Bills Digest No.159 1997-98
Aged Care Amendment Bill 1998
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
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Aged Care Amendment Bill 1998
Date Introduced: 5 March
1998
House: House of Representatives
Portfolio: Family Services
Commencement: The substantive
changes outlined below commence on the day on which the Act receives the
Royal Assent.
To amend the Aged Care Act 1997
to:
- provide that instead of being required to pay a lump sum entry contribution
(referred to as an 'accommodation bond') at the time of entering a nursing
home, a resident will instead pay an annual charge (referred to as an
'accommodation charge').
- reduce from five years to two years the period of time during which
a carer must have occupied a resident's home for the resident to qualify
as a concessional or assisted resident.
- provide for the reassessment of a resident's concessional or assisted
status upon the resident moving from one aged care facility to another.
- make it clear that the fees provided for by the Aged Care Act
1997 are the only fees that a care recipient can be required to pay
by a facility operator.
General
In the 1996-97 Budget, the Government announced a major
structural reform of residential aged care, scheduled to take effect on
1 July 1997.
The reforms were proposed against a backdrop of the increasing
aging of the population and the pressures this will impose on the community's
ability to care for the aged. In the next three decades, the proportion
of the population aged over sixty-five will grow from 11.2 per cent to
over 19 per cent of the population - from under two million Australians
aged over sixty-five in 1991, to over five million in 2030. (1)
In 1994 Professor Bob Gregory reviewed the structure
of nursing home funding arrangements and outlined options to address the
deterioration in the nursing home capital stock.(2) Professor Gregory's
report documented major deficiencies in capital works and criticised the
nursing home funding system as providing neither the funding nor the incentive
for providers to maintain their buildings. The report estimated that ongoing
funding of $125 million would be needed to allow a substantial level of
immediate building and upgrading to address existing problems as well
as providing continuing funding to maintain the quality of the building
stock.
The Government's announcement in the 1996-97 Budget responded
to the financial situation outlined in the Gregory report. The Government
recognised that given the economic climate it would not be feasible to
provide substantial additional funding needed to upgrade and maintain
the building standards of nursing homes. Instead, it adopted a user pays
approach in the form of accommodation bonds to be introduced with necessary
protections for financially disadvantaged people. The Department of Health
and Family Services estimated that the change for nursing homes would
raise $130 million in its fourth year of operation.
The
Reforms
The reforms announced in the 1996-97 Budget proposed
the introduction of several major changes:
- a single resident classification scale which determines the level
of subsidy of each resident
- an accreditation system based on quality assurance and a relaxation
of the previous detailed acquittal requirements for nursing homes
- income testing of residential care benefits
- adoption of the resident entry contributions (to be known as accommodation
bonds) across all residential care.(3)
Accommodation
bonds
The introduction of accommodation bonds was the most
controversial aspect of the reforms. At the time, hostel operators were
able to charge entry contributions and the proposal meant that nursing
home operators could do the same. There was to be no upper limit on the
amount of bonds but residents had to be left with assets of at least 2.5
times the basic age pension amount (about $22,500).(4)
The accommodation bond was able to be paid as a lump
sum or by periodic payments or a combination of both.
Where a person was a full or part pensioner who had not
owned a home for the past 2 years (or owned a home occupied by a carer
or close relation who had been there for the past 5 years or by a partner
or dependent child) and who had assets of less than 2.5 times the basic
age pension amount, that person would qualify as a 'concessional resident'.(5)
The calculation of assets excluded the family home if, at the time, it
was occupied by a carer or close relation who had been there for the past
5 years or by a partner or dependent child.(6)
Concessional residents would not have to pay an accommodation
bond and facility operators were to receive a daily supplement (concessional
resident supplement) from the Government in respect of each concessional
resident that the operator accepted.
Where a care recipient would qualify as a concessional
resident but their assets exceeded 2.5 times the basic age pension amount
but were less than 4 times the basic age pension amount, that person would
qualify as an assisted resident.(7) Assisted residents could only be requested
to pay an accommodation bond of a maximum of about $13,000 and operators
would be paid a small Government supplement in respect of assisted residents.
Income
tested resident fees
Prior to the 1997 policy changes all nursing home residents
paid a non-income tested rate of $26.30 per day towards their daily living
costs, the equivalent of 87.5 per cent of a combination of their pension
and rent assistance. Hostel residents on maximum rate pensions generally
paid 85% of their combined pension and rent assistance towards the cost
of their care and accommodation. Non-pensioners and part rate pensioners
may have had to pay additional variable fees. It was common for hostel
operators to take half of each resident's non-pension income above $49
a week.
From the date of commencement of the income tested fees
(which was delayed a couple of times - see below) under the Aged Care
Act 1997, no rent assistance is payable to residents of approved aged
care facilities. The resident fee for a person who is not in receipt of
a pension is $26.40 per day plus 25% of the person's income above $50
per week (to a maximum of $63.30 per week for a person earning about $56
000 per year). The resident fee for a person in receipt of a pension or
part pension is $21.10 per day (i.e. 85% of the basic age pension amount)
plus 25% of the person's income above $50 per week.(8)
The residential care subsidy paid by the government to
facility operators in respect of each care recipient is reduced on a dollar
for dollar basis by the amount the operator receives by way of the income
tested component of the daily fee, i.e. the 25% of the person's income
about $50 per week.
Delays
and modifications
As mentioned above, these reforms were to take
effect from 1 July 1997. In May 1997, the Minister for Family Services,
the Hon. Judi Moylan MP, announced that the commencement of the reforms
would be delayed until 1 October 1997. The Minister also announced that
the concessional resident supplement would be $5 per day per resident.
In June 1997, the Minister revised the concessional resident
supplement and outlined that the amount of the supplement would be paid
on a sliding scale dependant on the number of concessional residents in
the facility.
In September 1997, the Minister announced that the commencement
of income tested daily fees would be delayed until 1 November 1997.
As a result of community comment and concern, on each
of 27 October and 6 November 1997, the new Minister for Family Services,
the Hon. Warwick Smith MP (Minister) issued a press release annexing amendments
to the new arrangements, including:
- income tested resident fees to be deferred to 1 March 1998;
- for the purpose of income testing, assets gifted prior to 20 August
1996 are to be disregarded;
- the family home is to be excluded from an assessment of a person's
assets and from the determination as to whether the person was a concessional
resident where a carer has lived in the home for two years instead of
the current five years;
- residents who were in hostels prior to 1 October 1997, and who suffered
an increase in their basic daily fees are to have their fees reduced
to the level they were paying before 1 October 1997;
- Accommodation bonds for those entering nursing homes will no longer
be proceeded with. Accommodation bonds will continue to be able to be
charged by hostels. In respect of nursing homes, accommodation bonds
will be replaced by an annual payment capped at $4,380, to be called
an 'accommodation charge'. That charge will be payable for a maximum
of 5 years. Concessional residents will pay no charge; and
- Rental from the family home will be exempted from the assessment of
a person's income for pension purposes and for the purposes of calculating
the income tested resident fees.
Amendments
to the Aged Care Act 1997
Accommodation
bonds
Accommodation bonds will only be able to be charged in
four circumstances:
- the care recipient is entering residential care and is determined
by the Secretary of the Department of Health and Family Services (the
Secretary) as suitable for hostel care as opposed to nursing home care
- the Secretary has not made a determination as to whether the care
recipient is suitable for hostel or nursing home care and the care recipient
and provider agree that an accommodation bond is payable.
- the care recipient is entering an extra service place (i.e. one where
the accommodation, services and food are of a significantly higher standard
than average and for which the care recipient pays a significantly higher
daily fee).
- the care recipient is moving from one care facility, to which an accommodation
bond has been paid, to another. In that circumstance, the maximum bond
payable is the amount which is due to be refunded by the first facility
(Items 32 and 37; proposed new section 57-23).
The
accommodation charge
As mentioned above, accommodation bonds will not be able
to be charged by operators in respect of care recipients who are to receive
nursing home care. Instead the care recipient who resides in a nursing
home, having entered the home after on or after 6 November 1997, will
be obliged to pay an accommodation charge. The accommodation charge is
to be distinguished from the daily income tested resident fees (see above)
which will continue to be payable.
Item 38, proposed new section 57A-2 sets out 13
rules relating to the charging of an accommodation charge. The most significant
of these are:
- the provider and the care recipient must have entered into an accommodation
charge agreement before or within 7 days after the care recipient entered
the service
- the rate of the accommodation charge must not exceed the lesser of:
- the amount specified in the accommodation charge agreement (see proposed
new section 57A-3)
- (V - M) ¸ 1825 where V is the value of the care recipient's assets
and M is 2.5 times the basic age pension amount (about $22,600 at present;
$23,000 from 2 April 1998)) (1825 is the number of days in 5 years).
A page showing examples of the amount of the accommodation charge based
on certain asset levels is attached to this Digest.
- the amount specified in the User Rights Principles. The Minister has
said that the accommodation charge will be capped at $12 per day and
$6 per day for assisted residents. That cap will be imposed through
specification in the User Rights Principles (proposed new section
57A-6).
- the accommodation charge is payable for a maximum of 5 years (proposed
new section 57A-7).
- like the income and retention amounts which an operator would receive
from an accommodation bond, the accommodation charge must be used to
meet capital works costs relating to residential care or to retire debt
or improve the range and quality of aged care services.
Carers
residing in the family home
As mentioned above, the present test as to whether a
person qualifies as a concessional or assisted resident includes a requirement
that the person has not owned a home for 2 years or that the home has
been occupied by a carer or close relation, for the past 5 years and that
carer/relation is in receipt of a pension. Further, the persons assets
must be valued at less than 2.5 times the basic age pension amount. The
calculation of assets does not include the family home where it has been
occupied by a carer or close relation for the past 5 years provided that
carer/relation is in receipt of a pension.
Items 16, 20 and 23 amend the concessional
resident test, the assisted resident test and the calculation of assets
provisions respectively, to provide that a carer need only have resided
in the care recipient's home for 2 years instead of 5 years. Note that
5 years is still the requisite time period for close relations and the
requirement that the person be in receipt of a pension remains.
Time
of assessment for concessional and assisted resident status
At present the time at which a person is assessed for
the purpose of qualifying as a concessional or assisted resident is the
time at which the person first enters a residential care service. Consequently
a person will not have that status reviewed if they move to another facility
even where their circumstances have significantly changed.
Items 15 and 19 amend the concessional
and assisted resident provisions respectively to provide that the assessment
is undertaken each time a person enters a residential care facility including
where they move from one facility to another.
Charging
other fees
Item 27 amends the responsibilities of approved
providers in respect of residential care to prohibit operators charging
fees for:
- being placed or retained on a waiting list for entry to the service
- the operator's costs of complying with its obligations under the Aged
Care Act 1997
- any other thing or in any other circumstance specified in the User
Rights Principles.
Amendments
to the Social Security Act 1991 and the Veterans' Entitlements
Act 1986
The Government has promoted the concept of renting the
family home with a view to the rental income providing a sufficient stream
to pay the accommodation charge. However, for each $1 income a single
pensioner receives in excess of $50 per week the pension is reduced by
50 cents.
Item 3 of Schedule 2 and item 4 of
Schedule 3 remedy this problem (under the Social Security Act 1991
and the Veterans' Entitlements Act 1986 respectively) by
exempting income earned from renting the family home from the pension
income test where the person is liable to pay an accommodation charge.
Proposed sections 1099A to 1099D of the
Social Security Act 1991 (Item 13 of Schedule 2)
and proposed sections 12 to 17 of the Veterans' Entitlements
Act 1986 (item 19 of Schedule 3) apply where
either:
- after the introduction of the accommodation bond scheme but before
it was announced that it would be abolished in respect of nursing home
residents (i.e. from 1 October 1997 to 5 November 1997), a nursing home
resident paid an accommodation bond but has subsequently agreed with
the operator that the bond be refunded and an accommodation charge be
paid instead.
- on or before 5 November 1997, a person sold his or her home to raise
the money to pay an accommodation bond for entry into a nursing home.
Where those provisions apply, the amount of the refunded
bond or the house sale proceeds are deemed not to be income and not to
be an asset for the purposes of the income and assets tests under the
respective Acts. Further, the person's income is taken to be reduced by
the amount that they would otherwise be deemed by the respective Acts
to earn on the refunded bond or house sale proceeds (i.e. 3% on the first
$30 400 and $5% on the balance).
The abolition of the accommodation bond in respect of
nursing home residents seeks to address the concerns of prospective residents
of those facilities. However, in respect of payment of the accommodation
charge there is an issue which requires attention. The Minister has said
that there are four options available for payment of the accommodation
charge, namely:
- making a monthly payment presumably out of the existing assets of
the care recipient
- renting the family home and using that income stream, given that such
income will no longer affect the person's entitlement to a pension or
their income tested fees
- a charge against the person's estate
- a reverse mortgage against the family home.
Whilst the first two of these four options are quite
clear, the latter two need clarification.
A point to note in respect of deferring payment until
the care recipient's death or 'charging the estate' is that this option
is only available with the agreement of the operator of the facility.
The legislation does not require a facility operator to accept this method
of payment if the care recipient chooses it. Under this option the operator
will have to wait until the death of the person before they receive payment
(unless they are able to borrow against the future income). It may be
the case that an operator simply won't accept that delay. In those circumstances,
the operator may not be prepared to consider accepting the prospective
resident unless he or she agrees to pay in advance on a monthly basis.
At present the legislation mandates that a person be
given the option of paying the agreed accommodation bond by periodic instalments
(this will continue for the benefit of hostel residents who may still
be obliged to pay an accommodation bond).(9) Perhaps consideration could
be given to mandating that a person be given the option of deferring payment
of the accommodation charge until their death, providing there is a reasonable
expectation that the value of person's estate will be adequate to cover
the debt.
A reverse mortgage is a loan (by way of a lump sum or
instalments) which a person makes, secured against a property that he
or she owns, with the intention that the loan and interest will be repaid
from the proceeds of the sale of the property on the death of the borrower.
At present there appear to be no reverse mortgage facilities available
which would be suitable for use by an intending nursing home resident.
The writer understands that the facilities of this type which are currently
offered by a small number of banks require that the borrower continues
to reside in the mortgaged property. This facility would be unsuitable
to a prospective nursing home resident.
In early November 1997 the Prime Minister announced that
the government would be talking to the banks about reverse mortgage facilities
presumably with a view to encouraging the development and promotion of
an appropriate banking product. At the time of writing this Digest
neither the government nor the banks had made any announcement in relation
to the availability of such a product.
- Steps to Better Care: Implementation of the Government's Residential
Aged Care Structural Reform Package, Statement by the Minister for
Family Services, 10 February 1997, p. 1.
- Gregory, R.G., Review of the structure of nursing home funding
arrangements, 1994.
- Aged Care Bill 1997, Explanatory Memorandum.
- Aged Care Act 1998, section 57-12.
- Aged Care Act 1997, section 44-7.
- Aged Care Act 1997, section 44-10.
- Aged Care Act 1997, section 44-8.
- Aged Care Act 1997, section 58-2.
- Aged Care Act 1997, section 57-17.
Lee Jones
17 March 1998
Bills Digest Service
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