Paying for aged care - should the family home be counted?
Posted 2/05/2012 by Rebecca de Boer
The Government’s Living Longer. Living Better package represents a new way of paying for aged care in Australia. From 1 July 2014, means tested co-payments, annual and lifetime limits for care costs and accommodation bonds for all aged care residents will be introduced. For further detail of the package see here.
One of the long running debates in the financing of aged care in Australia is the treatment of the family home and whether is should be included in any asset or mean-testing calculations when individuals access publicly funded aged care. In its recent report to the Government, the Productivity Commission (PC) put forward two recommendations (7.3 and 8.1) that would draw on the value of the family home to finance the costs associated with aged care.
These were not accepted by the Government in its response to the PC Report. When announcing the aged care reforms, the Prime Minister and the Minister for Mental Health and Ageing argued that the package would ensure that ‘more people get to keep their family home’ and prevent ‘emergency fire sales’. The decision not to include the family home may reflect the Government’s commitment to improving the access to aged care services in the community through additional Home Care packages.
As part of the aged care reforms, aged care providers will be able to charge a bond to all residents and all aged care providers will be able to charge for ‘extra service’ (beyond what is subsidised by the Government). In both instances, the charges must be approved by the Aged Care Financing Authority to be established. These will serve as another source of income for residential aged care providers.
While the introduction of bonds has largely been welcomed by the aged care sector, concerns have been raised that the package will not improve the overall sustainability of the aged care system.
Changes to the financing arrangements for residential aged care
Accommodation bonds are effectively an interest free loan to the aged care provider and are negotiated as part of the entry into residential aged care facilities. They provide an income stream to aged care providers which, as stipulated by legislation, must be used for capital infrastructure and improving the quality and range of services. Aged care providers can also charge a monthly retention amount for five years. Under current arrangements, the bond amount is at the discretion of the provider but residents must be left with a minimum amount of $40 500 in their bank accounts. The average bond in 2010–11 was $248 850, with significant variation across the sector.
From 1 July 2014, all aged care residents will pay a bond. The amount will require approval from the Aged Care Financing Authority and must be publicly available to prospective residents. The monthly retention amount has been abolished. After entering residential aged care older Australians will have a set period (defined in the legislation) in which they can decide how they will pay their bond. As is the case now, there will be three options: lump sum amount, periodic payment or a combination of both. This is likely to improve the transparency and accountability of aged care bonds. Some advocates have been arguing for the introduction of bonds for all aged care residents for many years and this aspect of the announcement has been welcomed. However, support for bonds is not universal, and the Combined Pensioners and Superannuants Association (NSW) have commenced a campaign against bonds.
The Government will also raise the subsidy for residents who are unable to meet the costs of their accommodation. This will be increased from $32.58 to around $50 per day (in 2014). However, this supplement will only be paid to aged care facilities that built or significantly refurbished after the announcement of these reforms. Concerns have already been raised that the increased subsidy will be insufficient for new infrastructure or to address regional cost differences.
While the increase in aged care packages and additional funding has been welcomed by the sector, it remains to be seen whether this will be sufficient to meet the current shortfall in residential aged care. In the last Aged Care Approval Round, there was a lack of applications for residential aged care. Industry reports suggest that under the current arrangements the subsidy is well short of the cost of providing aged care services (the additional payment will apply from1 July 2014) and it is not clear whether the new arrangements will address this. Some providers argue that they will be worse off as a result.
The Government’s residential aged care package has been described as a ‘band-aid’, partly because of the pressure that the aged care sector is currently under and partly because the proposed reforms do not change the underlying structure of aged care financing. Like community care, limits remain on the number of residential aged care packages thus restricting future growth of the sector. In deciding not to pursue the family home as a source of finance for aged care, the Government has ignored a significant source of future funding. With some arguing that the proposed reforms may compromise equity and lead to higher copayments, aged care lobby groups have (again) renewed their call for the family home to be used as a way for individuals to pay for aged care.
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