Proposed Changes to Institutional Residential Aged Care in Australia
Possible implications of the 10 February 1997 Exposure Draft of the
Aged Care Bill 1997
Greg Clarke
Social Policy Group
Contents
Major Issues Summary
Introduction
The Australian Aged Care System
The Proposed Restructure
Accommodation Bonds
Current Position
Proposed Position
Resident Contributions
Current Position
Proposed Position
The Effects of the Changes on Disposable Income
Other Aged Care System Issues
Principles to be Approved by the Minister
Prudential Arrangements
The Family Home
Supply, Demand and Barriers to Entry
Service Standards
Other Forms of Aged Care
Application Fees
Issues Outside the Aged Care System
Endnotes
Major Issues Summary
The 1996 Budget heralded a major revamp of Australia's residential aged
care system which is to be introduced on 1 July 1997. An exposure draft
of the Aged Care Bill 1997 was circulated on 10 February 1997,
and on 27 February 1997 the Aged Care Income Testing Bill 1997
was introduced in the House of Representatives. These Bills, together
with a set of Principles to be released in April 1997, will form the major
planks for implementing the changes to residential aged care.
In 1991 about one in five of Australia's adult population was aged 65
years or more. It has been predicted that by 2041 this proportion will
have risen to one in three. Much has already been written about the financial
impact this growth will have on our income security and health and welfare
systems. Part of the rationale for changing the existing residential aged
care arrangements appears to be to enable the Commonwealth Government
to reduce its capital funding involvement in the aged care industry and
to limit its recurrent contribution to aged care. By making these changes
now, the Government expects to be better placed to cope with the additional
impost it will incur as greater numbers of aged people attempt to access
residential aged care in the early part of the 21st century.
The major change that has been proposed in the draft Aged Care Bill
1997 is to end the existing nursing home and hostel regimes and to
replace them with a single residential care system. This new system has
key components for both facility operators and their aged residents.
Before operators can become a part of the new system they will need
to obtain certification from the Commonwealth Government that their premises
and services are of a standard appropriate to the needs of their aged
clientele. They will attract no Commonwealth subsidy until this certification
has been given.
While operators of most approved aged persons' hostels have been able
to upgrade their facilities by use of resident contributions and entry
fees, many nursing homes which were capital funded under the Aged or
Disabled Persons Care Act 1954 are now in urgent need of renovation
and restructuring to allow provision of aged care of the standard demanded.
Federal governments have previously made limited funds available to allow
these upgrades to take place, but under the provisions of the draft Aged
Care Bill 1997 the Government will cease providing capital funds for
all but $10 million for special purposes, for example, rural and remotely
located facilities.
Instead, the Government proposes to introduce a system of capital funds
generation similar to that already used in approved aged persons' hostels.
Under this scheme, when aged people who have been assessed as requiring
residential care accept a place, facility operators can negotiate with
them the payment of an accommodation bond. This scheme will allow a facility
operator to use a maximum of $2,600 a year from the bond for up to five
years, as well as any interest or other investment income generated from
the bond, to assist with the cost of upgrading the physical standard of
the aged care facility nursing home.
There is no upper or lower limit to the level of the negotiated accommodation
bond, as long as residents are left with a minimum of $22,500 in assets
after payment of the bond.
As well as the introduction of one-off payments of accommodation bonds,
the draft legislation proposes a new system of assessing daily resident
contributions. The system will be administered by the Departments of Social
Security and Veterans' Affairs as agents for the Secretary of the Department
of Health and Family Services.
The Commonwealth Government estimates that it presently provides about
$29,000 per annum per resident in subsidies to facility operators. These
subsidies are higher where intensive care is provided. Under the new proposals,
residents of approved facilities will be required to contribute 25 per
cent of their 'ordinary' income (generally non-pension income) over $49
a week towards the cost of their residential care. The maximum daily rate
of contribution will be about $60 a day. Those residents on a maximum
rate pension will be required to pay a base rate of $21.10 a day. The
base rate for part or non-pensioners will be $26.40 from 1 July 1997.
Those electing not to disclose their income will pay the maximum daily
fee or the cost of care, whichever is the lesser.
The proposed changes appear likely to cause significant reductions in
the personal disposal income of residents. Those with private income presently
residing in nursing homes and those without private income presently residing
in hostels are likely to be most affected.
Some other proposed changes require further explanation before their
full impact can be assessed. These include:
- the contents of guidelines still to be released by the Minister for
Family Services which will explain in more detail the operational implementation
of 23 Principles contained in the draft Aged Care Bill 1997;
- the prudential arrangements which will apply to the administration
of the accommodation bonds;
- implications for the sale of the family home;
- setting and maintenance of service standards; and
- the impact of the changes on other forms of aged care delivery.
It could be argued that the proposed changes may also have an effect
on fiscal and social arrangements outside the aged care system. Family
wealth considerations may well result in the transfer of major assets
from the oldest family members to those in the next or subsequent generations.
There may also be changes to the way in which investments are held, in
order to minimise their impact on accommodation bond and resident contribution
levels.
Because of the increasing proportion of aged people in Australia's population,
there may also be urban planning issues to be contemplated.
Some taxation and constitutional law issues may also arise, as well
as some aspects of competitive neutrality both within and outside the
aged care system. These issues are considered in the companion Current
Issues Brief Proposed Changes to Financing Aged Care-Some Tax and Constitutional
Issues by Bernard Pulle(1)
Introduction
In 1990, the ratio of people over the age of 65 years to those in the
workforce was 19:100 across all OECD countries (that is, a dependency
ratio of 19). By 2030, this dependency ratio will double to 37. Australia's
ratio is expected to be 33-not as high as Germany's 49.2 or Italy's 48.3,
but still representing a substantial proportion of our population.(2)
The maintenance of existing social security and aged care systems will
place enormous pressure on taxation systems, with the OECD estimating
that rises in taxation levels of up to 10% may be necessary in some countries
to continue to provide current levels of support.
All OECD countries are now starting to look to systemic changes which
will reduce pressure on government expenditure and public debt levels
in order to cope with the 'aged bulge'. Most are moving towards self-funding
insurance, superannuation and care provision schemes.
In Australia, a relatively younger nation than its OECD counterparts,
the 'bulge' will not be proportionally as large nor come as soon. However,
from 1991 to 2041 the proportion of those aged 65 and over is expected
to double from 11% to 22% of the total Australian population. A better
indicator of service use by older people is the proportion of those aged
65 and over who are aged 80 or more-the 'aged aged'. This proportion is
expected to rise from one in five in 1991 to one in three by 2041.(3)
It is against this backdrop that the Government has released its exposure
draft Aged Care Bill 1997. On 27 February 1997 it introduced the
Aged Care Income Testing Bill 1997, which will establish the procedures
for determining the level of 'ordinary' income to be used in the assessment
of resident contributions for non-pensioners referred to in the Aged
Care Bill 1997.
The Australian Aged Care System
The Aged or Disabled Persons Care Act 1954, Nursing Homes Assistance
Act 1974 and the National Health Act 1953 have provided for capital
funding and a range of residentially based care to be delivered to aged
or disabled people in nursing home and hostel settings. As a general statement,
nursing homes have provided more intensive care for the frail aged and
those who are chronically or terminally ill. They were initially developed
in an attempt to check the increasing use by older people of relatively
scarce, high-cost hospital beds and to enable more appropriate treatment
to be provided in more suitable settings.
Hostels were viewed as an alternative form of accommodation to the family
home, rather than as intensive care facilities for the frail aged. Little
medical care was provided and far more management attention was placed
on the social and personal needs of residents.
While costs in nursing homes remained lower than those in hospitals,
they were nevertheless growing at a much faster rate than hostel costs.
At the same time insufficient attention was paid to the assessment of
the needs of residents, so many people were inappropriately accommodated
in nursing homes and there was a strong growth in the numbers of older
people seeking to enter such facilities.
Budget figures show that until 1987, most government capital funding
was directed towards nursing homes. Since 1987 there has been an attempt
to control spiralling nursing home costs and to limit access to nursing
homes to those with acute needs, and over 80 per cent of capital funding
has been directed towards hostels and other less restrictive forms of
accommodation.
As well as attracting the bulk of capital funds, hostel operators have
been able to levy entry fees and have in part used those fees to provide
generally well maintained accommodation and services which meet the needs
of their residents.
Nursing homes have evolved from a more medically oriented base than
have hostels. Most were designed, like the new hospitals of their time,
around multiple-bed wards. Since they were built, their operators have
not had the same opportunities as hostel operators to generate sufficient
funds to undertake alterations to enable residents to have single rooms
and other private facilities. Although the Commonwealth Government provides
about $29,000 per nursing home resident per year (more in respect of high
need residents) and residents contribute 87.5% of their pension and rent
allowance, this covers only the cost of day-to-day care, estimated to
be $38,000 per annum.
Proposed Restructure
In the 1996-97 Budget Statement, the Government announced a proposal
to unify the nursing home and hostel systems. It proposed allowing nursing
home operators to collect from new residents similar entry fees to those
being collected currently from hostel residents, to help improve the standard
of accommodation and care provided in nursing homes.
It also proposed to cease all capital funding of aged care residential
facilities, with the exception of $10 million to be provided for special
purposes such as to assist rural and remote facilities. In future, all
capital works other than these, are to be funded from earnings flowing
from the collection and investment of entry fees.
On 10 February 1997, the Government released an exposure draft of the
Aged Care Bill 1997, which is designed to unify the two systems.
Its stated primary purpose is to simplify future aged accommodation and
care while placing a greater onus on those older people with higher income
and asset levels to contribute to the cost of their care.
The Government highlighted its intention to provide appropriate protections
for concessional residents under the proposed legislation, to ensure that
care was provided on the basis of need and not related to a financial
capacity to pay.(4)
Some significant changes are proposed in the draft legislation, and
are outlined below.
Accommodation Bonds
Current Position
Since the 1950s, hostel operators have been able to levy charges on
intending residents as a condition of their entry into approved hostel
accommodation. These fees were quite often termed 'donations'. There has
been no regulation of entry fee levels, although guidelines designed to
afford more protection to residents were introduced in 1987.
Entry fee levels have been negotiated between the hostel operator and
the resident applicants prior to their entry into the hostel. Rates have
varied from no charges at all to over $200,000.(5) While it is not possible
to obtain comprehensive national statistics, a significant number of hostels
do not charge entry fees, and some hostels have different entry fees for
different standards of accommodation and services. The Department of Health
and Family Services advises that entry fees have averaged about $26,000
per person and recent surveys suggest that only two percent are in excess
of $80,000.
Proposed Position
The proposed legislative changes remove the administrative differentiation
between nursing homes and hostels and allow nursing home operators to
obtain entry contributions from intending residents. In doing so, the
conditions applying to these accommodation bonds (as the contributions
have been named in the draft Bill) have been more clearly defined.
Some key conditions are:
- Facilities must be certified as meeting accommodation and care standards
before accommodation bonds are payable by intending residents. Contrary
to changes proposed for assessing daily resident contribution rates,
current residents of approved nursing homes will be protected from paying
accommodation bonds while they remain at that facility. They will lose
that protection if they change facilities.
- There are no limits placed on the size of the bond required, providing
the intending resident is left with a minimum of $22,500 in assets.
Where the applicant has less than $22,500 in assets, no bond is to be
paid and the accommodation operator is provided with a supplementary
recurrent subsidy by the Government in lieu of their foregone income
return from the accommodation bond.
- The value of the intending resident's home is taken into account in
assessing this minimum asset level, unless a partner or dependent child
continues to reside in the residence, or it continues to be occupied
by a close relative (ie. mother, father, sister, brother or child) or
carer, who has lived there for a minimum of five years and who qualifies
for income support. Under these circumstances, the value of the home
is excluded from assessment of the intending resident's assets.
- Once an assessment of an intending resident's assets has been made
and the person becomes a resident, no additional accommodation bond
can be levied regardless of changes in the resident's level of assets.
If an 'eligible' relative or carer leaves the resident's home after
residence commences, the home cannot be reconsidered as an asset affecting
the level of accommodation bond. It may in time affect the home owner's
level of resident contributions.
- An amount not exceeding $2,600 per year may be deducted by the facility
operator from each accommodation bond for a maximum of five years (a
total maximum retainable amount of $13,000). A resident who moves from
one facility to another is not required to pay a further bond. In these
circumstances, the residual amount of the accommodation bond is transferred
to the operator of the intaking facility. Regardless of whether or not
the resident changes facilities, after the first five years of residence
within the approved aged care system no new accommodation bond is payable.
After the first five years, all the receiving aged care facility operator
can retain is the residual value of the initial bond. In these circumstances
no supplementary subsidy is payable by the Commonwealth Government.
- Accommodation bonds do not have to be paid until six months after
the resident enters an agreement with the operator. However, interest
and retention calculations may start from the commencement of residence
at the facility.
- Operators have the right to invest the accommodation bonds and to
retain the interest accruing from them, subject to prudential provisions
yet to be determined.
- As well as once off payments, accommodation bonds may be paid as periodic
payments or as part lump sum and part periodic payments, with interest
and retention calculations being made on the basis of an agreed full
accommodation bond figure.
- The proposed legislation allows the Government the capacity to fix
the proportion of beds for which no accommodation bond can be levied.
The Government has indicated that this proportion will be in the order
of 30% nationally, but levels in individual facilities will be determined
according to regional needs.(6)
Resident Contributions
Current Position
Currently, all nursing home residents pay a non income tested rate of
$26.30 a day towards their daily living costs, the equivalent of 87.5%
of a combination of their pension and rent allowance. Hostel residents
on maximum rate pensions generally pay 85% of their combined pension and
rent assistance towards the cost of their care and accommodation. Non-pensioners
and part rate pensioners may pay additional variable fees. Many hostel
operators take half of each resident's non-pension income above $49 a
week in variable fees. There are no upper limits on the level of daily
contribution that hostel operators can charge their residents.
Proposed Position
Under the proposed legislation, no rent assistance will be payable to
residents of approved aged care facilities. This will reduce their level
of income by $37.30 a week if they receive the maximum amount of rent
assistance. However the level of subsidy provided to facility operators
will be increased by $37.30 a week in respect of each resident who was
previously eligible for rent assistance.
Maximum rate pensioner residents of any care facility will be charged
$21.10 a day (85% of the maximum standard rate pension) from 1 July 1997.
Part or non-pensioners will pay a base rate of $26.40 a day. They will
also be required to pay an additional 25% of their non-pensioner income
above $49 a week up to a maximum total of about $60 a day (which includes
the base rate of $26.40 a day), towards the cost of their daily living.
Commonwealth Government subsidies to operators will reduce by an equivalent
amount.
Intending residents not wishing to disclose their income will automatically
be charged the maximum daily rate of resident contribution or the cost
of their care, whichever is the lesser.
The Effects of the Changes on Disposable Income
The proposed changes will have a varied effect on residents' disposable
income (ie the amount the residents receive for their personal use after
all resident contributions are paid). They will also impact on the income
of facility operators, which could result in attempts on their part to
shift additional costs on to the residents.
Hostel Residents
Hostel residents who are maximum rate pensioners will be worse off under
the proposed arrangements.
These residents previously had a disposable income of $31.60 a week
(15% of their pension and 15% of their rent assistance). In future they
will receive $26.00 a week under the proposed arrangements (15% of their
pension only), a reduction of $5.60 a week (17.7%).
Maximum rate pensioners who are residents of nursing homes presently
keep 12.5% of their combined pension and rent assistance. They will in
future pay 85% of their pension and so will lose 30 cents a week (1.1%).
For non-pensioners and part-pensioners, the more assessable income they
derive, the higher their weekly contributions will be. Under the proposed
arrangements their level of resident contributions will increase by 25
cents for every dollar their 'ordinary' weekly income exceeds $49. Hostel
residents will continue to pay the same level of weekly contributions.
Many residents already pay variable rates of contributions aligned to
their income. At present there is no regulated resident contribution.
However, for many, their weekly charge is the basic rate of 85% of the
combination of the maximum rates of standard pension and rent assistance,
plus half the difference between after tax 'ordinary' weekly income and
$49. Under the proposed arrangements, new residents would be required
to pay a quarter of this difference.
Information provided to explain the proposed legislation states that
there is no intention that the current hostel contribution arrangements
should be changed to meet the new formula.(7) For example, a person with
$449 a week in 'ordinary' income may presently be paying $200 a week on
top of the basic hostel charges. Under the proposed arrangements this
weekly contribution may remain the same, leaving existing residents in
the same financial position. New residents after 1 July 1997 would pay
$100 a week less, based on the new formula.
In the example of the existing hostel resident, Commonwealth Government
subsidy would be reduced by $100 a week from 1 July 1997, leaving the
hostel operator in receipt of $100 a week less than at present. Some grandparenting
provisions are being proposed, which would allow the operator to receive
an additional government supplement in the short term to partially offset
this loss. There would be no increase in Commonwealth Government subsidy
if the operator were to reduce the level of resident contribution to align
with the formula prior to this time. There will also be some susubsidy
paid in respect of part pensioners with annual income of less than four
times the maximum annual pension.
Nursing Home Residents
In nursing homes the current daily charge of $26.30 is not income related.
In future, residents will be charged resident contributions of $21.10
a day plus the daily equivalent of a quarter of all of their 'ordinary'
income over $49 a week. For example, a resident with 'ordinary' income
of $449 a week would pay $100 a week more in resident contributions as
a result of the changes (a daily increase of about $14.30 or 54.4%). Under
these circumstances, the nursing home operator would collect $100 a week
more from the resident and would receive $100 a week less in Commonwealth
Government subsidy.
Other Aged Care System Issues
Principles to be Approved by the Minister
Under the proposed legislation there are 23 categories of Principles
under which the new arrangements are to operate, to be determined by the
Minister under Section 96.1.
These Principles have not yet been released and may have a major impact
on the flexibility of the legislation. It is not possible to analyse the
implications of the draft Bill comprehensively until these principles
are released.
Prudential Arrangements
A working group comprised of providers and consumers has been convened
to provide detailed recommendations to the Minister on how accommodation
bonds can be secured against misuse by operators.
Protection of the unretained portion of accommodation bonds will be
a major issue for intending residents and their families. It will be necessary
for prudential protection to be watertight given the potentially large
proportion of resident assets that may be tied up in bonds.
The Family Home
One conclusion which could be drawn from the draft Bill that unless
an intending resident has a spouse or dependent child remaining in the
family home, or has a close relative or carer who is eligible for a Commonwealth
income security payment and who has lived in the home for at least five
years and unless there are other realisable assets available, the family
home may need to be sold or borrowed against to pay the required accommodation
bond.
In determining the level of accommodation bond to be paid, the facility
operator is obliged only to leave the intending resident with $22,500
in liquid or non-liquid assets. The proposed legislation allows operators
to retain all income from the investment of the accommodation bonds, so
it will be in their interest to set bond levels as high as possible.
The Department of Health and Family Services estimates that at present,
with no compulsory entry fees being charged, about half of all home owning
nursing home residents sell their houses prior to entry.(8)
Supply, Demand and Barriers to Entry
The explanatory statements accompanying the draft Bill appear to assume
that demand and supply are closely aligned, that there will be the capacity
for intending residents to choose between alternative residential care
facilities and that there will be timely, local availability of places
to pensioners who are not required to pay accommodation bonds or higher
than the basic weekly resident contributions.
However, evidence from many sectors of the aged care industry suggests
that there is already an over-demand for beds across the country and there
is generally little choice of facility for an intending resident. The
Commonwealth Government controls the supply of residential aged care facilities
by limiting nursing home and hostel bed approvals (those beds that attract
the $29,000 a year subsidy) to 90 beds per 1000 Australians aged 70 years
or over. If it continues this limitation is likely to act as a barrier
to entry to people or organisations wishing to enter the residential aged
care market given that the number of aged Australians is increasing and
a greater proportion are likely to be assessed as requiring these forms
of residential care in the future. This will be particularly so as the
proportion of 'aged aged' (those aged over 80 years as a proportion of
those over 65 years of age) increases.
Service Levels and Standards
Under the proposed legislation, the capacity exists under the title
of extra service, for residents who wish to receive higher quality accommodation,
services and food to pay higher weekly contributions than those driven
by the formula. It is proposed to have limited numbers of such 'status'
places available, subject to Ministerial determination of regional need.
This builds on the current exempt bed system.
This extra service is to be offered to residents on the basis of the
size of accommodation bond paid and/or the level of resident contribution
charged as set out in the resident Agreement.
The Government has announced that an Aged Care Standards Agency will
commence operations on 1 January 1998. It will be essential that this
Agency ensures protection is provided for the financially needy, to ensure
that in offering this choice of extra service, minimum acceptable standards
of accommodation, food and care services are met and maintained for those
residents who do not pay accommodation bonds and to those who pay only
the base level of resident contributions.
As the streamlining of administration, regulation and monitoring of
the aged care system that was announced in the Budget is developed, this
maintenance of minimum standards will need close consideration.
Other Forms of Aged Care
One consequence of the proposed changes could be that elderly people
will choose to remain longer in their own community based accommodation.
If this eventuated it would be likely to have an impact on the amount
of home based care being demanded by the 'aged aged', which would in turn
impact on Commonwealth/State programs like the Home and Community Care
Program and State, Territory and Local Government funded services.
There may also be an increase in demand for accommodation and services
to be provided outside the Commonwealth Government approved residential
aged care system, for example in unapproved retirement villages, boarding
houses or serviced apartments, for which few consistent standards and
little monitoring exist.
Application Fees
The draft Bill provides for the payment of application fees by
operators as providers of aged care, for the granting of extra service
status, for the renewal of extra service status and for the certification
of residential care services.
While the draft Bill specifically precludes these fees being
levied so as to amount to taxation, if the fee level is higher than a
reasonable application processing fee, it could be deemed to be a tax.
This issue is explored further in Bernard Pulle's Current Issues Brief
on the financial aspects of the proposed changes(9)
If the proposed measures are introduced, it could reasonably be expected
that families will seek to minimise the impact that the legislation will
have on their assets and the flexibility of their use.
Major family assets may be dispersed well in advance of old age and
to a far greater extent than has been the case in pursuing pension eligibility.
There will be increasing pressure to pursue competitive neutrality (in
this case particularly a common set of taxes and charges) between the
for profit and not-for-profit elements of the aged care system. This issue
has the capacity to spread across all areas where preferential taxation
treatment is afforded to only one or few segments of a care industry.
There may be substantial issues for urban planning arising from a combination
of the ageing population and the proposed changes.
Endnotes
- These issues are considered more fully by Bernard Pulle in Proposed
Changes to Financing of Aged Care: Some Constitutional Issues
(Parliamentary Information and Research Services Current Issues Brief
No. 28), 25 March 1997.
- For a broader consideration of these issues, see 'Nations are in for
a grey old time next century' by Fred Benchley in the 'Europe Observed'
column, Australian Financial Review, 20 February 1997.
- Australian Institute of Health and Welfare, Australia's Welfare
and Service Assistance 1995, Canberra, AGPS, 1995: 231.
- Department of Health and Family Services Fact Sheet 10 February 1997
- For more information see 'Nursing a Grievance', Sydney Morning
Herald, 17 February 1997.
- Department of Health and Family Services Fact Sheet, 10 February
1997.
- ibid.
- Department of Health and Family Services Fact Sheet 10 February 1997
- Pulle, op. cit.
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