Aged Care Federal Budget 2023-24: workforce challenges and risk perspectives

The 2023-24 budget: a step forward, but is it enough?

On Tuesday 9 May 2023, the Federal Government announced the following reforms to the aged care sector:

  • An investment of $11.3 billion towards the largest pay increase the sector has ever received (15%).

  • $12.4 billion will be funded to help relieve the immediate financial and workforce pressures experienced within the aged care sector.

  • A further investment of $72.3 million in a new regulatory model and framework, which will be mirrored in a new Aged Care Act. This includes $12.7 million towards the Star Ratings system that provides better data quality and analysis.

  • An aged care taskforce will be adopted to review funding arrangements and ensure that the system is fair and equitable.

Australian Minister for Health and Aged Care, The Hon Mark Butler said: “Aged care workers have been undervalued and underpaid for too long – we are supporting a wage increase for them because it’s the right thing to do.”

These reforms will likely be positive news for the aged care sector, which has faced many challenges over the past few years, especially when it comes to staffing. However, as we explore the difficulties within the sector, it’s likely that some aged care boards might be asking: “Is it enough?”.

At Lockton, we consider that the initial investment by the Government in increased wages is a start, but by no means addresses the wider implications of workforce challenges facing the aged care sector.

Whilst workers within the sector will appreciate a wage increase, the fundamentals of their work issues are larger and more complex than just low wages.

Oversight of workforce challenges

Workforce resourcing is the single largest challenge faced by the aged care sector in the current climate.

Staff shortages are having the most significant effect on the quality of care but are also impacting governance and the ability to comply with continually changing legislative requirements. While every aged care provider is different, and many factors will have affected their experience, the issue of employee retention and attraction in the sector is now critical across the industry, and there is a potential for greater reliance on agency staff.

According to a National Skills Commission report published at the end of 2022, the aged care and disability care sectors have more than 74,000 job vacancies, while job vacancies for nurses and aged care workers have doubled in the past three years. The strain on the workforce carries significant risks for aged care providers, particularly in relation to insurance costs.

Impact on care and compliance

Staff shortages create significant risks when care customers don’t receive the level of care they need, leading to more serious incidents and potentially fatal accidents.

Insufficient staffing may also result in an increased exposure to acts of violence and aggression from care customers, along with a decrease in the required observations to effectively risk assess their needs and changing presentations, and an inability to keep care plans and risk assessments updated.

In addition, there are increased risks of injury to the staff themselves, when taking on roles and responsibilities with which they are unfamiliar, particularly if they are agency staff with insufficient training in relation to certain equipment.

Impact on staff

Having fewer staff increases the physical and psychosocial risks in the workplace, increasing the likelihood of injury and workers’ compensation claims. High job demands and poor support/resources are both recognised psychosocial risk factors that can increase the occurrence of physical and psychological injuries.

Burnout and a high turnover rate only compounds these factors, creating a host of extra expenses and issues for management and the workforce. With significantly increased workloads it can lead to mistakes, corners being cut and fatigue causing clinical errors.

Impact on aged care providers

To attract new talent, many care providers must face paying higher rates especially for nurses and personal carers; or where there are staff shortages and costs for agency labour hire to meet care needs. Staffing costs are putting a huge strain on organisations with already thin margins. Critical staff shortages can affect the ability of under-resourced facilities to attract new residents or avoid forced shut-downs as a result of imposed sanctions. As a result, organisations are in danger of losing funding or may even have to consider closing down.

In April 2023, Wesley Mission announced closure of three aged care facilities in NSW, estimated to affect nearly 200 residents and over 2,000 staff. Also during April 2023, Perth aged care provider, Brightwater (a current Lockton client) announced it will close three of its 12 residential facilities during the next 12 months, affecting 75 residents and 160 staff. We anticipate that there will be many more providers, particularly in rural and remote areas who will not be able to continue operating and will follow suit.

New ACQS standards further adding to the toll of workforce shortages

The new ACQS standards require that all aged care homes in Australia must have a round-the-clock nurse on duty by 1 July this year. On top of the 24/7 nursing mandate, aged care providers must also provide at least 200 minutes of care per resident per day by 1 October 2023. The impact of reforms on the aged care sector is predicted to create a shortage of 11,800 registered nurses by the next financial year.

The workforce would also need close to 10,000 personal care workers after the care minute increase to 215 comes into force by October 2024. Despite the government’s initiative to raise the minimum pay standard by 15 per cent from July to attract more staff, the sector is still short of thousands of workers.

Impact on insurance premiums and cover

These scenarios naturally receive increased scrutiny from insurers, with some exiting the aged care market altogether. For those that remain, they are keen to mitigate the potential for significant losses.

As workforce shortages increase, the likelihood of errors being made by carers; and increasing claims for allegations of abuse, negligence, or failure to provide compliant care is rising. Staff who are already stretched, are much more likely to make claims against their employer for stress, mental or physical injury, with the associated workers’ compensation insurance costs rising exponentially as a result. Insurance premiums are now a large expenditure item on most providers’ P&Ls.

Tightening of coverage and increased deductibles means providers are now required to hold substantially more of the risk on their balance sheets – often to the point of non-viability.

Whenever organisations increase wages, an additional key consideration for employers is the associated impact on workers' compensation premiums with premiums generally influenced by the size of the care provider's wage roll. This places an even greater focus on workplace health & safety implications, and injury and claims management to alleviate the rising costs of workers' compensation.

Final thoughts

Workforce resourcing is the single main challenge faced by the aged care sector in the current climate with workers' compensation being the largest insurable risk spend on providers’ P&L.

Increasing wages by 15% is a good start, however, it is not enough. Without sincere effort by public stakeholders to understand the wider implications and to provide a more holistic solution, Australia is at risk of not protecting a key component of society’s most vulnerable: the elderly.