In the Budget released in May, there were a few lesser known changes that apply to aged care. In particular, the government has proposed to save $1.2 billion over the next four years through changes in the Aged Care Funding Instrument (ACFI).

The ACFI is being driven by higher than expected claims from participants and may further distort a complex and growing aged care service industry according to the Minister for Aged Care Sussan Ley. She said expenditure on the ACFI was expected to blow out by $3.8 billion by 2020 without action. Residential aged care expenditure is expected to grow 5.1 per cent per annum over the next four years and is 2.5 times higher than the other two "care" services, such as daily living and behaviour management initiatives.

It would then seem the government is attempting to wind back some of the original assumptions such as indexation used in ACFI forecasts when the taxation revenue base and economic growth outlook is falling. Equally, this is an indication of a government trying to address an already complicated system that requires funding support for it to grow and mature in order to provide a reasonable standard of quality aged care and health services.

As a result of this announcement, investing into ASX listed companies operating in the aged care sector has become risky. Let the investor beware.

This prospective change in funding aged care services has already affected the share prices of certain ASX listed companies operating in the aged care services sector such as Estia Health (EHE) a stock price seemingly manipulated by brokers on the "buy" and "short" sides.

For further information or advice regarding aged care matters, please contact James Cavanough from Lantern Advisory on 07 3002 2690 or email jamesc@lanternadvisory.com.au.