Residential Aged Care: New Fees and Charges
Greg McIntosh
Social Policy Group
23 March 1998
One of the first major social policy reforms announced by the incoming
Howard Government was the Aged Care Structural Reform Package. In the
context of the 1996-97 Federal Budget the Government announced a series
of reforms to residential aged care to take place progressively from 1
July 1997.
The Reform Package
The main elements of the reform package are summarised in Table 1.
This Research Note concentrates only on the fees and charges aspects
of the Reform Package.
Since the announcement of the reform strategy in mid-1997 a number of
adjustments have been made apparently as a result of protests against
some of the proposed changes. The main public debate so far on the reforms
has concentrated on the new arrangements for residents classified in the
high level of care (nursing home) categories. Many of these residents
will now need to pay an accommodation charge (entry contribution) and
also higher daily fees dependent on their income. Residents in low level
care (hostels) have had to pay entry contributions and daily resident
fees for many years based on their income. The reforms to fees and charges
essentially aim to bring residents in high level care (nursing homes)
into line with residents in low level care.
Table 1: Aged Care Structural Reform Package
- integration of hostels/nursing homes into one residential aged
care system
- a new single residential classification system (formerly
there were two)
- the introduction of resident accommodation payments (entry contributions)
for all residential care (formerly applying to hostels only)
- income testing of daily resident fees payable for all types
of care (formerly applying to hostels only)
- a new system of accreditation designed to ensure proper standards
of care
- less onerous paperwork requirements on residential facilities
- improved consumer protection arrangements
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In summary form, the new accommodation charge arrangements are as follows:
Accommodation Payment Arrangements
Accommodation Bonds (for residents needing low level hostel care)
- No limit on the size of the bond but residents must be left with assets
of at least $22 500.
- The maximum amount that the operator can take from the bond is $2600
per annum for a maximum of five years, after which the residual is refunded
to the resident. The operator is entitled to retain all income derived
from investment of the bond during the period the resident remains in
the facility.
- It can be paid as a lump sum, a periodic payment or a combination
of lump sum and periodic payment.
- The family home is not included in the calculation of net assets if
the house is occupied by a partner or dependent child, or if a carer
or close relative has lived in the house for the past two years and
is eligible for a social security payment.
- Residents have six months after entry to pay the bond.
Accommodation Charges (for residents needing high level nursing
home care)
- Residents with assets less than $22 500 are exempt from the charge.
- Maximum amount per annum to be $4380 OR the margin of assets above
$22 500 divided by five years-whichever is the lowest.
- For residents with assets over $44 400 the maximum charge is
$12 per day.
- For residents with assets between $22 500 and $36 000 the maximum
daily charge is $6.
- The charge can only be levied for five years and must be calculated
on a daily basis.
- With the agreement of the operator of the facility the payment of
the charge can be deferred and paid from the resident's estate. The
Government is presently talking to banks to encourage them to offer
reverse mortgage facilities to allow residents to borrow against their
homes to pay the charge.
- Where residents pay the charge by renting out the family home the
rental income is not counted for pension purposes, or for income tested
fees.
Resident Daily Fees
Table 2 gives brief details of the new Resident Fee arrangements.
Table 2: New Resident Daily Fee Arrangements
- From 1 March 1998 (with a 28 day grace period) all new residents
will pay a base daily care fee ($21.10 for pensioners and $26.40
for non-pensioners).
- Part-pensioners and non-pensioners will also be required to
pay an additional income tested care fee dependent on their income.
- The maximum amount of the daily care fee is $63.30. To pay this
upper level of fee, residents would need to have an annual income
in excess of $56 000.
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Ongoing Concerns
A key concern, raised not only by residents in aged care facilities but
also by others in the general community, is related to the nature of the
care provided to residents in high level care. Most residents going into
high level care (nursing homes) are very frail and often quite ill. Many
of them are only in residential care for short periods (a year or less)(1)
and it is argued that elderly people in this situation should be treated
in a similar way to patients in public hospitals where accommodation charges
are not levied.
There is a strong case for managing and paying for short stay (nursing
home type) residents, heavily dependent on health and medical care, differently
to others who primarily use residential aged care for 'nursing supported
living'.(2)
Another concern, raised particularly by the operators of resident facilities,
is related to the capital underfunding of the sector. In recent years
governments of both persuasions have provided inadequate capital funding
for the nursing home sector. According to some the new accommodation charge
arrangements are unlikely to raise enough capital for upgrading and expansion
of aged care facilities. The 1994 Gregory Report(3) estimated there was
a need for an additional $125 million per year to fulfil the capital requirements
of the nursing home sector. The Government estimates that the new accommodation
charge will raise that amount by the fourth year of its operation. However,
a more recent report(4) estimated that there is likely to be a $1.32 billion
capital shortfall ($2.03 billion if the backlog of deferred investments
is to be cleared) in the residential aged care industry over the period
1997-98 to 1999-2000. If the estimates in this latter report are accurate,
Australia is likely to be faced with a further decline in the standard
of residential aged care, notwithstanding the introduction of a new user-pays
regime.
- According to the Australian Catholic Health Care Association (Residential
Aged Care Daily Fees: Position Paper, February 1998 p.2): 'up to
60% of nursing home residents either return to hospital or die within
the first year.'
- ibid., p.2
- Gregory, R.G., Review of the Structure of Nursing Home Funding
Arrangements: Stage 2, Aged and Community Care Service Development
and Evaluation Reports, Number 12, May 1994.
- HESTA Report Into Strategic Capital Needs of the Residential Aged
Care Industry 1997-2003, Tasman Asia Pacific in association with
Economic Insights, June 1997.
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