The Times Australia
The Times World News

.

Our older population will triple in 40 years. But a social insurance model won't fix the aged care funding crisis

  • Written by Henry Cutler, Professor and Director, Macquarie University Centre for the Health Economy, Macquarie University
Our older population will triple in 40 years. But a social insurance model won't fix the aged care funding crisis

Preliminary data from the 2023 Intergenerational Report[1] shows Australia’s population aged 85 and over is set to more than triple over the next 40 years. This will exacerbate existing strains[2] on the aged-care system.

The government’s Aged Care Taskforce is investigating[3] aged-care funding options to develop a “fair and equitable” system, while exploring efficiency, affordability and sustainability.

The government will spend more than A$146 billion[4] on aged care in the next four years. General tax revenue will cover that cost, mostly funded by individual income tax receipts. But the government is concerned general tax revenue won’t be enough to fund the expected growth in aged care, in the near future and longer term.

There are three primary options to increase aged-care funding. The government can either increase its contribution, ask consumers to pay more, or use a combination of both.

The need for more consumer contributions has dominated[5] recent aged-care debates. The less asked, but more important, question is whether the general tax revenue model the government uses to fund aged care is an appropriate model to promote sustainability.

While a social insurance model[6] is the main alternative, it won’t be the silver bullet we’re looking for to fix our aged-care funding crisis.

Read more: Aged-care funding reforms must ensure users pay their fair share[7]

How would social insurance work?

A social insurance model would use either voluntary or compulsory contributions from worker salaries to cover the cost of aged-care services.

It could include a prior build-up of funds, where consumers draw on accumulated savings to purchase aged-care services. Alternatively, it could operate as a pay-as-you-go (PAYG) system, where consumers draw on worker contributions each year, with an understanding that workers will draw on future contributions when they require aged care.

The first social insurance model was established in 1883 by the first chancellor of the German Empire, Chancellor Otto von Bismarck. He wanted blue-collar workers to remain healthy and productive by providing access to health-care services.

The “Bismarck” model has since permeated throughout Europe, funding health-care systems in Germany, France, Switzerland and the Netherlands.

While this model works reasonably well in these countries, whether a social insurance model is right for funding aged care in Australia is debatable. How social insurance levies are applied matters to efficiency and equity.

Is social insurance efficient?

An efficient funding model collects and distributes revenue for the least cost possible. A social insurance model would require new legislation and a government agency managing reserves, increasing administration costs.

Less visible but more substantial funding model costs are from market distortions associated with the revenue collection mechanism such as personal income tax or a levy.

Whether a social insurance model is more efficient from a market perspective depends on how the government would otherwise increase general tax revenue.

The impact on efficiency from a social insurance model would be equivalent to an increase in income tax rates under a general tax revenue model. Both would reduce take-home pay and potentially reduce the incentive to work, for example, by reducing the willingness to work overtime.

Efficiency differences would occur if the government increased tax rates faced by businesses. This could distort business decisions, potentially reducing investment.

The size of the impact would depend on the size of the tax increase. The Victorian government introduced[8] the mental health and wellbeing surcharge on payroll tax in 2022 to raise funds for improved mental health-care services. While business suggested it would harm growth[9], there is no indication this has occurred.

Read more: Money's tight for young people. Adding a Medicare-style levy to everyone's tax bill is the wrong way to increase aged-care funding[10]

Is social insurance equitable?

Other differences exist between general tax and social insurance models when assessed against equity. An equitable funding model requires people with similar financial means to pay similar amounts, and those with greater financial means to pay more.

Differences primarily result from our ageing population. Under a general tax revenue model, current workers pay for current aged-care services, but may receive more and better quality aged care when older. They will pay less compared to their future cost of care.

Nurse helps elderly man in a wheelchair
It’s difficult to measure future aged-care costs. Shutterstock[11]

A social insurance model that builds up funds may better match contributions with future costs. But this requires a big ask from workers, to simultaneously build up the fund for future aged-care costs and pay for current aged-care costs.

Future aged-care costs are also uncertain. Underestimating costs mean the government will still need to spend more on aged care. Overestimating costs means workers contributed more funding than needed, losing some opportunity to spend on other goods and services, such as holidays.

What else should the government consider?

A social insurance model is a departure from our broader tax system. The government does not ask workers to contribute to their future health-care costs, nor to future social payments such as the aged pension. Both are funded by general tax revenue.

A social insurance model that required a prior build-up of funds would also take years to establish. It would not help with current underfunding problems in aged care, which have provoked poor quality and provider financial distress.

There is no strong evidence to suggest social insurance is more efficient or equitable than a general tax revenue model. Like general tax revenue models, social insurance models are exposed to shifting political winds.

The best path toward sustainable aged-care funding is for the government and consumers to pay more. The problem of securing aged-care funding may lie less in the funding model and more in securing government commitment when fiscal priorities change.

Read more: The aged-care budget delivers for workers but meeting our future needs will require bold funding reforms[12]

Read more https://theconversation.com/our-older-population-will-triple-in-40-years-but-a-social-insurance-model-wont-fix-the-aged-care-funding-crisis-211191

Times Magazine

Building a Strong Online Presence with Katoomba Web Design

Katoomba web design is more than just creating a website that looks good—it’s about building an online presence that reflects your brand, engages your audience, and drives results. For local businesses in the Blue Mountains, a well-designed website a...

September Sunset Polo

International Polo Tour To Bridge Historic Sport, Life-Changing Philanthropy, and Breath-Taking Beauty On Saturday, September 6th, history will be made as the International Polo Tour (IPT), a sports leader headquartered here in South Florida...

5 Ways Microsoft Fabric Simplifies Your Data Analytics Workflow

In today's data-driven world, businesses are constantly seeking ways to streamline their data analytics processes. The sheer volume and complexity of data can be overwhelming, often leading to bottlenecks and inefficiencies. Enter the innovative da...

7 Questions to Ask Before You Sign IT Support Companies in Sydney

Choosing an IT partner can feel like buying an insurance policy you hope you never need. The right choice keeps your team productive, your data safe, and your budget predictable. The wrong choice shows up as slow tickets, surprise bills, and risky sh...

Choosing the Right Legal Aid Lawyer in Sutherland Shire: Key Considerations

Legal aid services play an essential role in ensuring access to justice for all. For people in the Sutherland Shire who may not have the financial means to pay for private legal assistance, legal aid ensures that everyone has access to representa...

Watercolor vs. Oil vs. Digital: Which Medium Fits Your Pet's Personality?

When it comes to immortalizing your pet’s unique personality in art, choosing the right medium is essential. Each artistic medium, whether watercolor, oil, or digital, has distinct qualities that can bring out the spirit of your furry friend in dif...

The Times Features

How much money do you need to be happy? Here’s what the research says

Over the next decade, Elon Musk could become the world’s first trillionaire[1]. The Tesla board recently proposed a US$1 trillion (A$1.5 trillion) compensation plan, if Musk ca...

NSW has a new fashion sector strategy – but a sustainable industry needs a federally legislated response

The New South Wales government recently announced the launch of the NSW Fashion Sector Strategy, 2025–28[1]. The strategy, developed in partnership with the Australian Fashion ...

From Garden to Gift: Why Roses Make the Perfect Present

Think back to the last time you gave or received flowers. Chances are, roses were part of the bunch, or maybe they were the whole bunch.   Roses tend to leave an impression. Even ...

Do I have insomnia? 5 reasons why you might not

Even a single night of sleep trouble can feel distressing and lonely. You toss and turn, stare at the ceiling, and wonder how you’ll cope tomorrow. No wonder many people star...

Wedding Photography Trends You Need to Know (Before You Regret Your Album)

Your wedding album should be a timeless keepsake, not something you cringe at years later. Trends may come and go, but choosing the right wedding photography approach ensures your ...

Can you say no to your doctor using an AI scribe?

Doctors’ offices were once private. But increasingly, artificial intelligence (AI) scribes (also known as digital scribes) are listening in. These tools can record and trans...