The Intergenerational Reports Hidden Headline: Aged care funding dropping 46% per person over the next 40 years.

As demographics shift, and as medical advancements continue to increase life expectancy, societies worldwide face the challenge of caring for an older population. Australia is no exception. According to the Intergenerational Report 2023 (released August 24), government spending on aged care services is expected to rise significantly in the coming decades. However, does an increase in nominal spending necessarily mean better care for older Australians? A closer look reveals some surprising insights.

The Numbers Today 

In 2022, Australia's GDP was $1.675 trillion, with 1.1% allocated for aged care services. This amounts to approximately $18.425 billion. The current population utilizing these services is broken down as follows:

• Residential aged care: 188,000 people
• Home care: 216,000 people
• Transition care: 3,500 people
• Home support: 818,000 people

In total, 1,225,500 individuals are using these services, translating to roughly $15,041 spent per person on aged care services in today's dollars.

The Future Projection

The number of Australians over the age of 80 is expected to triple in the next 40 years, and Australia's GDP is projected to grow to $3.2 trillion by 2063. At that time, the government plans to allocate 2.5% of GDP to aged care, amounting to a nominal $80 billion.

 

Following current trends, the number of people requiring aged care would reach about 3,676,500 in 2063. The nominal amount spent per person would then be around $21,755. 

The Real Value of Money: Adjusting for Inflation

Here's where it gets interesting. While $21,755 in 2063 might sound like an increase compared to today's $15,041 per person, we must account for inflation. Assuming an average annual inflation rate of 2.2% over the next 40 years, that $21,755 in 2063 would equate to approximately $8,102 in today's dollars.

The Hidden Reality

This suggests that even though it appears that the Australian Government is increasing its spending on aged care services, the real value of spending per person is expected to decline from around $15,000 to about $8,100 over the next four decades—a 46% decrease. This paints a very different picture and reveals a potential gap in resources dedicated to aged care.

The Crude Grouping of Aged Care Services

This analysis offers a rather crude approach by grouping all types of aged care services together. Different forms of care have vastly different costs. For example, residential care generally requires much higher per-person spending compared to home care. Despite this simplification, the trend remains significant.

Factors to Consider

• Rising Costs of Healthcare: Healthcare costs often rise faster than general inflation, reducing the actual purchasing power of these funds.
• Quality of Care: As the population ages, the nature of care required becomes more complex, necessitating more specialised and generally more expensive services.
• Policy Changes: Future government policies could change these projections. Such changes could include increased funding, more efficient services, or shifts in the type of care subsidized.
• Medical Advancements: Numerous recent advancements offer hope for longer life expectancies and healthier lives in old age. This could offset some costs, as healthier seniors require fewer medical interventions. However, it will also increase the size of the cohort needing aged care services.
• Lifestyle Trends: The growing prevalence of lifestyle diseases like obesity comes with a host of health complications and added healthcare costs.
• Different Aged Care Models: There is already a push for less costly home care services over residential care. Whether this trend will be sufficient remains an open question.
• Modelling Accuracy: Modelling took a bit of a hit during the pandemic! Projecting far into the future is challenging, but there is value in attempting to do so for planning purposes.

Conclusion

While it is commendable that the Australian Government plans to allocate more resources to aged care, the future may not be as rosy as initially thought when accounting for inflation. These projections offer critical insight into the long-term planning needed to ensure older Australians are not just accounted for but are also cared for in a manner that is both dignified and sustainable.

 

Given the trends, there is a continuing need for innovation in the sector. Planning for the future should involve more than just nominal dollar amounts; it must also address the real value and the changing complexities of providing quality aged care.