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Funding of Residential Aged Care – 2011 - Under review

The residential aged care sector is under growing pressure as the number of older Australians aged over 85 is projected to increase over 4 fold by 2050. Given the importance of the residential aged care sector in the broader health care context, this statement outlines the AMA's position on the funding of residential aged care and proposes the principles that should underpin the development of a new funding model.

30 Nov 2011

At some stage in most people’s lives, individuals become physically frail and have diminished cognitive ability as a result of the ageing process. Consequently older people need support to ensure they receive adequate nutrition, assistance with taking medications for chronic illness, regular monitoring for illness, assistance with daily living and household chores, access to social activities, and frequent and regular human contact.

This can often be the most medically intensive period of any person’s life. For example, Australians aged 65 years or over account for around 50 per cent of all patient days in all hospitals.1 In 2010-11, 26 per cent of Medicare expenditure on Level B and Level C specialist general practitioner consultations was spent on Australians aged over 65.

Care for older Australians at this stage of their lives in the appropriate environment is a basic human right. The consequences of care in an inappropriate environment have implications for the wider healthcare system, including avoidable hospitalisations and excessive health costs.

For some older Australians, an episode of acute illness might be the event that means they can no longer live in the community. Others may continue to live independently in the community, or with support from their families and volunteers, or with community care packages.

Improved community care support is vital to reducing the increasing need for people to access both acute care and residential aged care facilities.

1. Residential aged care services

1.1 When people are no longer able to live independently within the community due to health and social reasons, it is essential that they can access affordable and appropriately resourced residential aged care services. The purpose of providing residential aged care facilities is to provide accommodation and care that cannot otherwise be provided in the conventional community setting.

1.2 There should be an appropriate level of accommodation, staffing, and personal and health care services for those who have to move into residential aged care to cater for their physical, functional and psychosocial needs.

1.3 The range and quality of residential aged care services should be set by an independent standards setting body.

1.4 Older people should be able to choose additional services according to personal preferences and capacity to pay.

2. The current policy context

2.1 Formal aged care services in Australia are predominantly financed by taxpayers with some user co-contributions. In 2009-10, around two thirds of total Government expenditure on aged care services ($11 billion) was directed at high care and low care places in residential aged care facilities. $3.7 billion was used to fund community care packages (CACPs, EACH and EACH-D), the Home and Community Care program, assessment and information services and services provided in mixed delivery settings.2

2.2 Australia’s residential aged care costs will increase as the number of Australians aged 85 and over is projected to increase from 0.4 million in 2010 to 1.8 million by 2050.3 In the same period, Government spending on aged care is expected to rise from 0.8 per cent of GDP to 1.8 per cent.4

2.3 The AMA acknowledges that universal access to quality residential aged care is unlikely to be achieved without some financial transfer from the younger to the older generation or use of personal resources. These intergenerational transfers will become an increasing challenge as the aged population grows as a proportion of the total population and at the same time the growth in workforce slows.

2.4 It seems increasingly likely that funding of residential aged care based only on intergenerational transfers will be unsustainable. There will need to be policies that support and encourage subsequent generations to develop sustainable funding models for their aged care.

2.5 Evidence is growing that the current residential aged care sector is not an attractive market for investors and is not well placed to deal with the increased demand for its services. This is illustrated by only 5,643 of the Government’s 8,140 proposed residential aged care places being allocated in the 2009-10 Aged Care Approval Round.5 A recent viability study by Deloitte Access Economics also calculated that investment in high care places is not viable under current policy settings.6

3. A suitable funding model

3.1 The principles underpinning a new model are that it:

  • Provides universal access for every Australian to the basic standard of residential aged care services according to their needs, regardless of their ability to pay;
  • Spreads the costs for those who need longer than average residential aged care;
  • Permits individuals to choose their provider and to pay for additional or higher quality services if they choose; and
  • Provides certainty to residential aged care providers and is sustainable for future generations.

3.2 Urgent policy development and planning is needed now because there will need to be a significant transitioning period to implement any new funding model. During this period, arrangements will need to be put in place for people who have immediate need for residential aged care, possibly including a safety net for those who are unable to meet additional costs.


1. Australian Institute for Health and Welfare 2011, Australian hospital statistics 2009-10, p 143.

2. Productivity Commission 2011, Caring for Older Australians, Volume 1, p 30.

3. Commonwealth of Australia 2010, Australia to 2050: future challenges, p 56.

4. ibid.

5. Productivity Commission 2011, Caring for Older Australians, Volume 1, p 124.

6. Deloitte Access Economics 2011, The viability of residential aged care providers, p ii. [accessed on 18 October 2011]

Published: 30 Nov 2011