Budget 2009-10 - Pension Review Report

6. Concessions and services

Overview and findings

Concessions and services play a critical role in the social protection system by responding to the high needs that some pensioners have because of health conditions and some types of disability. These high needs, as discussed in Chapter 3, are difficult to respond to through the payment system. While the base rate of pension can address the ‘normal’ level of health and related service costs faced by most pensioners, where the level of need for these services is higher this is no longer the case.

This chapter discusses issues around health care concessions, and the targeting and sustainability of the existing system of concession cards. The chapter presents evidence relating to the relative needs of different pensioners, and the long-term sustainability of the services system, including the demand for and supply of informal care. In relation to services, it discusses the service delivery reform agenda being developed under the auspices of the Council of Australian Governments, especially the National Disability Strategy, as well as the work of the Disability Investment Group.

The Review considered that reform of the targeting of concession cards is a priority. This is a long-term area of work because of the administrative and policy complexity of concession cards, which needs to be undertaken in close consultation with others, including state and territory governments.

Finding 20: The Review finds that the targeting of concession cards does not effectively complement the role of income support in addressing the needs of groups with high costs and that this needs to be addressed in consultation with the states and territories. (Section 6.5.2)

The Review has also identified reform directions for the Commonwealth Seniors Health Card.

Finding 21: The Review finds that, subject to more detailed considerations of the targeting of concessions, there is merit in maintaining the function of the Commonwealth Seniors Health Card in making health concessions available to people who are not eligible for the Age Pension, but have similar levels of income to age pensioners. Further, the Review considers that there would be a case for aligning the definitions in the income test for the Commonwealth Seniors Health Card with those of the pension income test. (Section 6.5.2)

The Review supports the reform processes for the long-term funding and sustainability of the services and support system currently in train. The Review has therefore made a number of findings intended to strengthen the contribution that these reform processes will make to the capacity of the services system to support pensioners with high needs because of health or disability.

Finding 22: The Review finds that the reforms to services and support being developed by the Disability Investment Group, and under the National Disability Strategy and the National Disability Agreement, in particular the development of a more person-centred approach that cuts across service boundaries and seeks to tailor a targeted package of support, are vital steps towards providing adequate support to those who have high and complex needs. (Section 6.5.3)

Finding 23: The Review finds that the development of new approaches to funding services and support for people with disability is important to the long-term sustainability of the system. In particular, the idea of a National Disability Insurance Scheme is worthy of further consideration. The Review notes that both the Council of Australian Governments and the Disability Investment Group are examining the long-term sustainability of the services system, and that the Australia’s Future Tax System Review Panel has noted that the funding of services is a significant issue and will consider how alternative approaches would fit into the structure of the overall tax-transfer system. (Section 6.5.4)

Finding 24: The Review finds that reviews of funding arrangements should take into account the need to ensure that people with disability and carers have better opportunities to establish and maintain links with the labour market and through that are able to contribute to their own retirement incomes.(Section 6.5.5)

6.1 Terms of reference

In addition to their relevance to the first term of reference on the adequacy of the pension discussed above, services and concessions are directly considered in the third term of reference concerning ‘the structure and payment of concessions or other entitlements that would improve the financial circumstances and security of carers and older Australians’.

In considering these matters the Review was mindful that the question of the provision of services is also the focus of the work of a number of other processes, including the Council of Australian Governments, which is seeking to implement systematic reform in the areas of aged care, mental health and disability services; the development of the National Disability Strategy; and the work of the Disability Investment Group.

While a number of aspects of concessions and services are considered in this chapter, and specific findings made, it is recognised that in some cases these will serve as inputs to, or complement, these other processes rather than forming the basis of immediate policy options. It is also noted that in these considerations the Review did not substantively address the issue of aged care services, including the important implications of population ageing for these services. As discussed in Chapter 2, the consequence of the funding of these to meet the needs of a larger, older population is a major driver of projected expenditures in the Intergenerational Reports and represents one of the important aspects of risk, including longevity risk. This issue is one of the matters being considered by the Australia’s Future Tax System Review Panel.

6.2 Role of concessions and services

In Section 2.1 services were identified as core elements of the social protection system in Australia, in complementing the role of pensions, compulsory superannuation and private savings. Further analysis in Chapter 3 identified the more specific role of services in addressing the diversity of needs across the pensioner population, a function that is difficult to achieve through transfer payments alone.

The most important areas where concessions and services are provided to pensioners are:

the purchase of essential products and services, including non-discretionary expenditures that are important to maintain a basic quality of life, such as the cost of health care, pharmaceuticals, medical services, and aids and equipment for people with health conditions or disability
supporting housing and personal infrastructure. This includes the provision of social housing and accommodation and living support services including respite care and other services that play an important role for people with disability and their carers. In addition, concessions are provided for much larger, often periodic expenditure, such as rates, utilities and motor vehicle registration
daily expenditures relating to economic and social participation, which are often small but frequent, such as the cost of public transport. In addition to concessions offered by government, many private sector concessions are also offered in these spheres
employment, education and training services to help pensioners, and former pensioners, to support themselves through the labour market.

Concessions and services are dealt with separately in this chapter because the Review considers that, despite their similar purpose, concessions and services are different policy levers that operate in different ways:

The Review has used the term ‘concessions’ to describe fee or price reductions, subsidies and discounts for demand-driven goods and services, that are usually applied at the point of sale or through taxation (for example the GST exemption on cars for people with disability). Concessions are generally used to provide more affordable access for low-income groups to necessary goods and services such as water, power, health care and transport. As user charges are increasingly applied to these goods and services, concessions are becoming more important to low and fixed income groups.
The Review uses the term ‘services’ to encompass a range of capped and uncapped programs funded by different levels of government to ensure that demand for specialised individual assistance can be met in cases where ‘natural’ market-based solutions are not available or appropriate.

However, in many cases the boundaries are blurred. While the Review has used the term ‘concession’ in a specific sense, ‘concessionally provided goods and services’ go wider than this and potentially include all government services that are delivered below market price.

6.2.1 Administration of services and concessions

The Commonwealth concession card system generally acts as a gateway to concessions throughout Australia. However, all levels of government are involved in the delivery of concessions and services.

The Australian Government plays a central role in the provision of health and related services and concessions, including the Pharmaceutical Benefits Scheme and Medicare co-payments and safety nets, as well as the Commonwealth Dental Health Program, which provides funding to the states to deliver public dental services. The Australian Government also provides a rebate on the cost of private health insurance cover. The value of this rebate is currently 30 per cent for people aged under 65 years, rising to 35 per cent for people aged 65 to 69 years, and 40 per cent for people aged 70 years and over.

Individual state and territory governments largely fund and administer concessions in their areas of responsibility and, along with local governments, make decisions on the type and level of concessions they offer. In addition to the provision of concession cards as a ‘gatekeeper’ to concessions, the Australian Government contributes funding towards state-based concessions through a national partnership developed as part of the Council of Australian Governments Specific Purpose Payment reform agenda. This partnership specifies a number of core concessions the states must provide to all Pensioner Concession Card holders, and stipulates that the states will provide public transport concessions for all Seniors Card holders, irrespective of their state of residence.

The scope of state concessions includes council and other property based rates; utilities, including energy, water and sewerage; public transport; and motor vehicle registration. The forms of concessions include fixed amount discounts; percentage discounts that may also be capped at a maximum dollar amount; rebates on or exemptions from charges; and vouchers.

Central to the needs of Australian pensioners are also the services delivered through Commonwealth funding of payments to the states for specific purposes, in particular the:

$60.5 billion National Healthcare Specific Purpose Payment
$5.3 billion National Disability Services Specific Purpose Payment
$6.2 billion National Affordable Housing Specific Purpose Payment.

These payments and associated national agreements contain objectives, outcomes and performance indicators, and clarify the roles and responsibilities that will guide the Commonwealth and states in the delivery of services.

In addition, the Australian Government requires Telstra, as part of its carrier licence conditions, to have in place a package of products and arrangements for low-income consumers. This package, called ‘Access for Everyone’, comprises initiatives that address a wide range of low-income consumer needs, including concessions to help offset line rental for eligible pensioners. It contains measures specially targeted at holders of Pensioner Concession Cards, Health Care Cards and Low-Income Health Care cards, as well as more specific assistance targeted at the homeless and other high needs individuals and more general obligations concerning access to payphone and fixed line services across locations.

Finally, the private and not-for-profit sectors also offer concessions on specific goods or services.

6.2.2 Charging regimes

In most cases consumers are required to pay a fee or charge to purchase or access services and concessionally provided goods. The charging regimes for services and concessions can have a number of goals:

Charges can be levied to provide for a degree of cost recovery, often based on an assessment of ability to pay.
Co-payments are often used as a means of limiting the consumption of particular services through introducing a price signal to indicate that services have an economic cost and to limit over consumption.
At the same time, concessions seek to minimise the impact of such signals where they are considered to create a barrier to accessing the service. In this way concessions moderate the impact of price signals for those on low or fixed incomes, which is particularly important in areas where demand is inelastic.
While some concessions relate to a reduction in user charges, in other cases the charges they apply to are more akin to taxes, and the targeted ‘concession’ should be seen as a targeted taxation offset (for example, concessions on rates and motor vehicle registration charges).
In some cases ‘concessions’ involve subsidies from government or cross-subsidies between consumers, in other cases they can be a pricing mechanism. For example, concessional off-peak fares may reflect the very low marginal cost of transport service during those periods.

The charging regimes for concessions and services therefore have to achieve a balance between sending a price signal to consumers, providing for cost recovery and ensuring that low-income households have access to essential goods and services.

6.3 What the consultations told us

Participants in the consultations expressed very strong views on access to services and concessions. Pensioners stated that they consider concessions to be important to their standard of living and many called for their extension. Indeed, 35 per cent of all written submissions from individuals and 65 per cent of submissions from organisations proposed additional assistance through concessions. They also saw gaps in services and the high cost of obtaining them, especially in the area of health, as being two of the largest risks to their wellbeing and security.

Consistently throughout the public forums, written submissions and focus groups that formed the consultative process, the most frequently raised concern in the area of concessions and services was the cost of health care, including medical and dental treatment and pharmaceutical expenses.

Other recurring issues were the cost of transport, as well as the complexity of the current system of services and concessions, targeting of concessions and the lack of consistency in services and concessions across state boundaries.

6.3.1 Consultations—adequacy and targeting

A large proportion of submissions discussed concessions as part of their concerns about the adequacy of the pension. This reflects the way in which increased concessions, if directed at the goods and services pensioners wish to consume, can have a similar impact to increased levels of income—or reductions in cost.

Participants in the focus groups said they strongly valued the reduction in the price of medical prescriptions, public transport and council rates that they received through concessions, reporting that these were central to their ability to get around including accessing medical services, visiting family, going shopping and socialising. Participants expressed strong views that existing concessions were not set at ‘realistic levels’ and had not kept up with ‘real world’ increases in prices.

There was also a feeling that concessions and services should be more flexible in order to meet people’s differing needs, particularly those with high service needs. Pensioners with ill health or disability and carers noted the extra costs many of them incur, and pointed out that pension payments do not take into account differences in the level of care required. Many submissions cited the circumstances of people with multiple disabilities or health conditions who often have significantly greater medical costs and requirements for aids and assistance. In such situations it was pointed out that while any one particular co-contribution or cost may not be an impediment to access, when a large number of services were required, the co-contributions could be overwhelming.

In addition to concerns about costs, a number of submissions referred to the limited range of services available and the poor coordination of services.

Other concerns related to the complexity of the system. Issues included a lack of awareness of entitlements, especially for those on a part-rate pension or who had a spouse who was not a pensioner. Others cited the problem of having to navigate new systems of concessions and processes after moving interstate. Many were concerned about the lack of consistency between states in the availability of concessions and differing levels of concessions and entitlements. There were calls for concessions to be nationally consistent in the written submissions from organisations (15 per cent), particularly among organisations representing people with disability and carers’ representatives (26 per cent and 43 per cent respectively). There was a clear message that state and Commonwealth governments need to work together to improve the system and ensure equity and consistency in the way core concessions and services are delivered.

A number of submissions argued that services and concessions should be better targeted to address the circumstances of those pensioners with the highest needs and lowest means. They suggested that the very broad-brush approach of current policies was resulting in services and concessions flowing to those who were considered by others as being capable of supporting themselves. A central theme in this argument was the fact that benefits are available to Commonwealth Seniors Health Card holders, despite the fact they had incomes much higher than that of a pensioner.

6.3.2 Consultations—medical and dental services

Of all services that pensioners use, health services were seen overwhelmingly as the most important. Among written submissions, 13 per cent of individuals and 31 per cent of organisations indicated that health care costs were a major concern. This concern was particularly apparent among people receiving Disability Support Pension, the organisations that represent them and carers’ organisations (21 per cent, 52 per cent and 43 per cent of submissions respectively).

Participants at the focus groups thought that additional health services would be the most useful means of improving their standard of living. When participants were asked to nominate one thing they refused to go without, the most popular category identified was ‘medicine and health care’. Difficulties in accessing affordable dental care and medical specialists, particularly for people with chronic or multiple conditions, were frequently discussed.

While many medications, aids and services are subsidised, pensioners are concerned that others are not. Many mentioned the high costs of specialist fees, the difficulty in finding bulk-billing doctors and the inconsistent approach to bulk-billing by those doctors who do offer this service. Even where items are subsidised, there can be delays while the subsidy is approved, or it may be necessary to pay for the service up front and claim reimbursement later (for example, when seeing doctors or specialists who do not bulk-bill). Several individuals talked about forgoing specialist treatment due to cost.

Dental services and concessions were also identified as a pressure point. A number of submissions discussed long waiting lists for public dental services (of up to two years) and the choices individuals have to make between paying high prices for private dental treatment and putting up with pain and discomfort and neglecting their dental care. Additional assistance for medical and health-related expenses (including dental care) was the most frequently raised proposal relating to concessions and services in submissions from individuals (raised in about 13 per cent of submissions).

Submissions from organisations also raised concerns about the current level of assistance for medical and health-related expenses. One peak non-government organisation suggested that all those not in paid employment be allowed access to bulk-billing from all medical practitioners, and that bulk-billing be extended to dental services for this group.

Largely as a consequence of the above concerns, maintaining private health cover was seen by many in focus groups as essential to gaining access to services. A high proportion of participants at each of the focus groups reported facing significant health care costs in the form of prescription medication, specialist visits, medically related travel and/or health insurance. Without private cover, they said they would face long delays to access treatment through the public system. Although it placed a significant financial strain on the budget and was seen as excessively expensive, these pensioners said that they had chosen to make sacrifices in other areas to ensure they could afford private cover.

6.3.3 Consultations—cost of pharmaceuticals and aids

Numerous pensioners identified the financial strain caused by the cost of medications, particularly those not covered by the Pharmaceutical Benefits Scheme or included in its safety net. There were calls for an increase in the level of Pharmaceutical Allowance and/or changes to the Pharmaceutical Benefits Scheme.

Single pensioners in particular felt they were disadvantaged by being required to meet the same Pharmaceutical Benefits Scheme safety net threshold as couples. (This was $290, or around 58 scripts in a calendar year for each single person or couples combined at the time of consultations.) Many also pointed out that the increase in the co-payment had affected their ability to manage their pharmaceutical costs.

Some pensioners indicated that they were at times unable to fill all the prescriptions issued by their medical practitioners and as a consequence found they were attempting to determine which of the drugs prescribed for them were of the highest priority.

Although the cost of aids affects a smaller group, there was concern about the very high costs of some aids, such as electric wheelchairs, that may be essential for even a basic standard of living for those experiencing some forms of disability. Similarly, the recurrent cost of aids such as incontinence pads can also be very high.

6.3.4 Consultations—transport

Pensioners highly value transport concessions and services but believe that additional assistance is needed. Around 4 per cent of written submissions from individuals and 12 per cent of written submissions from organisations requested additional assistance with transport costs and/or transport concessions. Rising costs associated with running a car (petrol, servicing and insurance), catching a taxi, or taking trains or buses was a significant issue. (It should be noted that the consultations were largely undertaken at a time when fuel prices were around $1.50 to $1.60 a litre.)

Many pensioners discussed the importance of transport as a link to the community and for access to medical services. Lack of access to and/or the cost of transport were particular problems for people in regional areas, who talked about the considerable additional transport (and sometimes accommodation) costs faced in accessing specialist treatment in larger centres or capital cities.

Many pensioners felt that the public transport services in many places in Australia were inadequate, especially for those living in suburban and rural areas. Participants also criticised the current practice of offering public transport discounts at certain hours of the day (such as off-peak times) because they considered this falsely assumed pensioners have a choice around the times they need to access public transport in order to get to medical appointments or part-time jobs.

6.4 What the evidence shows

While particular areas of service provision have been subject to considerable analysis, comprehensive information on the cost and effectiveness of concessions and services is limited. This section considers three matters: the relative needs of different groups of pensioners; the cost and sustainability of concessions and services and the current processes in place for service reform.

6.4.1 Relative needs of different groups of pensioners

As discussed in Section 3.4.3, a particular question faced by the Review was the distribution of need for services across the pensioner population and how to respond to the situation of those who have high needs (often associated with disability or a health condition). A number of proposals were made that there be additional support to particular groups of pensioners, such as those on the Disability Support Pension, to respond to these high needs.

The characteristics of those with disability and caring responsibilities, including the range of disability conditions of those in receipt of the Disability Support Pension, were considered in the Background Paper (Section 3.3.5). The Review considers that the categorical program structure of pensions is a very poor indicator of this type of relative need for support services.

The Review’s analysis has been extended to consider the distribution of health and related costs across pensioners on the Age Pension and Disability Support Pension using data from the ABS Household Income and Expenditure Survey.³²

Chart 23 shows the distribution of health expenditure for couple-only households where one member is in receipt of either the Age Pension or the Disability Support Pension and the household receives at least three-quarters of its income from transfer payments. While the expenditure on health services varies considerably across households³³ both on the Age Pension and on Disability Support Pension, the overall expenditures of age pensioner households are higher. A similar result is achieved when the expenditure of single person only households is considered.

Chart 23 High dependency pensioner couple-only households, health services spending 2003–04

Notes: Pensioner couple households where more than 75 per cent of income is derived from transfer payments. Health service spending includes all medical, hospital, pharmaceutical and related costs but excludes health and ambulance insurance.

Source: Review analysis using ABS 2003-04.

In addition to the difference between couples on these two pensions, Chart 23 also highlights that 50 per cent of age pensioners spend over $12 a week on health services, with 20 per cent of pensioners spending more than $27 a week. While these levels of expenditure reveal little regarding the claim throughout the consultations of unmet health needs due to cost, they do indicate the significance of health services as an item of expenditure for these pensioners.

6.4.2 Cost and sustainability of concessions and services

While, as noted above, only limited systematic information is available on the costs of concessions and services, the available data suggest that the cost to governments of providing these are high:

The three main Specific Purpose Payments in the area of health, disability and housing services have a value of over $70 billion dollars.
Estimates of the expenditure on concessions (both direct and through revenue forgone) by the Victorian Government (DHS 2008) suggest an aggregate value of over $1.1 billion in 2006–07.
The New South Wales Government’s submission to the Review identified the value of rates concessions for pensioners at $132 million a year and energy concessions to those in financial need at $94 million dollars a year.

Sustainability

The long-term fiscal sustainability of the system as a whole is an overriding constraint on the extent to which it can provide security to pensioners. As discussed in Chapter 2, demographic change will place considerable stress on the social safety net, including services and concessions:

The Intergenerational Report indicates that the major impact of demographic change on social expenditures is an estimated increase in the cost of health services from 3.8 per cent of GDP to 7.3 per cent between 2006–07 and 2046–47.
Analysis by the Victorian Government shows that already there are many Local Government Authority Areas where over one-third of residents have a concession card.

Demand and supply of informal care

At the same time that demographic change will lead to an increasing number of people needing care, there will be relatively limited growth in the number of people available to provide that care.

In analysis undertaken for Carers Australia by the National Centre for Social and Economic Modelling in 2004, Percival and Kelly (2004) estimate that between 2001 and 2030 the ratio of principal carers to older people living in private dwellings who require informal care will fall from 57 to 35. In their modelling this was largely as a result of increasing numbers of older people with a care need, rather than a decline in carers.

In addition to these demographic forces, there are other important questions related to the supply of carers and future caring models. It can be expected that the current full-time informal caring model is likely to be affected by changing economic and social circumstances, including preferences for combining work and caring, and/or shared caring arrangements.

6.4.3 Current processes of reform

The reform of concessions and services is already being considered by a number of different processes.

Central to this is the work of the Council of Australian Governments (COAG) in the context of the Intergovernmental Agreement on Federal Financial Relations. In March 2008 COAG agreed to a new framework for Commonwealth–state financial relations which reduced the number of Specific Purpose Payments from over 90 to five new national agreements and involved the Commonwealth taking full responsibility for aged care. The reforms are aimed at enabling the state and territory governments to deliver services funded by the Commonwealth more effectively and creatively. COAG also has work under way to achieve greater consistency across states and territories, including the portability of transport concessions on which very strong views were presented in consultations.

A new National Disability Agreement aimed at improving and expanding services for people with disability, their families and their carers came into effect in January 2009.

COAG further agreed to consider in 2009 a program of reforms to roles and responsibilities for funding and delivery of services to the community. The goals of these reforms are to deliver more integrated and responsive services to individuals and families, to clarify accountabilities between governments and to improve the performance of service systems. COAG requested development of specific proposals in relation to community mental health, disability services and aged care in the first half of 2009 as part of this program.

This reform agenda encompasses measures to address the long term sustainability of the services system. The COAG National Disability Agreement reform agenda is partly aimed at creating efficiencies to improve ability to meet unmet demand by streamlining processes such as assessment and early intervention to reduce the cost of life long care, as well as removing duplication. In addition, the July 2008 Disability Assistance Package of $1.8 billion for increased respite and supported accommodation will assist the long term sustainability of the services system.

The Disability Investment Group is investigating new funding arrangements aimed at addressing future unfunded liabilities and unmet needs, including models of insurance and ways to leverage greater private sector and family investment in support of people with disability and to find avenues for new products and services to assist families in planning their children’s future.

6.5 Concessions reform directions

Given current processes, the Review has focused on three key areas:

the targeting of concessions
the delivery of services
longer-term funding options for services.

These specific areas have been identified because the Review considered that, within the context of the other reform activities, these are the areas with the highest potential for change directed at enhancing the capacity of services to complement the income support system and enhancing the security of pensioners. They also reflect some of the central concerns that were expressed by pensioners in the consultations.

In addition, while the detailed operations of Australia’s health care system is beyond the scope of the Review, it is important to record the issues raised on this matter.

6.5.1 Health care

Pensioners believe that access to health care services is one of the most important issues relating to their security and wellbeing. The consultations indicated a number of concerns pensioners had around health care services, including the costs of accessing such services. Pensioners stated that, despite the concessions and safety nets provided through Commonwealth programs, such as Medicare and the Pharmaceutical Benefits Scheme, aimed at ensuring costs are not a barrier to accessing universal and necessary health care services, they were often struggling to cope with the high health costs related to disability and ageing. The Australian Institute of Health and Welfare (2008) reported that in 2006–07, 17 per cent of health expenditure on average is funded by the out-of-pocket payments of consumers.

The Review therefore considered it important to examine in more detail the operation of these schemes.

It should be noted that all concession card holders, including those not receiving income support payments, have access to the same Pharmaceutical Benefits Scheme and Medicare health care benefits.

Pharmaceutical Benefits Scheme

The Pharmaceutical Benefits Scheme plays a vital role in the health of all Australians in ensuring they have affordable access to necessary pharmaceuticals and medicines. It does this by subsidising the cost of medications so they are available to consumers for the price of a moderate co-payment.

In the case of concession card holders, the co-payment is currently set at $5.30 per prescription up to the safety net threshold of $318, above which prescriptions are free (with the exception of brand and therapeutic premiums, which apply to some medications). In 2007–08, concession card holders contributed over $560 million in patient co-payments towards the total cost of their Pharmaceutical Benefits Scheme listed medications, which was over $5.3 billion.

The payment of Pharmaceutical Allowance through the income support system was originally intended to cover the cost of pharmaceuticals until the safety net threshold was reached. As discussed in Chapter 5, Pharmaceutical Allowance appeared as a part of the major restructure of the Pharmaceutical Benefits Scheme in 1990, which introduced a co-payment for pharmaceuticals that were previously free for pensioners.

Pharmaceutical Allowance is not directly linked to the operation of the Pharmaceutical Benefits Scheme, so changes to the scheme’s co-payments have not been accompanied by changes in the level of the allowance. Both the Pharmaceutical Allowance and Pharmaceutical Benefits Scheme co-payments are subject to indexation process each year, using the Consumer Price Index. The indexation formula and rounding arrangements that apply to the pharmaceutical allowance differ from those applied to the Pharmaceutical Benefits Scheme co-payment. That is, as the Pharmaceutical Allowance is rounded down to the nearest 10 cents, there may be no annual increase to Pharmaceutical Allowance as a result of applying the Consumer Price Index. Until 2009, the allowance remained at the 2001 amount of $5.80 a fortnight for singles (or a member of a couple separated by illness, respite care or prison) and $2.90 a fortnight for each member of a couple. The Pharmaceutical Allowance increased on 1 January 2009 to $6.00 a fortnight for singles and $3.00 a fortnight for each member of a couple.

The concerns about the operation of the Pharmaceutical Benefits Scheme and access to affordable medication may be due to a number of factors, including:

pensioners being prescribed or using a range of pharmaceuticals or over-the-counter medications that are not covered or only partially subsidised by the Pharmaceutical Benefits Scheme
increases in the level of co-payment resulting in a gap of around $162 a year between Pharmaceutical Allowance and the Pharmaceutical Benefits Scheme safety net threshold
a potential cash flow problem for a small number of pensioners with very high medical costs who reach the safety net amounts quickly. While on an annual basis this means that for a large proportion of the year pensioners’ costs for fully subsidised Pharmaceutical Benefits Scheme-listed medications are fully met, in the period before they reach the safety net they have to fund their co-payments from a lower amount of total income. For example, instead of paying $318 in small amounts evenly across the year, people may have to find this amount over a quarter.³⁴ This was raised in a number of submissions.
difficulties in keeping track manually of Pharmaceutical Benefits Scheme safety net records, particularly where patients use multiple pharmacies.

At the same time the Review noted:

Pharmaceutical Benefits Scheme data for 2007 indicate that only 0.4 per cent of all concession card holders who reached the safety net that year did so in the first quarter, with the majority (54 per cent) reaching the tally after 1 September. These data suggest that the cash flow problem is not an issue for the majority of concession card holders.
Most dispensing software allows pharmacies to electronically tally a patient’s contributions towards the Pharmaceutical Benefits Scheme safety net which have been made at that particular pharmacy. Patients can be electronically linked to their eligible family members and once the safety net threshold is reached, the pharmacist is prompted to issue the relevant safety net card.

Medicare

Pensioners also reported difficulties in meeting the increasing costs of medical services such as general practitioner visits and attendance at specialist appointments. Most of these difficulties were reported to arise from the gap between the scheduled Medicare fee and the fees charged by doctors.

While under the Medicare safety net, concession card holders receive additional discounts on the cost of medical care after they reach the threshold of $555.70 that should be able to be met from basic income support payments, those with high needs may find these costs difficult to meet for two reasons:

lack of access to bulk-billing doctors, even for those with concession cards
the ensuing co-payment and fee levels gaps, particularly for the costs of specialists.

Commentary

While any increase in the base rate of the pension may reduce the extent to which poor outcomes are experienced by those with high health and related needs, health concessions and safety nets play an essential role for all pensioners, especially for those with higher needs.

The charging regime for pharmaceuticals and health services must achieve a delicate balance between appropriately sharing costs between government and the individual and sending price signals to individuals to judiciously manage consumption, while ensuring charges do not prevent Australians, particularly those with limited means, from accessing the health goods and services they require.

6.5.2 Targeting

Where services and concessions are targeted towards pensioners and low-income households, the most usual targeting mechanism is a concession card.

Over 5.2 million Australians—or around one-quarter of Australia’s total population—hold one of many Commonwealth concession cards (principally Pensioner Concession Cards and Health Care Cards). Around 85 per cent of people over Age Pension age hold an Australian Government concession card (either a Pensioner Concession Card, or its equivalent in Veterans’ Affairs, or a Commonwealth Seniors Health Card).

There are two major features of the design of the targeting of concessions and concession cards:

Concessions and concession cards are not tapered like income support payments. While a blunt form of targeting is achieved by providing different concessions to different concession cards, all individuals who have the same concession card get the same concessions whether they receive the maximum income support payment or only qualify for $1 of payment.
Eligibility for concession cards has also been extended beyond those on income support payments for other policy reasons.
- Health concessions are usually made available to people who are outside of the income support system but who have similar levels of income to part-rate pensioners. This is intended to reduce incentives for people to arrange their affairs to receive low amounts of pension, and to ensure that people who cannot receive a pension because of their assets or other eligibility requirements, but have low income, are able to get access to health concessions. This approach has also encompassed extending the income cut out for concession cards beyond the level that would disqualify a person from income support. The Commonwealth Seniors Health Card and the Low-Income Health Cards are examples.
- As a part of the working credit scheme, some disability support pensioners can retain their Pensioner Concession Cards for a period of time after starting work and moving off payment to assist them with the welfare to work transition.

The consultations undertaken by the Review indicated that card holders valued this aspect of the design of the concession system and saw access to concession cards as a form of insurance against unpredictable health costs.

This structure of access to concession cards and concessions means that individuals with different capacities to pay receive the same level of concessions. For example, an individual holding a Commonwealth Seniors Health Card and earning $50,000 a year may be eligible for similar Commonwealth health concessions to a single pensioner holding a Pensioner Concession Card and receiving around $15,923 a year. As at December 2008, around 35 per cent of single Commonwealth Seniors Health Card holders had income in excess of the minimum wage, with around 13 per cent receiving over $40,000 a year.

The result of such broad concession card coverage can be a dilution of the level of concessions available to card holders as their numbers increase, and consequently, concession cards become devalued as an indicator of financial need. For example:

Anecdotal reports supplemented by input from the Review’s consultation process suggest that some general practitioners may be less willing to bulk-bill concession card holders, as not only do they represent a very high proportion of their patients, but some card holders have significant private income.
In some areas the real value of concessions is reducing because indexation arrangements for the cash value of the concession are not keeping pace with price changes, or because concession providers are setting caps on concessions in order to keep the cost of the concessions manageable. For example, the increase in general rates in virtually all states has far outstripped any indexation arrangements for concessions on rates, leaving pensioners to fund any difference.

This dilution of the value of concessions ultimately affects those who may need concessions the most. Population ageing will tend to further extend the proportion of the population who hold a concession card and may therefore exacerbate pressures on providers to reduce the overall per person cost of providing concessions.

However, there is a tension between the need to target concessions progressively to those most in need, and the current structure and broad access to concession cards to achieve other policy objectives such as incentives to gain access to, or remain on, income support.

One further issue with respect to the targeting of concessions is that of equity. In some cases subsidies embedded in concessions may operate regressively. For example, rates concessions can be regressive because the value of the concession can be greater for those with higher value properties. While public transport concession can be of value to those in areas served by public transport, pensioners in other locations gain no benefit, and indeed may have very poor transport outcomes.

A more targeted approach to concessions

To address the concern that access to Commonwealth concession cards is becoming too broad, some states are considering developing their own more tightly targeted concession cards. A strategy of reducing the population who have access to concession cards is one approach to tighter targeting. However, this approach does not address the policy concerns that initially prompted a broadening of coverage such as incentive and participation issues.

The Review considers that other options for tighter targeting should be explored, including the scope for varying the types and levels of concessions available to different card holders. This would provide the capacity to enhance the value of concessions and services to those with the least means and highest needs while maintaining a broader coverage of concession cards, albeit with a different access to concessions.

However, the consultations and analysis undertaken by the Review indicate that this is a complex matter.

The administrative arrangements for concessions make it hard to manage the ‘concession system’ from end to end. Broadly, the Commonwealth’s concession cards, administered as a part of the income support system, control the eligibility arrangements. However, the actual form and level of the concession that is delivered to card holders is a responsibility of the Health portfolio at the Commonwealth level, individual states and territories, local governments, and in many cases individual private enterprises.
It is important that any changes to more tightly target services be based on a good understanding of the full circumstances of different groups: both their resources and needs. Financial need is based, in very broad terms, on eligibility for income support payments. However, in the consultations concession card holders who have high needs or specialist requirements indicated that they were looking for higher levels of assistance.
A further complicating factor in assessing how concessions can be better targeted to support pensioners with higher than average costs is that the concession system, like the income support system, has to assist people through transitions not just those in a ‘steady state’. A family that is adjusting to the diagnosis or onset of disability of one of its members will often need different types and levels of support over time. The same is true of other transitions such as family breakdown, increasing frailty with age and bereavement.

This is an area where the Commonwealth cannot act alone, and a coordinated approach with the states and territories is needed.

Commonwealth Seniors Health Card

Notwithstanding the need for further work on the targeting of concessions, consultations indicated that there is currently pressure on the income limits of the Commonwealth Seniors Health Card. While some submissions, in line with the principle of tighter targeting, proposed a reduction in the scope of concessions and services to holders of these cards, other submissions, primarily from current Commonwealth Seniors Health Card holders, expressed concerns about the indexation of the income limits of these cards.

The current limits, which are not indexed, have been in place since 1 July 2001. In the absence of changes to the Commonwealth Seniors Health Card threshold, it is likely that indexation increases will mean that the pension cut-out will overtake the income limits for the Commonwealth Seniors Health Card in the near future. The Review considers given the policy rationale of making health concessions available to people outside of the income support system, but who have similar levels of income to those who receive a payment, that this should be avoided. This could be done by either introducing indexation arrangements for the cut-outs for the Commonwealth Seniors Health Card or periodically adjusting the cut-outs to reflect the lack of indexation.

However, there are balances to be achieved in this area of policy. Increasing the cut-outs for the Commonwealth Seniors Health Card would tend to increase the coverage of concessions to a small degree. This benefit would flow to people with relatively high levels of private income.

The Review also considers that there is a case for aligning the definitions used in the Commonwealth Seniors Health Card income test with those used in the pension income test. At present, the two income tests are quite different. This arrangement is cumbersome for pensioners who lose eligibility for short periods, because they have to lodge a separate claim for the Commonwealth Seniors Health Card. It can act as a disincentive for age pensioners to take paid employment. Aligning the two tests would remove a needless source of complexity in the social protection system.

In the longer term, however, the Review considers that the more general question of the type and level of concessions available to the Commonwealth Seniors Health Card population should form a part of the work on the tighter targeting of concessions outlined above.

6.5.3 Services and support

Feedback from consultations and submissions to the Review raised a number of issues in relation to the effectiveness of the services and concessions systems that are confirmed to some degree by recent research. People reported that they are experiencing:

complex and confusing assessment processes, and services that are not delivered flexibly to meet individual needs
difficulties affording services in some specific areas
difficulties with access to some services and areas of unmet demand.

The service system is not well integrated across different service domains. For example, services for aids and appliances tend to be delivered separately from care. This is a particular issue for many pensioners who because of their high level of need have to access a range of services and support. Because of their financial circumstances, when they seek to do this they are usually reliant on the often partially subsidised and often rationed public provision rather than being able to purchase services from the private sector.

In effect, pensioners have to negotiate through a services system spread across different levels of government, where each service offer has its own mechanisms to prioritise access to services within budget constraints. One of the main reasons for this is that the system largely revolves around different levels of government that are funding services on a program-by-program basis through different departments, with access determined by program criteria not a threshold level of client need.

This lack of flexibility is often most evident in terms of the packaging of services which, in some areas, has been criticised by pensioners for being a one-size-fits-all approach that is unresponsive to individual needs.

As noted in Chapter 3, the Review’s analysis is that it is difficult for the income support system to effectively respond to the circumstances of pensioners with high needs. This was also illustrated in the consultations, where it became apparent that additional support needs could not be generalised by payment type, or even type of disability. This led the Review to conclude that there is a need for a more person-centred service system, which would enhance the security of pensioners and would reduce the risk of a ‘missing link’ in the assistance they need. One mechanism for achieving this within the structure of a common gateway would be through consumer-directed budgets. A key advantage of this approach is its potential to better align services and financial support to individual needs and empower pensioners to influence service delivery through their own consumer choice.

This approach to budgeting would specifically link funding to needs and the achievement of individual outcomes. It would achieve reduced spending and increase efficiencies by removing duplication and gaps. It would provide government and service providers with much better data on the cost of disability and frailty, and would enable government, service providers, and individuals themselves to assess the cost of meeting their individual service needs. This would enable a better understanding of the impact of co-payments and high service costs on individuals with high needs.

These are major changes to the delivery of services. However, models of similar approaches can be found. Aged Care Assessment Teams, for example, help older people and their carers to decide on the types of services they need to maintain themselves at home by conducting assessments and determining eligibility for packages of care. Assessment team approval is required before a person can access residential aged care.

The National Disability Strategy will consider the exceptional costs associated with the economic and social participation of people with disability as part of the strategy’s whole-of-government, whole-of-life approach to disability issues. Strategies to address these circumstances are expected to include both person-centred and service system responses and will also be explored as part of the disability reform agenda under the National Disability Agreement. As part of the new agreement, all governments are committed to helping people with disability to achieve economic and social inclusion and to have the opportunity to live as independently as possible, as well as providing support to their families and carers.

6.5.4 Investment in services

As noted in Chapter 2, in contrast to the structure of retirement incomes, there are few mechanisms available to facilitate and encourage services with mixed government and private provision.

The exceptions to this are compulsory government-sponsored and privately based compensation and insurance systems. People with disability who currently enter the services system through the compensation and insurance path achieve better outcomes than those who do not. This is partly because most insurance-based systems are already some way down the path of the reforms discussed above. These schemes introduce service delivery efficiencies and disciplined spending—for example, better data analysis because of the availability of unit record systems, early intervention approaches and so on. For people eligible for compensation, access to services is based on a needs assessment that determines the suite of services required to support their basic quality of life and their rehabilitation. However, it is also because these schemes are able to leverage private funding through actuarially based pooled risk arrangements. This allows insurance schemes to better cover each person’s costs.

The Review considers that there is a strong policy rationale for developing additional mechanisms to facilitate and encourage the private funding of disability and ageing services. In essence, the risks that need to be managed for the care and accommodation of people with disability and the aged are similar to those that are managed by the social security and taxation treatment of superannuation.

The goal of the social security and taxation treatment of superannuation is to enable individuals to smooth their income over their lifetime, and thus maintain their standard of living once they retire.
The funding of aged-care accommodation is similar. Some people have accumulated sufficient savings over their working life to allow them to fund aged-care accommodation when they need it. However, in the absence of pre-funding mechanisms, most Australians have no dedicated source of funding for their aged care needs and therefore rely on the capital in their principal residence to fund accommodation bonds.
This is also illustrated in relation to the inter-temporal funding of accommodation for people with disability. In many cases, families of people with disability support their family member’s disability accommodation, care and support costs (often with income assistance from the income support system and other services) while they can. When they no longer can, usually in response to a crisis, government has to step in and fully meets the full costs of supported accommodation. Again, the policy goal in this area should be to smooth assistance and private contributions over the individual’s lifetime.

National Disability Insurance Scheme

These issues were discussed at the 2020 Summit, which recommended the creation of a National Disability Insurance Scheme that would provide comprehensive coverage similar to the role played by the Superannuation Guarantee in retirement income policy. Such a scheme would represent a significant extension of the no-fault injury insurance schemes that currently operate very successfully in some states.

The goals of these arrangements would include:

a person-centred approach over an individual’s lifetime
investment, including in early intervention services, in meeting the personal and social needs of the individual as well as maximising their potential for work
planning and case management
nurturing and supporting carers while also giving them choices through respite care and opportunities to work
governance and management arrangements designed to reduce the long-term costs of disability and maximise individual and community benefits, possibly through pooling risks.

Further work

The costs and benefits of such a National Disability Insurance Scheme as well as other funding options are being considered by the Disability Investment Group. The Australian Government has commissioned the Disability Investment Group to investigate private and insurance-based options for funding services and supports for people with disability. The group’s report will include a detailed analysis of the feasibility of a National Disability Insurance Scheme.

The Australia’s Future Tax System Review Panel will consider how alternative funding arrangements for services fit with its wider inquiry into the tax-transfer system.

The Review considers that the response to the sustainability of services has to include different ways to fund their provision. Different approaches to funding may not only support more sustainable services—by increasing the total pool of funding through leveraged private contributions— but also lead to much better access to services and improved outcomes for individuals.

While it is possible that these approaches could replace the existing fully funded government schemes, even if these schemes are an addition to existing programs they have great potential to reduce the long-term pressures on these programs, and thereby help to put them on a more sustainable footing. Even low levels of private contributions would greatly improve the total funding available for services.

In addition, a more integrated approach could reduce stress on carers and reduce the need for state-based services to operate continually on a crisis-alleviation basis.

6.5.5 Implications for carers

There is also a need to complement the reform directions identified above with measures to sustain the role of informal carers.

Section 6.4.2 noted that population ageing and changing preferences will inevitably result in a reduction in the number of people (principally women) available and prepared to act as full-time informal carers.

Informal care allows people with disability and the aged to remain in, and be part of, their communities. However, the expectation of full-time informal caring is embedded in many service delivery approaches and income support rules. For example, a 25 hour a week cap on paid work applies to Carer Payment recipients. There is already evidence of carer ‘burn out’. A service delivery system that relies heavily on full-time, stay-at-home carers will be increasingly unsustainable.

Sustaining the role of informal care in service delivery will require a different model of informal caring, possibly involving a mix of daily in-home assistance, group day care and respite services. The availability of tailored support from the services systems would enable carers to better combine caring with employment and their other interests and responsibilities.

Therefore, the Review considers that the reform direction for the service delivery system needs to be combined with additional support for carers to maintain links with the labour market through better access to respite or other forms of care to help them balance work and caring, and targeted assistance to gain employment. Indeed, the shift towards a more flexible, person-centred approach to identifying and addressing the needs of people with disability implies a more adaptable and integrated approach to informal care than is implicit in the current income support arrangements.

There are reasons to believe that this approach would be supported by many carers, particularly among younger cohorts of women.

In the submissions and consultations many carers stated that they need additional assistance to combine caring and paid work, including formal care services, household maintenance, personal and emotional support, and help with taking the care recipient to medical appointments.
Better labour force outcomes would also allow carers to secure their own economic future including an increase in current income and benefit from the general superannuation system. The lack of access to superannuation was also identified as a key issue for carers in submissions to the Review.

As noted in Chapter 5, Carer Allowance is distinctly different to the income support payments and allowances considered by the Review, in that it is not a targeted component of income support. Although Carer Allowance is paid in recognition of the caring role and is not intended to cover the costs of caring for someone with disability, the consultations indicated that Carer Allowance is often used to meet the costs associated with the needs of the person being cared for. The findings above (Findings 22, 23 and 24) reflect the Review’s conclusion that the services system is the most appropriate way in the long term of addressing concerns about the costs associated with the needs of people with disability, and caring needs, and their opportunities for community and workforce engagement.

Consultations also identified that, in addition to the costs and availability of services, carers were concerned about the impact of caring on their aspirations for community and workforce engagement. Finding 24 reflects the importance of responding to these on longer-term outcomes.

Once supports for carers to maintain links with the labour market are developed, it may be appropriate to review the role of Carer Allowance. However, the Review considers that a review would require better access to respite, or other forms of care, to help balance work and caring, and targeted assistance to gain employment to be in place. Until then, Carer Allowance will continue to have a role in supporting the provision of informal care.

The sample size of the survey did not allow this analysis to separately identify recipients of Carer Payment.
While the data on the distribution of expenditure also invite some comment on the capacity of households at different points to be able to meet the cost of health care, it is noted that this is not possible given the nature of the Household Expenditure Survey, as it only records expenditures over a relatively brief period, and many health costs are sporadic. It also gives no indication of the extent of unmet health needs and the costs associated with them over and above actual expenditure. While this does not limit the data being used in a comparative analysis such as the relative outcomes for different groups of pensioners, it does restrict the ability to perform within-group analysis or answer the fundamental claim by pensioners in the consultations of unmet health needs due to high health costs.
To address cash flow issues, up to seven fortnightly instalments of the Pharmaceutical Allowance can be paid in advance ($42.00 for a single person and $21.00 for each eligible member of a couple).

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