Bills Digest no. 83 2005–06
Aged Care (Bond Security) Bill 2005
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Aged
Care (Bond Security)
Bill 2005
Date introduced: 8 December 2005
House: House of Representatives
Portfolio: Ageing
Commencement: The Bill’s formal provisions commence on Royal
Assent. The substantive provisions commence at the same time as Schedule
5 of the proposed Aged Care Amendment (2005 Measures No. 1) Act 2005.(1)
The Aged Care (Bond Security) Bill 2005 (the Bond Security Bill or the
Bill) is part of a suite of three Bills. The other Bills are the Aged
Care (Bond Security) Levy Bill 2005 (the Levy Bill) and the Aged Care
Amendment (2005 Measures No. 1) Bill (the No. 1 Bill).
The essential purpose of these three Bills is to strengthen the prudential
requirements and enhance the protections available to residents in aged
care facilities who have paid accommodation bonds. These bonds are paid
upon entry by non-concessional residents of low care facilities (formerly
called hostels), and also by residents in high care facilities (formerly
nursing homes) which have ‘extra service’ status, as well as some residents
in Multipurpose Services. When residents exit an aged care facility they,
or their family, may be eligible for a refund of part of the accommodation
bond paid. Under current arrangements if a residential care facility provider
becomes bankrupt or insolvent the resident is not guaranteed that they
will get their relevant accommodation bond amount refunded. These Bills
are designed to ensure that residents will, in all cases, be refunded
the amount of accommodation bond that they are owed.
In short:
- the Bond Security Bill provides for a scheme whereby the Commonwealth
will repay outstanding accommodation bond balances to relevant aged
care recipients in cases of aged care provider default. The Commonwealth
can then attempt to recoup that balance amount from the defaulting aged
care provider. It also contains administrative steps that must be taken
so that a levy on aged care providers can be imposed under the Levy
Bill.
- the Levy Bill will enable the Commonwealth to impose a levy on aged
care providers to the extent necessary to recover amounts (including
administrative costs) that it is has not been able to obtain from defaulting
providers, and
- the No. 1 Bill will enable the strengthening of existing prudential
requirements related to accommodation bonds especially in relation to
liquidity, record keeping and disclosure. These new prudential requirements
will be developed over time and will be subject to review.
This Digest should be read in conjunction with Bills Digests Nos. 84
and 85.
The Commonwealth Government is essentially responsible for funding and
regulating the formal residential aged care sector in Australia. The framework
under which this formal residential aged care sector operates comes via
the Aged Care Act
1997 and the associated Aged Care
Principles 1997.
The three main strands of residential aged care are:
- high care places (formerly nursing home beds)
- low care places (formerly hostel beds), and
- community based options, in particular Community Aged Care Packages
(CACPs) and Extended Age Care at Home (EACH) packages – these packages
provide an alternative to residential aged care and allow the elderly
to stay in their home or like environment. Both these packages are funded
by the Commonwealth. The Home and Community Care Program (HACC) also
provides in-home and community care to not only the aged but also to
people with special needs. The HACC Program is jointly funded by the
Commonwealth and the States and Territories.
There are approximately 3000 residential aged care facilities across
Australia. These facilities provide about 160 000 aged care places with
a mixture of high care and low care beds. Funding to run these facilities
comes from a mixture of government support and contributions from the
residents themselves. There are also about 32 000 community care packages
(which exclude services provided under the HACC Program) across Australia.
In order to receive Commonwealth funding an aged care facility must be
accredited with the Aged Care Standards and Accreditation Agency. The
main form of Commonwealth subsidy is the Residential Care Subsidy or RCS
which varies according to the needs of the resident – a high care resident
attracts a higher subsidy than a low care resident. In 2004-05 a high
care resident, on average, attracted an RCS subsidy of $42 879 whilst
a low care resident attracted an average subsidy of $15 563.(2)
With respect to the funding of residential aged care, the Commonwealth
provides approximately three-quarters of the total funds available (mainly
via residential care subsidies and capital grants to providers) with the
remaining funding coming from permanent residents in aged care facilities
paying accommodation and daily living charges. Most of the funding comes
via the Commonwealth Department of Health and Aged Care but there is also
specific residential aged care funding via the Department of Veterans’
Affairs for aged veterans.
Total Commonwealth funding for residential and community aged care has
been rising steadily as the aged population in Australia grows. For example,
according to official government data contained in the Health and Ageing
2005-06 Budget Media Kit (More Choice, Better Aged Care Services),
the Commonwealth will outlay about $7.3 billion in 2005-06 on residential
aged care and community care. This compares to a figure of about $3 billion
in 1995-06.
Accommodation payments are one of the main forms of resident contributions
that are levied on people in residential aged care facilities. These accommodation
payments are paid as either accommodation bonds (for residents in low
care or hostel beds and for residents in high care ‘extra service’ facilities)
or accommodation charges (for residents in high care or nursing homes
beds). The amount of accommodation payment levied essentially depends
on the income and asset level of each resident and the type of care utilised.
Accommodation payments are designed to help provide a stream of capital
income for operators of residential facilities and enable to them to build
facilities, carry out maintenance and capital upgrades etc.
The maximum accommodation charge that can currently be levied on new
entrants to high level care is $16.63 per day.
Accommodation bond (for low level or hostel care) amounts and payment
methods vary and are negotiated with the residential care provider. They
can only be levied on residents who have assets in excess of $30,500.
The average accommodation bond being levied on new residents in 2004-05
was $127,618.(3)
The balance of accommodation bonds are refunded when a resident leaves
an aged care facility minus certain deductions and the investment returns
from the bond amount. Providers are allowed to deduct a certain amount
per year for a maximum of 5 years, the so called ‘retention amount’. Maximum
retention amounts are decided by the Government (currently $3186 per annum
for bonds in excess of $31 860) and are indexed annually.
There are two types of care fees.
The level of the fees is essentially dependent upon the residents income
and assets and the type of service chosen. There is a basic daily care
fee (currently of up to $28.62 per day for respite residents and pensioners
and up to $35.69 per day for other non pensioner residents) and income
tested fees (which can range from up to $22.08 per day for part means
tested pensioners to up to $50.07 per day for non pensioner residents).
Thus, the maximum daily care fees that a wealthy person may have to pay
is $85.86 per day made up of $35.69 for the basic daily care and $50.17
for the income tested fee.
There are currently a number of prudential requirements that aged care
providers must comply with in terms of how accommodation bonds are levied
and managed. All residents and providers must sign a bond agreement before
a bond can be charged. This agreement sets out the rights and responsibilities
of the parties involved. The bond can be paid in the form of a lump sum,
a fortnightly or monthly payment or a combination of these two options.
No bond can be levied on residents who have assets worth less than $30
500. Residents have up to 21 days after entering an aged care home to
sign up to a bond agreement.
With respect to lump sum accommodation bond payments the service provider
must guarantee in writing to repay the bond balance within 7 days if a
resident moves to another aged care facility and within two months in
all other cases. As well, aged care providers must have insurance to cover
circumstances that may adversely affect their ability to pay bond balances
and they must provide a yearly written statement outlining their performance
related to the prudential requirements. These statements must be certified
by an independent auditor or accountant.
Further details on prudential requirements for lump sum accommodation
bonds are contained in the Residential Care Manual which is published
by the Department of Health and Ageing:
Providers have a number of obligations under the prudential
arrangements.
When a resident originally pays a lump sum bond the Approved
Provider must, by written agreement, guarantee repayment of the bond
balance within the time periods required under the Act, i.e. if the
resident is transferring to another residential aged care service and
has given 7 days notice, the bond balance must be repaid on the day
the resident leaves the service. If the resident has given less than
7 days notice that they are transferring to another service, the bond
balance must be repaid within 7 days of the day they gave notice. In
all other cases (eg if the resident dies, or leaves the service to go
home), the bond balance must be repaid within 2 months of that event.
Within 4 months of the end of each financial year for
an Approved Provider, the provider must provide a written prudential
statement to the Department of Health and Ageing.
In the 2002-03 Federal Budget the Government announced that it would
establish a comprehensive review of the pricing arrangements for residential
aged care. A key emphasis of the Review (formally called the Review
of Pricing Arrangements in Residential Aged Care) was on the long
term funding needs and options of the sector. The Reviewer was Professor
Warren Hogan and the subsequent report (released in May 2004) is commonly
called the ‘Hogan Report’. A number of the recommendations in the Report
called for additional Commonwealth funding for aged care. The 2004-05
Budget did address many of the issues raised by Hogan. Included in the
recommendations was a call for a tightening of the prudential requirements
as they relate to accommodation bonds. The Report noted that:
The accommodation bond has been an important source of
funding in low care residential facilities. This funding approach is
also found in high care Extra Service places. The large sums of money
held in these bonds and the lack of a comprehensive arrangement for
the monitoring and supervision of the management of these funds is a
major source of concern…Given the mechanisms by which the fundraising
through these bonds is provided for within legislation, the government
may be deemed to be exposed to moral hazard. This possibility should
be not be set aside lightly even though no substantial concerns have
arisen in recent years. There is an obligation on government to ensure
these funds are not exposed to risk of any loss. The position as it
currently stands is that where sole traders and partnerships go bankrupt
or companies go into liquidation, there is little protection for those
entitled to reimbursement of bond monies paid.(5)
Accordingly, the Report recommended that the government should establish
a guarantee fund to ensure that all accommodation bond balances were secure.
This fund was to be funded by an industry levy and the authority charged
with running the fund would also have prudential oversighting authority
of approved aged care providers. The proposed legislation contained in
these three Bills does not provide for the exact type of strengthened
prudential arrangements as set out in the Hogan Report. Rather than set
up a guarantee fund via a levy on the industry, the government has opted
to, in the first instance, act as guarantor of the bond balances and then
on ‘as needs’ basis levy the industry to recoup any amount that it has
outlaid on bond default payments.
This latter approach has the advantage of not ‘locking up’ potentially
large amounts of bond money in a fund that then would not be available
to aged care providers for capital purposes. An ‘as needs’ approach to
levying the providers would appear to be more flexible and less costly
whilst still providing the requisite levels of prudential protection.
It forgoes the need to have a permanent guarantee fund that would necessarily
reduce the amount of potential capital funding available to the aged care
sector. However, a ‘downside’ of this model is that all aged care providers,
or at least all low care providers, may be called on to pay a bond security
levy – ‘good’ providers thereby ‘bailing out’ ‘bad’ or defaulting providers.
On balance though, this model is probably preferable to one that ties
up scarce capital resources in a guarantee fund that providers contribute
to just ‘in case’ there is a defaulting problem somewhere in the sector.
It would appear that the residential aged care provider sector is comfortable
with the changes proposed in these three Bills. The model contained in
the proposed legislation has received broad industry support not least
because it imposes minimal costs on the industry. For example, according
to Catholic Health Australia
It has been Government policy since the Federal Budget
of 2004 that there be a prudential guarantee scheme to protect residents
bonds funded by the industry. The outcome that the Government intends
to legislate into existence is by far the lowest cost guarantee scheme
that the industry, including the Church based sector, could possible
hope for and should be supported in the interests of resident confidence
in continuing to pay increasingly larger bonds.(6)
Another peak aged care provider group, the National Aged Care Alliance
(NACA), indicated in its response the Hogan Review of Pricing
Arrangements in Residential Aged Care that it supported an ‘examination
of appropriate means to protect consumer funds including by arrangements
such as trust funds, insurance or a guarantee fund’.(7).
As stated in the Explanatory Memorandum for the Bond Security
Bill the Government did undertake a range of external stakeholder consultation
following the release of the Hogan Review, including consultation on prudential
issues.(8) The Explanatory Memorandum makes clear that the
aged care sector preference for guaranteeing the security of accommodation
bonds is the model (the post payment model where the Commonwealth guarantees
the bond balances and has the option to levy the sector to recoup any
default payments thus paid) contained in these Bills.
With respect to the provisions of the Bond Security Bill and the Levy
Bill there will be no costs to the providers of aged care unless one or
more of them goes bankrupt or insolvent and are unable to refund accommodation
bond amounts to residents. In situations such as this the Commonwealth
may recover any costs that it has incurred by placing a levy on aged care
providers. The need for, and the size of, this levy would depend on the
circumstances of the bankruptcy or insolvency and the consequent ability
of the Commonwealth to recover funds from the aged care provider/s concerned.
Under the provisions of the No. 1 Bill, the Government will meet the
costs of the new prudential regulatory framework for the first three years
of its operation. After that time the costs will be recovered from providers
who hold resident accommodation bonds. The three year cost to the Commonwealth
of the new prudential framework is estimated to be $8.5 million over three
years - $2.7 million in 2005-06; $$2.7 million in 2006-07 and $3.0 million
in 2007-08.
Clause 4 applies the legislation to all the States and the internal
Territories (the Australian Capital Territory, the Northern Territory
and Jervis Bay Territory).
Clause 5 binds the Crown in each of its capacities (ie Commonwealth,
State and Territory) but exempts the Crown from prosecution for breaching
the legislation.
Clause 6 is a definitions provision. Note that the term, ‘bonds’,
is defined to mean both accommodation bonds and entry contributions. For
convenience, this Digest uses the expressions ‘accommodation bonds’ and
‘bonds’ interchangeably.
An ‘approved provider’ is a person or body that has an approval under
the Aged Care Act 1997 and may include States, Territories, State
and Territory authorities, and local government authorities.
The term, ‘insolvency event’, is of great importance because it triggers
or can trigger certain actions. The definition of ‘insolvency event’ contains
seven paragraphs ((a) to (g)). Included in the definition are winding
up orders made under the Corporations Act 2001 because an approved
provider is insolvent, the passing of a creditors’ resolution under the
Corporations Act that the provider be wound up, and the acceptance
of a debtor’s petition against an approved provider under the Bankruptcy
Act 1966.
As indicated above, this Bill enables the Commonwealth to take certain
action in the event that an approved provider of aged care accommodation
becomes insolvent and cannot repay accommodation bonds it owes
to aged care recipients (ie becomes a defaulting approved provider).
If an approved aged care accommodation provider is an externally-administered
corporation under the Corporations Act or is the subject of a personal
insolvency agreement under the Bankruptcy Act and has at least
one outstanding accommodation bond balance (as defined in subclause 6(2)),
then:
- the Minister may make an insolvency event declaration.
The declaration must be in writing. It is not a legislative instrument,
which means that Parliament cannot disallow it and it need not be tabled
in Parliament (clause 7)
- once a declaration is made, the Minster must give a copy to the relevant
approved provider. However, failure to do so does not affect the validity
of the declaration (clause 8).
Clause 7 recognises that may be circumstances in which the approved
provider is not insolvent according to paragraphs (a) to (f) of the definition
of ‘insolvency event’ but may be in serious financial difficulties and
unable to repay bond balances. In these circumstances, it enables the
Minister to exercise his or her discretion about issuing an insolvency
event declaration. The Explanatory Memorandum states that this provision
‘would only be used where there is no likelihood that the bond balances
will be returned to the care recipients.’(9)
Clause 9 requires an approved provider to notify the Secretary
of the Department in writing ‘the first time’ that certain ‘insolvency
events’ occur. (10)These are the events are specified in
paragraphs (a) to (f) of the definition of ‘insolvency event’ in clause
6. An example is where a winding up order is made under the Corporations
Act because an approved provider is insolvent. In other words,
clause 9 covers the situation where the approved provider is insolvent
and not merely in serious financial difficulty. Notification must be given
to the Secretary by the end of the first business after the day on which
the insolvency event occurred. It is an offence for an approved provider
to fail or refuse to comply the notification requirement. The maximum
penalty is 30 penalty units ($3300).
The Bill also provides that soon as practicable after becoming aware
that an insolvency event has occurred and that the approved
provider has at least one outstanding bond balance,(11) the
Secretary of the Department must make a written default event
declaration. Such a declaration is not a legislative instrument (clause
10).
A copy of the declaration must be given to the approved provider and
anyone that the Secretary considers may be entitled to a bond balance
refund. Additionally, a copy of the declaration must be published in a
national newspaper ie a newspaper circulating generally throughout Australia.(12)
Failure to comply with these notification requirements does not invalidate
the declaration (clause 11).
It is important to note that once a default event declaration has been
made, action can be taken so that bond balance refunds are made to aged
care recipients.
The Bill does not require defaulting approved providers to provide the
Secretary with details of outstanding bond balances. The reason is that
the proposed No. 1 Bill obliges approved providers to provide bond information
to the Secretary. Further, as a result of amendments to be made by that
Act it is anticipated that records standards will be implemented that
will require each approved provider holding bonds to maintain an independently
audited bond register. It is also intended to promulgate information standards.
These measures will ensure that accurate information about bonds and bond
balances will be kept and will also be obtainable by the Commonwealth
should the guarantee and recoupment schemes be activated.
Once a default event declaration has been made, the Secretary must identify
the outstanding bond balances, the date on which the bond balance became
outstanding, the amount of the outstanding bond balance, interest that
has accrued on it, the person to whom the money is owed and the most appropriate
method of repayment (clause 12).
Once these matters have been determined, the Secretary must make a written
refund declaration identifying the defaulting approved provider,
stating the amount of the outstanding bond balance, the amount of accrued
interest and to whom the money is to be paid (clause 13). A refund
declaration is not a legislative instrument. A copy of the refund declaration
must be given to the refund recipient and the approved provider. However,
failure to comply with notification requirements does not invalidate the
declaration (clause 14).
As the Explanatory Memorandum points out, the Secretary can obtain bond
information from a variety of sources including the approved provider’s
insolvency practitioner.(13) As pointed out earlier in this
Digest, the defaulting approved provider can also be required to give
information about bonds to the Secretary under the proposed No. 1 Bill.
Once the Secretary makes a refund declaration, any rights the refund
recipient has to recover an amount equal to the refund amount from the
approved provider are transferred to the Commonwealth. This means that
the Commonwealth stands in the shoes of the aged care recipient and can
attempt to recoup the money from the defaulting approved provider. A clause
note states that rights to recover additional amounts are not transferred
to the Commonwealth by this provision (clause 15).
The refund amount must be paid to the refund recipient within 14 days
of a refund declaration being made (clause 16). Clause 17 appropriates
the necessary moneys from consolidated revenue.
Clause 18 enables the Minister to make written cost recoupment
determinations specifying refund amounts that have not been
recovered by the Commonwealth from the defaulting aged care provider.
These determinations must identify relevant refund declarations, the costs
recoupment amount and the relevant default event declaration. Costs recoupment
determinations are not legislative instruments.
There is also provision for the Minister to make an administrative
costs recoupment determination (clause 19). These determinations
specify administrative costs(14) associated with a refund
declaration that have been incurred by the Commonwealth. Like other determinations
in the Bill, costs recoupment determinations are not legislative instruments.
Note that the money specified in these determinations is obtained through
the imposition of a levy on approved providers. The levy is provided
for by the proposed Levy Bill. The amount of the levy is set by regulations
made under that proposed Bill.
Clauses 20 and 21 enable the Minister and the Secretary to delegate
their powers as prescribed. The delegate must comply with any written
directions given by the Minister or Secretary.
Clause 22 enables regulations to be made. The regulation making
power extends beyond the standard power, which enables regulations to
be made that are required, permitted or necessary to give effect to an
Act. Clause 22 also enables regulations to be made that will facilitate
the collection of the levy that can be imposed under the proposed Levy
Bill.(15) This includes regulations specifying who is liable
to pay the levy, when the levy is payable, how the levy can be paid, penalties
for late payment, repayments, and penalties for offences against the regulations.(16)
- Schedule 5 commences six months after the Aged Care Amendment (2005
Measures No. 1) Bill 2005 receives Royal Assent unless it is commenced
earlier by proclamation.
- Department of Health and Ageing, Annual Report on the Operation
of the Aged Care Act 1997 – 2004-05.
- Department of Health and Ageing, Annual Report on the Operation
of the Aged Care Act 1997 – 2004-05.
- Department of Health and Ageing, Part 9.3.2 Prudential Requirements,
The Residential Care Manual, revised April 2005.
- Review of Pricing Arrangements in Residential Aged Care, pp. 163–64.
- Catholic Health Australia, Aged Care Bulletin, September 2005,
p. 1
- NACA Response to the Hogan Review, June 2004, p.6
- Explanatory Memorandum, pp. 11–12.
- Explanatory Memorandum, p. 17.
- However, as pointed out in the Explanatory Memorandum, the Secretary
may become aware of insolvency events in other ways-for instance, via
an insolvency practitioner or an aged care resident. See page 18.
- The term ‘outstanding bond balance’ is defined in clause 6.
- The expression ‘national newspaper’ is defined in clause 6.
- Explanatory Memorandum, p. 19.
- ‘Administrative costs’ are defined in clause 6.
- This is presumably done for an abundance of constitutional caution.
See endnote 2 of the Bills Digest for the Levy Bill.
- Penalties for offences against the regulations cannot exceed 50 penalty
units (ie $550). Note this penalty accords with the approach generally
taken by the Commonwealth ie that penalties for offences in regulations
should not exceed 50 penalty units. See Attorney-General’s Department,
A Guide to Framing Commonwealth Offences,
Civil Penalties and Enforcement Powers, February 2004.
Jennifer Norberry
Law and Bills Digest Section
Greg McIntosh
Social Policy Section
31 January 2006
Bills Digest Service
Information and Research Services
This paper has been prepared to support the work of the Australian Parliament
using information available at the time of production. The views expressed
do not reflect an official position of the Information and Research Service,
nor do they constitute professional legal opinion.
IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of the
public.
ISSN 1328-8091
© Commonwealth of Australia 2005
Except to the extent of the uses permitted under the Copyright Act
1968, no part of this publication may be reproduced or transmitted
in any form or by any means, including information storage and retrieval
systems, without the prior written consent of the Parliamentary Library,
other than by members of the Australian Parliament in the course of their
official duties.
Published by the Parliamentary Library, 2005.
|
