Are We Really Serious About Fixing Aged Care?

A frustrating part of discussion about aged care in Australia is that everyone agrees the current system is not working yet the proposed solutions are rarely in congruence with this consensus. The statement you often hear not just from the left side of politics by which I mean Labor and the Greens but from journalists and others across the spectrum is that the system has ‘failed’. Yet if the system has truly failed as everyone agrees doesn’t this imply that radical or at least systemic change is necessary to fix it? But what major changes are being discussed to fix this failed system? There rarely seem to be any beyond adding a few new regulations or a small bump in funding.

Mandatory nursing staff requirements, the policy the government is implementing are sensible but it’s worth asking why do we believe they are a good policy? The reason we don’t expect aged care providers to have adequate staffing is that qualified staff are expensive, and we expect them to cut costs where possible. If we are honest, we can admit that a large proportion of service providers operate on a low-cost model where staff are overworked because this model maximizes profits. The horror stories we see on tv are just the tip of the iceberg. New regulations may force for profit companies to spend more but with time they will surely find new ways to cut corners or even subvert these regulations.

The aged care system based on the 1997 aged care act is a legacy of the early Howard years. The basic architecture of the system is the same as how we have handled many other policy areas. The government subsidizes services so that consumers can be empowered to choose the specific service provider that best suits their own needs. The theory is that quality will increase as consumer choice forces the worst providers out of the marketplace and elevates the best. Disability care under the NDIS, unemployment services and even education to a lesser extent have all been addressed using this basic model.

At this point we have a good idea of what the outcomes tend to be. Rather than empower consumers the system tends to be captured by the service providers. Bad actors are much more effective at remaining in business and creaming of government funds than the theory would predict. Maybe this is because people find it hard to assess which services are good or are easily swayed by marketing strategies. Maybe it’s because the industries are monopolistic so genuine competition doesn’t exist. But whatever the reason the results are clear. Low quality services based on cost cutting, unreasonably high prices and money spent on advertising or worse lobbying the political system to keep the gravy train flowing.

The Job network companies that provide services to the unemployed recently had their contracts extended for five years — just before a new government came into office. A perfect example of how the for profit service providers know how to manipulate the system even when everyone agrees their ‘services’ are not value for money. And the situation is equally bad in aged care as the complex network of lobby groups employs highly sophisticated lobbying tactics to enjoy a level of influence that is remarkable given the consistently horrible press the industry receives.

One problem is that Australia’s economic policy establishment refuses to admit to these consistent failures. The productivity commission for example regulates pricing for the NDIS but says this is a transitional stage which is only necessary until the market become mature. When faced with evidence of low-quality services the PC often blames a lack of education on the part of the consumers and recommends greater assistance or more information in guiding better choices. It is as if the goal is to create the rational decision makers of economic models out of the flawed material of real human beings. But nowhere is there an acknowledgment that the underlying model of consumer based power and light touch regulation isn’t working when it comes to human services.

Another important issue is that if we agree on the need for more regulation, how much regulation is needed and how should it be organized?

Any simple regulatory rule can be gamed, that is the rule is respected but the purpose is not. For example the sector might start hiring the cheapest source of qualified nurses they can find or it may find a way to spread the mandatory nurse over as large a pool of residents as possible. The same point applies to a mandated amount of time for individual care or money spent on meals and so on. This is why the capacity of the regulator to enact monitoring and change policies when prior rules are no longer effective is important. For regulation to work the administrator must have some level of discretion and autonomy extended to it. Some new regulations like mandated nursing staff would be an improvement, but again we need to be asking harder questions. Like what level of provider attrition would be desirable? The issue of who is in charge industry or the government?

Part of the regulatory system is the certification process. Presently this is a complete joke with providers getting everything they want. Moving to a star rating system would be an incremental improvement. Personally I think a small number of providers losing their license permanently each round would be a sign of a healthy system (maybe low single digit percentages), but in the short term higher attrition might be needed. This might be costly or politically difficult to implement but ask yourself how the system can improve without the exit of poor providers?

My preferred model would include an administrative structure with professional assessors that reports to a governing board that is composed of representatives of consumer advocacy groups (that genuinely have a wide member base) and some democratically elected seats (elected by residents and their families). Maybe some seats on the board would represent the aged care workers. Providers would not be represented. The board would have broad discretion to set and change policy within some established frameworks (which could be set by legislation). Governance norms of transparency and due process would be part of how this new administration operated but it would be of equal importance that it can be tough but fair in setting high standards.

Others may disagree with my model but the key point of consensus needs to be that the current system of putting industry in the driver’s seat isn’t working and needs to be replaced with a more publicly orientated system that depends less on simple optimism about consumer choice.

One objection could be that increased regulation might lead to investment leaving the age care sector when demand is only increasing. Indeed, a big motivation behind the 1997 reforms was the belief that creating the conditions for private investment was the best way to scale up services to meet a growing level of demand. There’s one big problem with this line of argument which is that the lions share of money going into the system is already public funds. The public already has control over the amount of money that gets spent on age care in Australia. The system we have created is the worst of all possible worlds; the public pays for aged care but then we have very little control over how the money is used. Even basic transparency the ability to know what aged care providers spend money on is lacking.

And then there is funding. Undoubtedly there needs to be an increase in funding that’s commensurate with the real level of demand. Not just for residential aged care but other aspects of ageing related services as well. Like all such things the claim will be that ‘we can’t afford it’ when really, it’s a matter of priorities.

One policy that should be re-examined is superannuation, because it’s supposed to help Australia address the challenges of an aging society, but it really doesn’t. There’s a conflict between superannuation as vehicle to provide retirement incomes and its role to insure against longevity risk and other health risks. If people choose to hold their super as insurance against higher costs in old age it means super won’t be used to provide retirement incomes. And nobody knows how much funds they will need which encourages them to be more risk averse and we get the situation we now have, everyone sitting on large balances and avoiding spending them down.

One of the main architects of Superannuation Paul Keating implicitly acknowledged this problem by proposing an aging insurance levy — a new tax. This is not a bad idea but it needs to be seen in the context that the Superannuation system already costs the tax system a huge amount of money just as much as the aged pension whilst not actually meeting its objectives as a public policy either in providing retirement incomes or in managing risks.

Presently the government has introduced a bill that would implement 14 of the royal commissions 148 recommendations. This comes after the then opposition criticized the Morrison government for its bill which also implemented a small number of the commission’s recommendations (The Morrison bill did not pass). Some of the provisions like a new pricing authority indicate a move away from the service provider and consumer centric framework that dominated aged care policy in the past. Others, like giving providers immunity from being sued for use of restraints (not recommended by the royal commission) worryingly hint at the influence of lobby groups. Perhaps the government will implement further changes going forward but its hard to avoid the conclusion that so far it has not seized the reign of governance on this issue, or in the area of economic policy more generally. Even more than a bold reformist government what Australia needs is a new economic consensus, one that realizes the ways the current framework based on consumer choice has consistently failed.