Bills Digest No.159  1997-98 Aged Care Amendment Bill 1998

Numerical Index | Alphabetical Index

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.


Passage History
Main Provisions
Concluding Comments
Contact Officer and Copyright Details

Passage History

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.



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.

Main Provisions

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:
  1. the amount specified in the accommodation charge agreement (see proposed new section 57A-3)
  2. (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.
  3. 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 1991and 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).

Concluding Comments

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.


  1. 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.
  2. Gregory, R.G., Review of the structure of nursing home funding arrangements, 1994.
  3. Aged Care Bill 1997, Explanatory Memorandum.
  4. Aged Care Act 1998, section 57-12.
  5. Aged Care Act 1997, section 44-7.
  6. Aged Care Act 1997, section 44-10.
  7. Aged Care Act 1997, section 44-8.
  8. Aged Care Act 1997, section 58-2.
  9. Aged Care Act 1997, section 57-17.

Contact Officer and Copyright Details

Lee Jones
17 March 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 1997

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Published by the Department of the Parliamentary Library, 1997.

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