Understanding Caregiver Wages in the Aged Residential Care Sector
A number of inaccurate statements have been made in the media about aged residential care following the findings of the Court of Appeal in favour of the Service and Food Workers Union and aged care worker Kristine Bartlett. These myths have been addressed below.
Myth One: "The aged residential care sector is made up of large for-profit corporations."
This is incorrect. In fact, 77% of aged care facilities in New Zealand are run by religious or welfare organisations and standalone small-to-medium ('mum and dad') operators. The five largest operators of aged care facilities in New Zealand operators are BUPA (60 facilities), Oceania (45 facilities) Ryman (25 facilities) and Radius (19 facilities). They make up only 23% of the aged care sector, which is comprised of 650 facilities. BUPA is also a not-for-profit organisation - they do not have shareholders who receive a dividend from surpluses.
Myth Two: "All aged care operators are making good profits."
In 2010, the Government funded the Grant Thornton Aged Residential Care Review which found a staggering 75% of all aged care operators are not making appropriate profits*. In fact, the report found that 25% of all aged care operators were making a loss, 50% of the operators were making less than what was required to cover their costs of capital, and only the remaining 25% were actually making an appropriate return on their investment* (see figure 22 in the report).
*The Government agreed in 2010 that the appropriate return on investment in the aged care sector is 12.1%, as set out in the Grant Thornton report. View the full report: http://www.grantthornton.co.nz/aged-residential-care-service-review.html
Myth three: "Aged care operators can afford to cover the cost of increased wages because the big corporate ones are making profits."
The level of the increase in wages which is being discussed is significant, at around 14%. In order to cope with an increase in costs of this level, aged care operators will need an increase in the government subsidy for aged care.
Myth four: "The government subsidy for elderly care is enough for operators to make an appropriate profit."
Unfortunately the Government subsidy for aged care is not enough for providers to make a profit. Over the last decade, 200 aged care facilities have closed primarily for financial reasons. The majority of these facilities relied on the government's subsidy for their revenue.
That model needed to change in order to cope with the existing level of government funding and avoid further closures. Operators making a profit now can do so by providing retirement village living options and premium aged care facilities and care, which consumers pay extra for out of their own pockets. These options are very popular which is fortunate for the sector, as this is the sole source of return on investment for many providers.
Furthermore, the elderly paying for their retirement options and premium services are currently cross-subsidising the elderly residents who are receiving a government subsidy. Without this cross-subsidy, these facilities could not operate.
Myth five: "Most aged care facilities are large."
Of the 650 aged care facilities in New Zealand, only 10% of facilities are large enough to provide for more than 120 people. The average sized facility only provides beds for up to 50 people, and 26% of facilities provide for less than 40 people.
Myth six "These days, most aged care facilities are new."
51% of New Zealand's aged care facilities are actually over 20 years old, and many of those are over 50 years old. Only 20% are "new", at 10 years old or less.
The innovation of a number of private sector aged care operators has transformed the government's large and impersonal, often dated, geriatric wards in to what we have today - individual rooms with specialised care and activities.
The reality is that the only way to continue to provide this quality of care to our elderly, and to keep our aged care facilities open, is for all aged care providers to return enough of a profit to continue to reinvest and stay open.
The existing aged care sector cannot afford to increase all aged care worker's wages at an estimated cost of $120 - $140 million alone - the sector will need increased Government subsidies to prevent further closures of our aged care facilities.