Bills Digest no. 83 2005–06
Aged Care (Bond
Security) Bill 2005
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
Contact Officer & Copyright Details
(Bond Security) Bill
Date introduced: 8
House: House of
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
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.
- 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
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
Providers have a number of obligations under the
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
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
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
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)),
- 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
- 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
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.
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
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
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
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
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
- Review of Pricing Arrangements in Residential Aged Care, pp.
- 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.
Law and Bills Digest Section
Social Policy Section
31 January 2006
Bills Digest Service
Information and Research Services
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