Aged Care changes: What accountants need to know

There is plenty for accountants to consider in the Aged Care Taskforce’s final report, says Associate Professor Nelson Ma from UTS Business School, a senior member of the UTS Ageing Research Collaborative.

“As individuals are given more options – and greater options are a part of the Aged Care Taskforce report – as accountants we are going to see more complexity in weighing up those options,” Ma, whose PhD was in the field of accounting, says.

In the area of home care services, for example, the report suggests a move to a fee-for-service type of model. In this model, individuals pick the services they want to receive inside their home care package, as opposed to it being a fixed bundle.

“Accountants will be helped by the fact that there will also be greater public disclosure of service pricing, so we will have more data for decision making,” he says. “But helping people make choices is going to become more complicated.”

Aged Care Taskforce report: Key points

To appreciate the report’s recommendations, it is important to understand its purpose, Nelson says.

Most aged care services in Australia are based on the provision of the 1997 Aged Care Act. In 2024, we’ll see a new Act.

A great deal has changed over the past 27 years. The aged care sector itself is proving to have aged quite badly, as was revealed by the Royal Commission into Aged Care Quality and Safety. Enormous problems were reported, ranging from neglect and abuse of elderly Australians, to a lack of engagement and skills in the workforce, to the fact that the sector was fast becoming financially unsustainable.

Total government spending on the sector was $24.8 billion in 2021-22, the report said, or 1.1% of GDP. By 2061-62, that cost is projected to grow to 2.5% of GDP as, over the next 20 years at least, demand will grow by 44,000 participants annually.

And so, structural change is vital. Without it, the sector as we know it will shrink instead of growing to meet demand. In 2021-22, 69% of residential aged care providers operated at a loss.

The report suggested several major changes to the way things currently work, none of which involved extra levies or increased tax burdens on the shrinking tax base.

“The big talking point is the co-contributions, the idea that individuals with higher means should pay more for certain services,” Ma says.

“The government currently funds 75% of the total costs in residential care and 95% in home care. The expectation is that the government will continue to fund the care component. But individuals with greater means will contribute more to everyday living costs such as food and cleaning, or possibly pay more for additional services such as pay TV. And then the accommodation component will also be more heavily funded by those with higher means.”

Other discussions coming out of the paper include the need for transparency around costs and services, a reduction in the regulatory burden that makes doing business in aged care challenging, and recommendations around quality, equity and financial sustainability.

A simple rental-only model for accommodation, as opposed to the current system built around refundable accommodation deposits, has been recommended, as has a menu of service options over and above the basics, which enables a resident to negotiate additional daily living services.

Takeaways for accountants

Accountants need to be aware that they are soon going to be working across two different funding models of aged care, Ma says.

“People currently in the system will remain in that aged care system, which uses refundable accommodation deposits,” he says.

“The people coming in, once there is a new system in place, will have something completely different. So, accountants will have to juggle the complexity of managing two types of systems for two sets of individuals.”

Plus, Ma says, accountants will be affected by the fact that much of the new system will be carefully means tested, which requires thorough record keeping.

“If there is a greater emphasis on means testing around higher contributions, of course there is also going to be a greater expectation that there is good documentation to support the resident being on a certain means level and making certain contributions,” Ma says.

“There will be some increase in costs for individuals with higher means that are planning for retirement. They will contribute more but, in return, they will get more of what they want. So that will need to be considered by the accountant that manages them.”

Accountants will need to be mindful of tax planning implications, and be mindful of not straying into providing financial advice unless they are appropriately licensed or authorised. The IPA will be offering CPD on planning for aged care and on navigating the ‘lines in the sand’ across the different advice areas involved in advising clients. Find out more about IPA CPD.