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What Boomers Want: A Sustainable Model for Aged Care

Published: April 07, 2010 in Knowledge@Australian School of Business
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Aged care worldwide is a booming business, literally. The number of people aged over 85 in Australia is predicted to grow to about 1.6 million over the next 40 years, presenting a significant challenge to industry and government. If the challenge of dealing with the growing diversity of needs, preferences and wealth of increasing numbers of elderly isn’t enough, on top of it are the added demands and aspirations of the baby-boomer generation.

Referred to globally as the “me generation” due to their relative power and wealth, the first of the post-war babies are reaching the official retirement age and are starting to use their influence for change. Members of this generation are used to getting what they want and have high expectations for their final years, says demographer Bernard Salt, a KPMG director.

Should the existing model of government regulation of aged care continue – with little or no new infrastructure, outdated services, declining home care and set fees – baby boomers will be far from satisfied, Salt says. “The [aged care] industry has a long way to go, and about 20 years, before it provides a much higher level of service for a vast number of Australians. All the indications are they will want ultra-upmarket facilities which many will be prepared to pay for if the funding model allowed.”

One third of all men and half of all women aged 65 and over can expect to go into permanent residential care at some time in their lives, with 82 being the average age of entry for both men and women, the federal Department of Health and Ageing says.

The explosion in the number of older people needing care is creating unprecedented pressure to develop a robust and sustainable industry where the needs of residents, the facilities and government budgets are met. The latest Intergenerational Report predicts that government spending on aged care will increase from 0.8% of gross domestic product to 1.8% in the next 40 years due to high growth in the number of people aged 85 and over.

So far, the only indication of just how demanding some baby boomers will be is through the demands they are placing on facilities where many of their parents are living. “The child of an existing resident can be a very difficult client,” Salt says. “They are often critical of the services and are at odds with what their parents should be doing. Often it’s tied up with their guilt about what they should be doing to look after their parents – but, nonetheless, they can be very demanding.” He expects government to come under further pressure to outsource services to enable people to “age in place” for as long as possible.

The influence of the baby boomer generation is creating a higher level of services and care within aged-care facilities, the chief executive of the peak aged-care body, Aged & Community Care Victoria, Gerard Mansour, notes. However, he has concerns that parts of the aged-care industry may decline – as shown by a drop in home community-care services for the aged, a shortage of suitable beds and staff shortages in some facilities – unless the industry is reformed to reflect the challenges of a population growth wave, along with the expectations of prospective and existing residents.

Count the Cost of Fees

A rethink is required to create sustainable business models for aged-care facilities to make them more appealing to investors. This may involve wealthier aged-care residents paying more for services or considering alternative taxpayer-funded, government-owned facilities.

The federal government fully regulates the aged-care industry by allocating the number of places, setting funding levels and controlling fees. Aged-care facilities are categorised as low care (nursing homes), high care (hostels) and high care with extra services. Individuals are assessed by the government to determine the level of care required.

A further assessment of assets and income determines whether individuals must pay – on top of a basic daily-care fee – an income-tested fee and an additional accommodation bond or charge. Only those requiring a hostel bed are required to pay an accommodation bond as well as a daily-care fee and, potentially, an income-tested fee.

The bond – akin to an interest-free loan – may be set by the facility and can be anywhere from A$100,000 to A$600,000 depending on its location, age and the types of services it offers. The average bond is A$188,000. Calculated on the level of assets held by prospective residents, it is the only negotiable fee.

A big problem for the industry is in the existing fee/cost structure, considering that almost three quarters of people entering aged care arrive via hospital following an accident or illness and require a high-care hostel or nursing home. In these cases, facilities are unable to charge an accommodation bond, even if people can afford it and are prepared to pay. Instead, they charge a capped accommodation charge, the daily-care fee and a potential income-tested fee – which doesn’t come close to covering costs. The industry says the funding cap placed on facilities by government allows for about half of the real cost of caring for residents, which creates an unsustainable business model.

Mansour believes the solution lies in charging a range of flexible lump sum or daily fees for those who can afford to contribute to the cost of aged-care accommodation, while government continues to protect those who have limited financial capacity. “The government needs to work out a strategy where people who do have wealth make a contribution to the costs of accommodation,” he says. As well as doing away with the outmoded low-care/high-care system, he wants a flexible needs-based funding model where all residents negotiate with facilities on the payment of bonds, daily fees or a mixture of both.

Martin Jones, business development manager and technical trainer with specialist advice firm Aged Care Financial Services, says the growth area most likely to appeal to boomers is the “extra-service facilities” offered by a few high-care facilities. For an extra fee, residents may get extras such as a choice of meals, a glass of wine with dinner and a newspaper delivered to the door. Charging residents an accommodation bond is the only way a facility can invest money to provide the standards in rooms and facilities many residents want. “Currently, 94% of the country’s nursing homes are standard while 6% are ‘extra-service’ facilities which can charge an accommodation bond and offer things like TV rooms and extra sitting rooms,” Jones says. “As more facilities are being built, they are applying for extra-service status because it’s one area where they can make money – but there are no guarantees they will get it.”

With the current return on aged-care facilities estimated at 1% and many running at a loss, it is little wonder they struggle to attract investors. But even the not-for-profits that dominate the provision of aged-care facilities should not have to run at a loss, Jones says. Facilities, whether owned and run by religious or charitable organisations or private providers, should be able to make money. “If the government doesn’t think they should make money then they should buy them and run them to the standard that the community expects. Many facilities are running at a loss just keeping up with the government’s own accreditation standards, which just doesn’t make sense.”

Not Lost in Transition

Professor John Piggott, director of the Australian Institute for Population Ageing Research at the University of New South Wales, expects that the aged-care industry will continue to be government subsidised and regulated for the foreseeable future while some of the challenges are addressed.

“It is not particularly satisfactory at the moment but at least there’s awareness in government that the issues around funding and the facilities themselves exist,” he says. As well as changes to current funding arrangements, which “can completely up-end” families’ financial arrangements when someone has to go into care, transition arrangements need to be addressed, Piggott says. “It is hard to move from low care to high care without moving location, which can be very upsetting for the individual and the family.”

Despite the challenges, it is not all doom and gloom, he says. Technology allowing remote-care monitoring within the home, thus pushing out the current urgent nature of acute care within a hospital or nursing home, will make the “ageing in place paradigm” feasible.

Pamela Heath, founder of Classic Moves, a specialist in relocation services for seniors, sees a growing trend for the elderly to remain at home as long as possible. In addition to a thriving business helping them to relocate into aged-care facilities – which can involve everything from sorting through possessions to finding homes for pets, selling items at auction, getting a house ready for sale and setting people up in a new environment – she is making homes safer and removing excessive clutter to enable people to stay at home longer.

Specialist financial planners who understand the complexities of a system administered largely by the Department of Health and Ageing and the federal government’s social services agency, Centrelink, are also blossoming.

How individuals structure their finances before going into facilities can make a substantial difference to the fees they may have to pay. Jones sees a growing need for training workshops for facilities as well as financial advice for individuals. “The most popular training session we run for the staff of facilities is on the financial aspects of aged care. Most of the people come from a care background and so finance isn’t part of their knowledge base.”

Dana Sawyer says her Millennium Aged Care placement business, which aims to take the mystery out of aged care by explaining people’s options, is growing as people realise they have choices. “Many people don’t understand aged care at all; the benefits of it, how far it has come and the alternatives they have. It caters for all levels of wealth, cultural differences, care needs and the expectations of how people want to live. The big thing that’s missing is that people don’t realise going into an aged-care facility is voluntary. You don’t have to go somewhere just because you are told to. There are many options and more and more people are realising that.”

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