealth would like. Over time, a policy option could be to extendthese user pays type arrangements with the emphasis on ability to pay. However, given thecontroversy over the nursing home charges, there is no doubt that this would be politicallyunpopular. Nevertheless, given the apparent lack of capital funding for nursing homes itwould appear that the Government has two options to overcome this lack of fundingmore user pays and/or additional funding from its own sources.

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AHigher Rate of Immigration?

The general consensus regarding the role of immigration with respect to slowing down therate of ageing of the population is that it will and could only playa very minor role. Apartfrom the fact that a large rise in the rate of immigration would, in all likelihood bepolitically unpopular and in some eyes be seen to cause significant economic and socialdislocation, there would be only be a marginal affect of such a policy on the rate of ageing.According to EPAC in its recent report on ageing:48

Even the most ambitious migration program, by historical standards, would not eliminatea substantial increase in age dependency ratios. The ageing of the population structuremust therefore be addressed directly through effective retirement income policies, healthcare reform, support of the disabled etc.

For further discussion on this issue see a forthcoming Research Note, Immigration andAgeing, Department of the Parliamentary Library.

Other?

'One stop shops' for the elderly, partly funded by government and supported by thecommunity sector, could be established throughout Australia to give 'seamless' advice onageing and retirement issues. The aim would be to have a one stop location to obtaininformation and advice in this very complex area. The information and advice shouldcover all relevant areas including the roles and services/support provided by the three tiersof government as well as information on services provided by the private and communitysectors. This is particularly important given the amount of insecurity and uncertainty thatmany older people have been experiencing in recent times due to significant policychanges in the area of old age support. Better and more accessible sources of informationmay well help to reduce this level of insecurity and uncertainty.

Additional resources devoted to the general well being of the elderly (sport and recreation,volunteerism) would also be of benefit and help delay the calIon more costly health andcare provisions. The encouragement of the elderly to participate more actively incommunity activities (such as visiting schools) already exists to a limited degree and couldbe expanded.

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The Overseas Experience: Some Examples

Two Differing Models

The majority of developed countries provide a range of benefits for the elderly includingage pensions, health and other long-term care support. Some countries such as the USAtend more towards the private provision of such benefits while others, notably theScandinavian countries, rely more on government provision and funding of benefits. In theUSA, although the publicly funded Medicare provides cover for many health costs it isexpected that those with means should provide for their own long-term aged careexpenses. By contrast, the Scandinavian countries essentially provide a publicly financedbroad based safety net. The advantages and disadvantages of these two differingapproaches to funding aged care are described by Agnes Walker as follows:

The benefit of the Scandinavian model is that it provides all people with a relativelygenerous miuimum living standard. As a result, in these countries poverty in old age isnow a marginal phenomenon...The disadvantage is that it places a heavy burden on thepublic purse. It thus relies on Scandinavians accepting very high levels of taxation. Withtighter budgets and higher unemployment in recent years Scandinavians, as well aspeople in other countries, have questioned the future affordability of existing levels ofsupport. " The benefit of the US model is that the demand for health and aged careservices is generally market driven, since most individuals are responsible for the costsof the services they consume. Demand is thus rationed by what people can afford. Thedisadvantages are that the gap between the rich and the poor is widened, that miuimumliving standards are lower than in other developed countries and that a relatively highproportion of people live in poverty, with resulting high levels of crime etc. In the UnitedStates the private provision of services has led to high health expenditure, whichcurrently accounts for around 14 per cents of GDP [compared to 8 per cent inAustralia]. ..

Overall, many developed countries are questioning the affordability of existing systems,seeking alternatives that are able to contain costs without affecting the quality ofcare...While asking individuals to bear a greater share of their age related costs seems anattractive solution, the experience in the United States suggests that there could besignificant disadvantages in moving too far in the 'private provision' direction. Thegeneral view is that there is no 'correct' balance in public versus private financing. Foreach country the final compromise will depend on what its people accept as being bothsocially desirable and financially responsible. 49

Of the two models described above, Australia more closely accords to the Scandinavianexperience with a much more comprehensive and generous welfare system than thatexisting in the USA.

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Examples of Retirement Income Policies

Most countries have policies designed to provide income support for workers when theyretire. Due to rising unemployment and industry 'restructuring' in the late 1970s and 1980smany countries moved toward incentives for early retirement. However, in recent yearsthe tendency has been more towards policies designed to slow the rate of earlyretirement-for example, in Australia progressively increasing the eligible pension age forwomen and the Pension Bonus Scheme (see page 19 above). Another example of this isSweden, where recently the age at which the pension could be claimed was raised from 65to 67 and, over time, lower pensions are to be paid to those who retire before age 61 andhigher pensions are to be paid to those who work until 67 years or later. 50

The following overview of retirement income policies in selected countries is heavilydrawn from Retirement Incomes Around The World: Global Trends and Implications forEmployers.51 The overview shows that all the countries examined are reforming theirsystems with the common approach being to bring in policies designed to reduce the levelof benefits available over time as well as progressively extending upwards the ageeligibility at which many of the benefits can be accessed.

The United Kingdom

Two key features of the United Kingdom system in recent years have been the tighteningup of earning related benefits paid via the social security system and the increasedregulation of private pension plans, essentially as a result of the Maxwell pension scandalof the early 1990s (whereby a poorly regulated private pension scheme collapsed).

The social security system provides a basic pension as well as an earnings related benefits(the State Earnings Related Pension Scheme) pension that varies according to averagesalary levels earnt throughout a working life. Employers also provide retirement planbenefits which are usually paid in the form of a pension annuity, with part of the amountbeing able to be taken as a lump sum.

At present social security benefits are payable at age 65 for men and 60 for women, butrecent legislation provides for a progressive phasing in (from 2010) of a later eligibilityage for women. By 2020 the eligibility age for women will also be 65 years.

Early in 1998 a Royal Commission on Long-term Care for the Elderly was established.The Report of the Royal Commission is due to be released in late 1998 or early 1999.

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Japan

A key issue facing Japan's retirement income system is the country's rapidly increasingdependency ratio (the ratio of the population aged over 65 divided by the size of theworkforce), which is predicted to increase from 23 per cent at present to 57 per cent by2040.52

The social security system has two main strands-the National Pension Plan (a flat ratebenefit paid on retirement) and the Employee's Pension Insurance Scheme (an earningsrelated benefit payable at age 60). Most employers also provide a range of retirementbenefits similar to the type of superannuation arrangements that apply in Australia. Theseinclude lump sum retirement allowances, qualifying pension plans and employee pensionfunds.

In recent years the Japanese social security system has been 'tightened up' with benefits ingeneral being reduced, the indexation formula being changed, contribution rates beingincreased from 14.5 per cent of pay to 17.35 per cent of pay and a gradual increase in theeligibility age for the National Pension from 60 to 65.

France

The French system includes both social security benefits and compulsory, complementaryretirement programs. For workers on lower salaries social security provides a pension thatvaries according to the number of years the worker has been in the workforce. Eligibilityfor this pension begins at 60. The number of years that a worker has to work to qualify forthe top rate of pension is progressively being increased to 40 years, while eligibility forpayment of the average rate of pension is being progressively increased to 25 years in theworkforce.

There are two compulsory, complementary retirement prograrns which are essentiallydesigned to cover those workers who are not eligible for the social security pension. Onaverage workers in these programs pay 14 per cent of their salary into the fundfs and, onretirement, they receive a benefit related to their contribution levels. In recent years therehas been a reduction in the level of benefit available under the compulsory programs as theFrench Government tries to cope with funding one of the world's fastest growing agedpopulations.

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Canada

The Canadian system has three main strands:

• an Old Age Security pension that provides a basic indexed pension to those aged 65 andover

• the Canada and Quebec Pension Plans which are worker specific compulsory retirementplans that workers (and employers) contribute to at a rate of 3.2 per cent of salary. The aimis to provide workers with a pension on retirement that is worth approximately 25 per centof their career average salary. Benefits are fully indexed and payable at age 60, however,benefits are reduced by 6 per cent for every year that retirement precedes 65 years of age

• various profit sharing, pension and retirement savings plans that receive favourable taxtreatment. These plans can be company sponsored or individually sponsored and variouslimits are set on the amount of contributions and the amount of benefits that can beaccumulated.

The Canadian Government has recently introduced reforms to help ensure the long-termviability of the system including increases in employer and employee contribution rates (to9.9 per cent in 2003) under the Canadian Pension Plan and the proposed replacement of theOld Age Security pension with a new 'Seniors Benefit' in 2001. lncluded in the latter reformwill be tightened eligibility requirements.

Conclusion

Whilst opinion may vary as to just what the effects of ageing may be on Australian societyover the next fifty years and beyond, there is no doubt that policy adjustments will need tobe made. The overseas experience shows a trend towards tightening eligibility for age carebenefits combined with a greater role for private provision of retirement incomes.However, appropriate policy settings in Australia may be difficult to achieve given thelikely political strength of the baby boomer generation. Already the phenomenon of 'greypower' is well recognised and acknowledged and with a large 'boomer' population that isnot only well educated and articulate, but also dominant in many of the positions of powerand influence in society, policy makers will need to be bold and courageous if theappropriate policy decisions are to be made.

Prudent policy making should include a strategic approach involving a holistic view ofageing and long lead times so as to minimise the potential for social and economicdislocation. Given that 1999 is the International Year of Older Persons, it would seemopportune that now is the time for government and the community to fully examine themyriad of issues associated with an ageing population with a view to achieving some sortof consensus as to just what might be the appropriate policy settings for the future. The

30


current Commonwealth Government has already moved in this direction with theestablishment, in November 1997, of the National Strategy for An Ageing Australia TheStrategy includes provision for a wide range of consultations with all levels of governmentand the community and private sectors. A number of discussion papers looking at the hostof issues involved with an ageing population are due to be released over time as part of theStrategy. Given adequate resourcing and support the Strategy would appear to be the bestvehicle to approach and deal with Australia's ageing population into the next century.

Endnotes

1. Australian Bureau of Statistics, Population Projections 1997 to 2051, Catalogue No. 3222.0.

2. Australian Bureau of Statistics, Census of Population and Housing, Catalogue No. 2015.0,July 1997.

3. Ibid.

4. Department of Immigration and Multicultural Affairs, Australia's Population Trends andProspects 1996, p. xv.

5. Australian Bureau of Statistics, Catalogue 2015.0, op. cit.

6. Australian Bureau of Statistics, Population by Age and Sex, Catalogue No. 3201.0.

7. Ross Clare and Ashok Tupule, Australia's Ageing Society, EPAC Background Paper No. 37,January 1994, p. 19.

8. Australian Bureau of Statistics, Catalogue No. 2015.0, op. cit.

9. S. Mathur, Aged Care Services in Australia's States and Territories, Australian Institutue ofHealth and Welfare, Canberra, 1996, p. 6.

10. Ibid., p. 7.

11. Australian Bureau of Statistics, Catalogue No. 3102.0, p.34-35.

12. Ross Clare and Ashok Tupule, op. cit.

13. It is important to note that this is the total expenditure on health services in Australia, notmerely the contributions by government, nor is it only expenditure on Medicare. Total healthexpenditure includes: expenditure by the Commonwealth, State, Territory and localgovernments; private health insurance funds; out-of-pocket costs of patients; workerscompensation and third party insurers. Health services include: medical and hospital services;pharmaceuticals; ambulance services; dental services; other professional services; communityand public health services; aids and appliances; research; nursing homes and administration.

14. Australian Institute of Health and Welfare, Older Australia at a glance,http://gallifrey.aihw.gov.au/publications/wonline/oagloag.htm . [19 November 1998]

15. Ibid.

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16. OECD, Maintaining Prosperity in an Ageing Society, 1998, pp. 3,4.

17. National Commission of Audit, Report to the Government, AGPS, Canberra, June 1996.

18. lbid., p. 122.

19. It should be noted that Australia's total health expenditure in 1996--97 accounted for 8.5 percent of GOP. Expenditure by government accounts for approximately 65 per cent of totalhealth expenditure.

20. Argy, Fred, 'Such a CAD is truly not worth worrying about', The Canberra Times, 28 August1998.

21. Commonwealth Budget Paper No. I, 1998-99, pp. 4-55

22. Australian Institute of Health and Welfare, Australia's Welfare 1993: Services and Assistance,AlHW, Canberra, 1993, pp. 201-202.

23. Australian Bureau of Statistics, Australian Social Trends 1996, p. lSI.

24. lbid.

25. The Minister for Family Services, The Hon. Warwick Smith MP, Media Release, 12 May1998.

26. Compiled from Commonwealth Budget Papers by Michael Fine in SPRC Newsletter, June1998,p.7.

27. Australian Institute of Health and Welfare, Nursing homes in Australia 1996-97: a statisticaloverview, AlHW, Canberra, 1998, p. 1.

28. For more details see G. McIntosh, Residential Aged Care: New Fees and Charges, ResearchNote No. 34 1997-98, Dept. of the Parliamentary Library, March 1998.

29. Budget Paper No. I, 1997-97, pp. 3-38.

30. Strategic Ageing: Australian Issues in Ageing - 1998-99 Commonwealth Budget Submission,Council on the Ageing (Australia) Vol. 5, 1998, p. 10.

31. Australian Institute of Health and Welfare, Older Australia at a glance, op. cit.

32. Denys Correll, Council on the Ageing, private correspondence, 2 November 1998.

33. Smith, Phillippa, 'Savings fall well short', The Australian Financial Review, I October 1998,p.19.

34. Social Security and Veterans' Affairs Legislation Amendment (Pension Bonus Scheme) Bill1998, Explanatory Memorandum.

35. Council On Ageing (Australia), op. cit., p. 41.

36. lbid., p. 40.

37. John McCallum, Peter Botsman, et al., Ensuring quality of later life: financing aged careservices within the context of an aging society, Centre for Health Outcomes and InnovationsResearch, University of Westem Sydney, September 1998.

38. lbid., p. x.

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"


39. Ibid., p. xi.

40. Alan Borrowski, 'Financing long-tenn care for the aged: Israel's long-tenn care insnrancelaw', Social Security Journal, September 1997, p. 67.

41. C. Mathers et aI. Health system costs of diseases and injury in Australia 1993-94, AIHW,Canberra, 1998.

42. J. Hall, 'Health costs boom for baby boomers?', inToueh, May 1998, p. 9.

43. See, for example P. Baume, 'Rationing in Australian health care services', Medical Journal ofAustralia, 19 January 1998, pp. 52-3.

44. J. Richardson, 'Economics as a prerequisite to an ethical allocation of health resources',Healtheover, October-November 1996, pp. 45--49.

45. Australian Institute of Health and Welfare, Australia's Health 1998, AIHW, Canberra, 1998.

46. P. Baume, op. cit., p. 52.

47. For details of the new fees and charges in nnrsing homes and hostels see G. McIntosh,Residential Aged Care: New Fees and Charges, op. cit.

48. Ross Clare and Ashok Tupule, Australia's Ageing Society, op. cit., p. 17.

49. Agnes Walker, Australia's ageing population: what are the key issues and available methodsof analysis?, Discussion Paper No. 27, National Centre for Social and Economic Modelling,February 1998, pp.4-5.

50. Ibid., p. 6.

51. Towers and Perrin, SuperNews, 1998.

52. Ibid., p. 22.

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Australian Bureau of Statistics, Australian social trends, Cat no. 4102.0, ABS, Canberra,1996.

Australian Bureau of Statistics, Census ofpopulation and housing, Cat. no. 2015.0, ABS,Canberra, July 1997.

Australian Bureau of Statistics, Projections of the populations of Australian states andterritories 1995-2051, Cat. no. 3222.0, ABS, Canberra, 1996.

Australian Institute of Health and Welfare, Australia's health, AlHW, Canberra, 1998.

Australian Institute of Health and Welfare, Australia's welfare, AlHW, Canberra, 1997,1995 and 1993 (biennial publication).

Australian Institute of Health and Welfare, Hostels in Australia 1995-96: a statisticaloverview, Aged Care Statistics Series No.2, AlHW, Canberra, 1998.

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Borowski, Alan, 'Financing long-term care for the aged: Israel's long-term Care Insurancelaw', Social Security Journal, Sept. 1997, pp.56-72.

Clare, Ross, and Ashok Tulpule, Australia's ageing society, Background Paper no. 37,Economic Planning Advisory Commission, Canberra, 1994.

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Kendig, H., and J. McCallum, Grey policy, Allen & Unwin, St Leonards, 1991.

Le Guen, Roxane, Residential care for the aged: an overview of government policy from1962 to 1993, Background Paper No. 32, Parliamentary Research Service, Dept. of theParliamentary Library, 1993.

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Senate. Community Affairs References Committee, Report on funding of aged careinstitutions, The Committee Secretariat, Canberra, 1997.

Walker, Agnes, Australia's ageing population: what are the key issues and the availablemethods of analysis, Discussion Paper No. 27, National Centre for Social andEconomic Modeling (NATSEM), University of Canberra, Feb. 1998.

Wolfe, John R., The coming health crisis: who will pay for care for the aged in the twentyfirst century, University of Chicago Press, Chicago, 1993.

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The 'Boomer Bulge': Ageing Policies for the 21st Century · INFORMATION AND RESEARCH SERVICES Research Paper No.41998-99 The 'Boomer Bulge': Ageing Policies for the 21st Century Greg

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