Archive Article: Who Pays For Aged Care? July 1998
December 22, 2008

There is a great deal of discussion about economic reform. But not too much attention is being given to how this will affect older Australians. Now there is a very useful publication which highlights some of the main issues.

The NSW Committee on Ageing has published a book entitled Who Pays? The Impact of User Pays and Economic Policy on Older People. The Committee has made the book available to the general public and it is inviting public comment. The first half of the book is by Michael Fine and Jennifer Chalmers of the Social Policy Research Centre of the University of NSW and they look at the application of user pays principles to government programmes for older Australians. The second half is by Elizabeth Savage of the Department of Economics, Sydney University, and she examines the trends in economic policy for older Australians.

There are five points worth noting. First, user pays is becoming very fashionable in government economic policy. “User pays” means charging customers in such a way that the prices reflect the costs of providing the goods or services. The theory is that people should pay the true cost of what they are getting – and they will make a rational decision as to whether they really want to buy the goods or services. But quite often user pays is not followed. For example, the basic cost of posting a letter is 45 cents. City people subsidize the rural sector because it is cheaper to deliver in the cities than in the rural sector. Additionally, there is the standard Telecom example of where the cost of connecting a rural property to the national telephone system was greater than the value of the property itself. User pays was not followed in these cases because governments have thought it important to encourage people to stay on the land. In aged care, there are similar problems of user pays. For example, as this book points out, a person in what used to be called a nursing home may often receive care similar to that received in a hospital. But whereas a resident in a nursing home will be charged, a hospital patient will not.

Second, there is a not a proper market for aged care. There is not the unrestricted entry of providers of aged care. On the contrary, the number of available beds is limited by government. The consumer is forced to take what is available, even if it is not suitable, rather than being able freely to choose between a range of viable alternatives.

Third, a person with dementia or a frail older person unable to live on their own cannot be considered as the “rational individual maximizing self-gain”, which is the basis of the theory underpinning user pays and much else of the so-called rational economics.

Fourth, older Australians may lose out from a goods and services tax. A GST places weight on expenditure, rather than income. Older Australians often have a limited income but still need to spend money. The GST will need to have a safety net to make sure that Older Australians do not lose out in the tax reform changes. In short, the report clearly indicates the need for a sceptical approach to current economic policy as it relates to older Australians.

BROADCAST ON FRIDAY JULY 31 1998 ON RADIO 2GB’S “BRIAN WILSHIRE PROGRAMME” AT 9 PM, AND ON AUGUST 2 1998 ON “SUNDAY NIGHT LIVE” AT 10.30 PM