• Rosamund Harrington

26 November 2009Are current models sustainable, asks Rosamund Harrington for APO

THE ANNOUNCEMENT that the federal government will support the first federal test case on pay equity for community sector employees, launched under the new Fair Work system, is a landmark win for those working in the caring and community industries and for the Australian community as a whole. If the proposed 30 per cent pay rise for the 200,000-odd female carers who work in aged care and community services is approved, the ability of aged and community care organisations to recruit and retain skilled care staff will be greatly enhanced. This initiative has the potential to build our capacity to address the high levels of unmet care needs among young Australians with disabilities and our aging population, and significantly reduce carer strain.

But identifying sustainable models for financing this significant pay increase will be a key concern for the federal, state and territory governments, particularly in the midst of media coverage of the difficultues facing young people in residential aged care, and with many carers at breaking point. For people with severe disabilities resulting from road traffic accidents and their carers living in the states of Queensland, Western Australia, South Australia and the ACT, this announcement may be seen as yet another blow, complicating their attempts to manage lump sum payments previously awarded under common law compulsory third party insurance schemes to cover their lifetime cost of care.

This development comes hot on the heels of the introduction of the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009, which could see the deregulation of fees chargeable by the trustee companies contracted to manage lump sum settlements. This is of significant concern given that the amount charged by these companies under existing legislation already seems to place a major burden on funds awarded in settlement over an individual’s lifetime.  As a case in point, the $9.6 million dollar personal injury settlement recently awarded to a twelve-year-old boy who sustained catastrophic injuries in an accident at his Southport school included $1.2 million for trust management fees. While it is possible that deregulation might drive fees down, the Queensland Office of the Public Advocate has raised concerns regarding the protection of those vulnerable adults with impaired decision making capacity for whom private trustee companies act as financial administrators and enduring power of attorney’s.

Increasingly, the viability of lump sum settlements awarded to cover the lifetime cost of care is being questioned. In their 2005 report, Long Term Care: Actuarial Analysis on Long-Term Care for the Catastrophically Injured, PricewaterhouseCoopers concluded that there was no compulsion for people to use funds awarded in lump sum settlements as intended, with compensation awarded to cover the cost of care being used for other purposes in many cases. Once the cost of legal fees, trustee management fees and rising paid care costs are deducted from lump sums, there may be little left to cover the cost of care over the lifetime of a severely disabled individual.

The Insurance Council of Australia has also recognised the risk that compensation monies awarded in lump sum settlement could be “dissipated or eroded” over the course of an individual’s lifetime, and have supported the principle of “structured settlements” as a viable alternative to meeting the lifetime cost of care for seriously injured claimants. In a letter to Alan Cameron of the Commonwealth Treasury, dated 19 October 2007, they advocated the continuation of the tax exemptions for payments made under structured settlements for the seriously injured (under Division 54 of the Income Tax Assessment Act 1997), which were designed to enhance the uptake of structured settlements by seriously injured claimants in personal injury cases. Structured settlements are intended to reduce the risk of an initial lump sum being insufficient to meet the lifetime needs of a claimant, with the life insurer taking on the risk of ensuring longevity of funds and delivering annuity-based payments to the claimant.

But although the Division 54 tax exemptions were introduced in 2001, the Insurance Council of Australia reported in 2007 that there was no evidence of a structured settlement having been entered into by the industry since their inception. They attributed this poor uptake to the “lack of availability of suitable products” for delivering structured settlements, which they related to the risks that arise for a life insurer from “the requirement that the compulsory personal injury annuity component of the structured settlement be a lifetime annuity”. It is evident that the private insurance industry is hesitant to take on the risks inherent in ensuring the lifetime cost of care for claimants in serious injury cases is met.

When funds are spent, the burden of care inevitably falls back onto an individual’s family, further adding to the poor mental and physical health, underemployment and unemployment, financial hardship, and limited support of carers of family members with a disability, as reported by Ben Edward and his coauthors in the 2008 Australian Institute of Family Studies report, The Nature and Impact of Caring for Family Members with a Disability in Australia. The 2005 PricewaterhouseCoopers report further proposed that many claimants “double dip” into existing social welfare and disability services, which are already under strain to respond to the high levels of unmet care needs of uncompensable adult Australians with acquired disabilities. Although the current federal government has gone some way to address the historically low levels of funding to support people with disabilities and their carers in Australia, through doubling it’s funding for disability services, it remains to be seen whether this will be adequate to meet current unmet care needs. People with acquired disabilities and their carers may have little faith that successive governments will match this level of commitment.

Clearly, a better system for meeting the cost of lifetime care for adults with acquired disabilities is needed. The proposed National Disability Insurance Scheme is a viable alternative to our existing systems of funding for people with severe acquired disabilities. The Transport Accident Commission of Victoria has successfully developed a sustainable model to meet the long term care needs of people sustaining severe injuries in transport accidents under its “no fault” Lifetime Support Model. A National Disability Insurance Scheme built around such a model will go a long way towards allaying fears that state and territory governments will not have the capacity to respond to the rising costs of care in the Australian community,  and ultimately to ensuring the health and wellbeing of people with severe disabilities and their carers living in Australia. •

Rosamund Harrington is a Senior Occupational Therapist and is completing a PhD with the Lifetime Care and Support Project at the University of Queensland.

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