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| 1992-93 | $45 million
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| 1993-94 | $26.5 million
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| 1994-95 | $15.7 million
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| 1995-96 | $10.7 million |
The solution which the current government has proposed is a system of user pays, comprising the payment of an up-front bond and income tested resident fees. Provision is made for those who cannot afford to pay by reserving a number of places in each facility for such people and providing an additional subsidy for care provided to those people.
It is anticipated that by the fourth year after implementation of the scheme, it will raise $125 million per year.(3)
Details of the aged care structural reform package were announced by the Minister for Family Services on 10 February 1997.(4) One of the major objectives of the reform package is to provide the funding injection necessary to undertake the urgent upgrading of nursing home capital stock.(5)
The exposure draft of the Aged Care Bill 1997 was considered by the Department of the Parliamentary Library in two papers; namely, an overview of the proposed restructure in Greg Clarke's Current Issues Brief entitled Proposed Changes to Institutional Residential Aged Care in Australia and the tax and constitutional issues arising out of the reforms in Bernard Pulle's Current Issues Brief entitled Proposed Changes to financing of Aged Care: Some Constitutional Issues.(6) Further background information can be found in those papers.
Since the issue of these papers, a number of events have occurred:
One of the measures intended to achieve the necessary funding injection is the introduction of entry contributions or accommodation bonds in the nursing home sector.
This Current Issues Brief seeks to use this most recent information to consider specifically the financial consequences of the requirement to pay an accommodation bond and to determine the circumstances in which potential care recipients may be required to sell their homes. Consideration is also given to the circumstances of those who cannot afford to pay a bond, known as concessional residents, and to the potentially high cost of short stays in nursing homes.
The Aged Care Bill 1997 defines 'accommodation bond' as:
Whilst the care recipient remains with the residential care service the care provider is entitled to:
The approved provider is obliged to refund the balance of the accommodation bond when the care recipient leaves the service or dies.
To place accommodation bonds in context it is necessary to outline the other care facility funding components. All care providers will be entitled to a basic subsidy (ranging from nil to $108.13 per day per person depending on the classification of the care recipient and the State in which the care is provided). The facility may be eligible for one or more of a number of additional supplements, for example:(10)
The facility is also entitled to charge a daily resident fee:
The total of the subsidy and supplements is reduced by 25 per cent of the amount by which the resident's weekly income is above $49 calculated on a daily basis.
A person is eligible to receive residential nursing care if they are assessed as having a condition of frailty or disability requiring at least low level of continuing personal care and they are incapable of living in the community without support.(12)
The category of people who may be required to pay accommodation bonds is best defined by excluding those who cannot be required to pay. Those who cannot be required to pay a bond are:
Where a person:
that person will be a concessional resident.(15)
Where a person satisfies the first two concessional resident criteria but has assets worth between $22 500 and $36 000, the person will be an assisted resident. Such a person can be required to pay a bond (of up to $13 500).
Nursing homes will be obliged to take a specified proportion of concessional residents and assisted residents and will be paid a supplement as some compensation for not receiving an accommodation bond in the case of a concessional resident and for receiving a relatively small bond in the case of an assisted resident. Nationally, 27 per cent of places must be set aside for concessional residents and assisted residents, however, percentages will be set on a regional basis.(16)
The Aged Care Bill 1997 does not compel the charging of an accommodation bond. However, it can be argued that the combined effect of the need for funding and the demand for nursing care are likely to result in most facilities, if not all, requiring payment of a bond. A care provider will be in a position to determine a minimum bond and turn people away if they cannot pay that amount, unless the person is a concessional resident and the facility has a concessional place available.
The Department's response to this concern is that the Aged Care Assessment Teams (ACAT) assess people's care needs and make a judgement about their relative need for entry to a nursing home and priority of access. As vacant places become available, ACATs issue approvals for entry to people on the basis of relative priority. Providers cannot take people who do not have an approval for entry, and so the pool of potential resident at any given time is limited. Facilities who turn people away will therefore have empty beds which in turn will severely affect their profitability.
Within the limited constraints contained in the legislation (set out below), the amount of the accommodation bond is a matter of negotiation between the care provider and the care recipient.
The maximum amount of an accommodation bond is the care recipient's net assets minus $22 500. That is, the only upper limit on the amount of the bond is that the care recipient must be left with at least $22 500 in assets after its payment.
Whereas it can be argued that, if a person has assets of $1 000 000, he or she could be charged up to $977 500 as an accommodation bond, the Senate Committee received evidence that although there is no fixed upper limit on the amount of a bond and that theoretically extreme situations could occur, market forces would prevail to prevent such situations becoming a reality.(17)
If the prospective care recipient owns a house, the value of the house is included in the calculation of net assets unless the house is occupied by a partner or dependent child, or a carer or close relation who occupied the house for the past 5 years and is eligible for a social security payment.(18)
There is provision for the amount of $22 500 to be increased by the Minister by specifying a higher amount in the User Rights Principles. There has been no indication that the Minister intends to increase this amount. The Minister will also be empowered to set a maximum bond, by specifying that amount in the User Rights Principles. There has been no indication that the Minister intends to specify a maximum bond.
A statement which accompanied the Department's information package recites that entry fees in the hostel sector have averaged about $26 000. This amount has also been quoted by the media as the amount which the aged will be required to pay to obtain entry to a nursing home. The Senate Committee received estimates from a number of groups as to how much might be charged as an accommodation bond:
| National Association of Nursing Homes and Private Hospitals Inc.(19) | $50 000 |
| Tricare Ltd(20) | $75 000 (maximum) |
| Community Services Australia(21) | $60 000 to $88 500 |
| Returned Services League of Australia(22) | $100 000 (maximum) |
| Australian Nursing Homes and Extended Care Association(23) | about $100 000 (maximum) |
A care recipient must be given at least 6 months after entry to the care facility to pay the accommodation bond. The period may be varied by the Minister by specifying another period in the User Rights Principles.(24) However, interest and retention amounts accrue from the date of entry to the facility.
The care recipient can elect to pay the bond by periodic payment or partly by a lump sum and partly by periodic payment. If the care recipient elects for periodic payment, the amount of the periodic payment is comprised of two components:
The interest component is set at the Treasury Note yield (which at present is about 9.8%).(26) The rate represents the commercial rate of borrowing that providers would pay to finance extensions, upgradings or rebuildings.(27) It will be noted from the calculations below that it is the disparity between this quite high rate and the return a pensioner could earn by renting their home, which casts doubt over the periodic payment option as an alternative to selling the home.
Accommodation bonds will have their greatest impact on pensioners, particularly those who have assets in excess $22 500. It is appropriate to consider specifically the impact of the accommodation bond scheme on single pensioners and pensioner couples.
Care providers will be able to request payment of accommodation bonds by single pensioners with assets in excess of $22 500. The value of any house owned by the pensioner is taken into account in determining the value of the person's assets (unless, as mentioned above, a dependent is living with the person or a carer or close relation who occupied the house for the past 5 years and is eligible for a social security payment).
A single pensioner who owns a home can own up to a further $124 000 in assets and can earn up to $49 per week before the pension is reduced. However, it appears that it is the full rate pensioner who owns his or her home but who has few other assets who will be most adversely affected. At first glance it would appear that such a person has 2 options:
The second option is considered by way of a simple example:
Mrs Smith is in need of nursing home care (community care no longer being adequate), however, she remains hopeful of some day returning home (notwithstanding the belief of her doctor that this is unlikely) and does not want to sell the home. She is apprehensive about renting the home but realises she has no other means of meeting the periodic payments.
Upon moving into the nursing facility her weekly financial circumstances are as follows:
A low notional bond of $26 000 has been used for the purposes of this calculation.
Mrs Smith will fall about $4 short of being able to afford the periodic payment option. This ignores the fact that she would need additional income to pay for incidental expenses such as medication.
Even if Mrs Smith was able to rent her home for $350 per week, the option would still not be affordable. Of the $100 additional income she would lose $50 (by way of reduction in the pension), $25 by way of additional resident fees and $16.25 in tax, leaving her with only an additional $8.75.
Mrs Smith's position would be even worse if a higher bond figure, more likely to be reflective of that required, was used in this calculation.
The combined effect of the reduction in the pension, increased resident fees and taxation along with the high interest component of the period payment is to eliminate this option as an alternative to selling the home for someone in Mrs Smith's circumstances.
The Minister for Family Services has commented several times that no-one will be forced to sell their home to pay an accommodation bond.(29) However, it is difficult to see that the hypothetical Mrs Smith has any option but to sell her home to raise the amount necessary to pay a bond. She may be able to avoid this if she is willing to move to an area where there may be excess capacity in nursing homes and where bonds are not charged or where they are very low.
A concern arises as to the low level of assets above which a person can be required to pay a bond, i.e. $22 500. Assets includes household contents and personal effects.(30) Even assuming that the amount of $26 000 charged by hostels translates to the nursing home sector (notwithstanding the comments above as to the predicted level of bonds), a person will need to have at least $48 500 (i.e. $22 500 + $26 000) in assets to afford entry to a facility, unless he or she qualifies as a concessional or assisted resident. A person may quite conceivably own assets in excess of the $36 000 cut-off for assisted residents (with $13 500 available to pay a bond) but not be able afford the bond being charged by nursing homes in their community.
Such a person will fall between two stools. On the one hand because their asset level is too high they do not fit into the category of people for whom places are reserved and on the other, their asset level may be too low to afford the bonds charged by facilities in their community. Furthermore, if they are accepted by a charitable facility, the facility will not receive the concessional or assisted resident supplement in respect of them.
Where one partner of a pensioner couple needs to enter a nursing home, the couple is in a better position than a single pensioner because the value of the home owned by the recipient is disregarded for the purposes of working out the value of the care recipient's assets. This means that one of a couple with a low level of assets (i.e. the member's half share of the couple's assets is worth less than $22 500) will fall below the threshold above which an accommodation bond can be charged and will therefore qualify as a concessional resident while still retaining a home.
However, where the member's half share exceeds the $22 500 cut-off, he or she will be able to be charged a bond and will not be able to enter as a concessional resident. As mentioned under the previous heading, if the person's level of assets is not high enough to afford the bond being charged by facilities in their community, they may have difficulty finding a place. An additional complication arises where that person is a member of a couple which owns a home, in that the couple may feel pressured to sell their home so that the person in need of care can enter a facility within their community. The other member of the couple would then be forced to rent or find alternative accommodation.
Furthermore, there could be other pressures on couples to sell their homes because of the disadvantages which concessional residents may suffer and this is discussed below.
To qualify as a concessional resident, a person's assets must be worth less than $22 500. Consequently, all concessional residents will fall within the class of people who cannot be required to pay accommodation bonds. As mentioned above, care providers will be obliged to take a set proportion of concessional and assisted residents. This proportion is to be set on a regional basis but will total 27 per cent nationally.
A concessional resident supplement or assisted resident supplement will be paid to providers for each concessional resident or assisted resident to whom they provide care. The concessional resident supplement has been set at $5.00 per day and the assisted resident supplement is to be $2.00 per day. The Department has said that it considered the following matters in setting the rate of the supplements:
Concessional residents will be very unattractive to the for-profit care providers.
An assisted resident with the maximum level of assets will be able to be required to pay a bond of up to $13 500. This will provide a maximum daily return to the provider of:
Even based on a pensioner care recipient who could only pay a bond of $26,000, a care provider would receive the following:
A care provider will receive about an additional $5 per day if they can fill a place with a full bond paying resident rather than an assisted resident and more than an additional $9 per day over taking a concessional one. Although the minimum quota has been set for concessional and assisted resident places, when a facility meets its quota there will be no incentive for it (unless it has charitable motives) to exceed the quota.
Community Services Australia (the national Uniting Church community service organisation) gave evidence to the Senate Committee that it envisaged a situation where relatives or a concerned doctor could be ringing a nursing home enquiring about places only to receive a response that the facility has filled its ratio of concessional residents even though it may have places available.(32) This potentially has two negative consequences:
The Department has responded to these concerns by noting that the 27% of reserved places will be sufficient to accommodate all concessional and, assisted residents and provided care facilities maintain their quota (and there are substantial penalties for failing to do so), there will be no need for facilities to exceed their quota of concessional and assisted residents, i.e. supply of concessional and assisted resident places will meet the demand.
There is the potential for short stays (i.e. less than 3 months) in nursing homes, which are not respite care, to be very expensive and the evidence suggests that a significant proportion of nursing home residents fall into this category. Although no figures were available as to the number of residents who stay for 3 months or less, evidence was received by the Committee that approximately 40 per cent of residents that move into nursing homes do not stay for longer than six months.(33)
Where a person enters a care facility and stays for less than three months, the facility is entitled to a total of:
Based on a bond of $50 000, the minimum fee for a person who stays from one day to three months is a total of:
Consequently a one week stay could cost $2022.70 (or more depending on the amount of the negotiated bond).
It can be argued that it is the nature of our society that those who can afford to pay and do pay receive better quality goods and services than those who cannot. It would therefore be hardly surprising if those who can afford a bond found themselves in a single ensuited room in a quiet corner of the nursing facility, whilst those who cannot share a room and a bathroom with one or more people at the front of the facility near the road.
However, what needs to be ensured is that the standard of care provided is uniformly high. Within a facility there should be no distinction in the level of care provided to someone who has paid a bond and someone who has not. Between facilities there should be no distinction in the level of care provided at a facility occupied primarily by bond paying residents (excepting the minimum level of concessional and assisted residents) and a not for profit facility with high ratio of concessional and assisted residents.
It is noted in the introduction to this Current Issues Brief that one of the major objectives of the aged care reform package is to provide an injection of funds for capital upgrading. It will not be clear whether the reforms achieve this aim until the scheme has been in place for at least a couple of years. The use of accommodation bonds and retention amounts is limited to providing aged care.(34) However, there is no limit on the use of income derived from the investment of bonds. Use of the accommodation bonds, retention amounts and income by an unscrupulous provider to increase salaries of executive directors would not appear to be constrained, being a purpose related to the provision of aged care. The Department has responded to these concerns by commenting that care facilities will not meet the requirements for continuous improvement under the standards set out as part of the certification and accreditation requirements if they fail to invest in ongoing maintenance and upgrading by devoting bond resources to such ends.
The Department has said that five per cent of full pensioners who own their homes have no other assets. The financial circumstances of these people will be very close to those of the hypothetical Mrs Smith. It is the writer's view that the answer to the question posed by the title of this Current Issues Brief, that is, whether potential care recipients will need to sell their homes to obtain nursing care, is: there is a significant likelihood that people who comprise the five per cent referred to could have little but alternative to sell their home when they need to enter a nursing care facility.
