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Chapter 4: Application of an assets test to the homes of older people living alone

2.55 Under the Bill, the family home will be included as an asset for the purposes of assessing a person's capacity to pay a bond unless there is a spouse or young child still residing in the home, or where a close family member or carer has lived in the home for five years and is eligible for a Commonwealth pension or benefit. [1]

2.56 The amount of the accommodation bond to be paid is a private arrangement between the facility and each incoming resident and is determined as part of the resident/proprietor agreement taking into account the prospective resident's assets. In determining the level of the accommodation bond, the facility operator is obliged only to leave the intending resident a minimum level of assets equivalent to 2.5 times the pension (currently $22 500 for singles and $45 000 for couples). [2]

2.57 Evidence to the Committee raised concerns that older people living alone will be treated differently under the proposed system than married people. [3] COTA stated that while a married person with a spouse remaining at home can enter residential care without payment of a bond, a single person `could be under pressure to sell the home as it will be identified as an asset. If there are not sufficient other assets which can be converted to cash to pay the bond, the house will have to be sold unless the person can make arrangements for a periodic bond payment'. [4]

Payment options

2.58 The accommodation bond arrangements provide for a number of payment options including payment as a lump sum, or as an equivalent regular fortnightly or weekly payment or, alternatively, a combination of both. If people choose a regular payment option, this will include an interest component. The interest component will be set at the Treasury Note Yield rate applying at the date of entry plus four percentage points. [5] DHFS explained that:

That is to equate to what the actual value of the bond would be if it were lodged in order to make the incentive completely neutral as to which version is more preferable one way or the other. It is struck as a maximum of an additional four percentage points because a number of the providers said ...that they would actually want an opportunity to compete with some of their counterparts and that they would be able therefore to offer a discount if they thought that gave them an edge. [6]

2.59 If people choose to pay a lump sum, they will have at least six months to pay, although interest and retention may accrue from the time of entry to the facility. [7]

2.60 Pensioner and other groups questioned whether the periodic payments option was realistic for many older people. COTA and APSF argued that few older people would be able to use this option as a regular cash flow will need to be generated. [8]

2.61 The Committee raised concerns with DHFS as to what type of secure investments are available for age pensioners that would yield them the equivalent of the full Treasury note yield which is currently 9.6 per cent. [9] DHFS could not supply this information arguing that the rate was set `being aware of what the costs were and what was a reasonable rate to strike between the needs of consumers and providers'. [10]

2.62 Evidence to the Committee raised concerns about the impact of the payment options on a pensioner's total income levels. [11] APSF argued that:

It will make a difference to what your income is if you sell your home, or if you rent your home, so immediately your pension is affected by having more money as cash for investment over and above what you might pay as a part of your entry contribution or bond. For example, if it is a question of paying it off weekly or monthly...you will be losing some of your pension, you will be losing your concessions as well and, as a consequence of that, your whole income will be affected...If it is a question of having the cash which you then invest, that becomes another problem in terms of income that will reduce your pension. So, whatever happens, you are going to lose and continue to be losing. [12]

2.63 Renting the house may not provide a sufficient cash flow to meet periodic payments. This will particularly be the case with pensioners or part pensioners. Use of the home to earn rental income will potentially result in:

• a reduction in the pension of $1 for every $2 earned above $49 per week;
• resident fees increasing by 25 cents for every dollar earned above $49 per week;
• an effective rate of tax of 32.5 cent for each dollar earned in excess of $215.10 per week (being the combined result of a loss of the pensioner income tax rebate at the rate of 12.5 cents for each additional dollar and the standard 20 per cent marginal rate); and
• a potential capital gains tax liability proportionate to the period during which the home was not used as a principal place of residence.

2.64 Where a person is a single pensioner living in a home which they own with no other significant income or assets, the Committee agrees that there is little possibility that periodic payment would be a viable option.

2.65 The concept of a `reverse mortgage' was made known to the Committee. [13] This is where a person borrows against their home, in the form of a lump sum or instalments, and the loan is repaid with interest out of the proceeds of their estate. This was suggested as a means of releasing the value locked up in a property without irrevocably selling it. A subsidised facility of this type was available until 30 June 1996. The point to note however, is that any amount borrowed under the scheme was repayable within 12 months if the borrower vacated the home which secured the loan. Consequently the facility would have been of limited use to a person wishing to borrow against their home for the payment of an accommodation bond.

2.66 The Committee is aware that a comparable subsidised facility is still offered by at least one bank. However, the requirement to repay the loan within 12 months of vacating the home is still a condition of the loan.The Committee believes that in the circumstances where a person is a single pensioner living in their own home with no significant other assets, that person will have little practical choice other than to sell their home to raise the amount necessary to pay an accommodation bond.

Asset effects

2.68 CPSA of NSW argued that there was a `strong possibility' that part pensioners and some maximum rate pensioners will lose access to their pension altogether when the assets test is applied to the family home. [14] APSF noted that many older people worry about losing their pension or part pension `people who face this situation for the first time in their late 70s or 80s will be extremely nervous, especially as losing entitlement to the pension also means losing entitlement to concession rate prescription medicines etc'. [15]

2.69 DHFS advised that under the new arrangements the family home will not be treated as an asset for the first two years of a person's residence in the nursing home for age pension purposes. This is a continuation of the current protection. After the two year period, or if the home is sold during this period, the home or the proceeds of the sale are treated as an asset for the purposes of the assets test. The amount of any accommodation bond paid is also treated as an asset for the purpose of the assets test. [16] The most significant impact of this will be felt by single homeowners receiving the full rate pension. Upon the sale of their homes, their fortnightly pensions will be reduced by $3 for each $1000 that their assets (including the accommodation bond paid) exceed $212 500 up to a maximum asset level of $331 000 at which point no pension is payable.

Income effects

2.70 Pensioner groups argued that the pensions for many older people may be reduced as a result of people selling their homes to raise funds for a bond. [17] Any income earned from the balance of the sale proceeds (after payment of the accommodation bond) will potentially further reduce the pension, may increase the resident fees which are payable and may result in liability to pay income tax. The balance of the sale proceeds are not accorded any special treatment and will be deemed, by the Department of Social Security, to earn interest.

Conclusion

2.71 The Committee believes that single pensioners who are homeowners, but who have few other assets other than their home should not have their home included as an asset in determining their status as a concessional resident and therefore the requirement to pay an accommodation bond for entry into a nursing home.

Recommendation 5: The Committee recommends that in determining whether a person is a concessional resident:

- the requirement that a person has not owned a home during the preceding 2 years should be omitted; and

- the value of the person's principal place of residence should be disregarded for the purpose of the assets test.

 

Guaranteeing equal access to nursing homes for financially disadvantaged people

2.72 The proposed legislation provides that financially disadvantaged persons (concessional residents) will not be required to pay an accommodation bond in order to access aged care facilities. Concessional residents (who will not have to pay a bond) include full or part pensioners who have not owned their own home in the past two years and who have assets of less than two and a half times the single age pension, currently $22 500 for singles or $45 000 for couples. [18]

2.73 In addition, the family home will not be counted as an asset in determining whether a person can pay a bond where a spouse or dependent child is living in the home, or a carer or close family member has been living in the home for at least five years, and is eligible for a pension or benefit. [19]

2.74 Hardship provisions have been incorporated in the Aged Care Bill (Section 57-14) for people who are unable to pay a bond. Examples include retirees who are not pensioners, and people whose main asset is the family farm and the farm is supporting other family members. [20]

2.75 Two measures are proposed in the new arrangements for financially disadvantaged people to access nursing home care. These are the setting of minimum place requirements for concessional residents and higher Government subsidies for providers who provide places for concessional residents.

2.76 Evidence to the Committee raised a number of concerns with both proposed measures in relation to the extent to which they would ensure access for concessional residents.

Allocation of places for concessional residents

2.77 All aged care facilities will be required to set aside a minimum number of places for concessional residents. The number of places in any individual facility will be based on the proportion of financially disadvantaged people in each planning region. [21] These ratios are calculated by dividing the number of full pensioners aged 70 and over, who have not owned a home in the past two years by the total population aged 70 and over in the particular area of coverage whether that is a planning region or Statistical Local Area. [22]

2.78 On 26 May 1997, the Government announced that 27 per cent of places in nursing homes would be reserved for concessional residents. The quota will not apply to individual facilities but as a national average which would vary across regions depending on the demographic profile of an area. [23]

2.79 Concerns were raised during the hearings that mandating by region a proportion of nursing home beds to concessional residents will not guarantee access in every geographic area across the country. ACHCA argued that:

Clearly, people are not distributed evenly across this country with regard to socio-economic levels. At this stage we do not have anything definite back from the Government as to the percentage that people will be required to accommodate for financially disadvantaged people....So it is not a clear, rational, predictable arrangementsimply saying that in a certain area the facilities will have to provide 20 per cent, for example, of places for financially disadvantaged people. [24]

2.80 Some concerns were expressed that the provisions for concessional residents may be insufficient to ensure that those with low to medium income or assets will be able to access adequate and appropriately placed care. The Human Rights and Equal Opportunity Commission (HREOC) argued that the definition of concessional resident is `very narrow' and there is no clear mechanism of redress or protection for individuals denied access to nursing homes because the concessional resident quota is full. [25] ACA argued that there would be value in applying a socio-economic indicator or index to the regional planning ratios. [26]

2.81 The Committee raised the issue of the possible relocation of people away from their home location. DHFS advised the Committee that, while the level of concessional access would be set on a regional basis it would be implemented flexibly `if, for example, homes are having difficulty in a particular region...we will talk to them about the application of those requirements'. [27] DHFS also noted that there may be problems `if a provider who specialises in people who are concessional was at one end of a geographic region and the person wanting to do the deal was at the other end of the geographic region, that potentially disadvantages people who are concessional and who want to be admitted broadly speaking within their own location'. [28]

2.82 ACA also raised some concerns about the appropriateness of the current planning ratios in the light of the rapid growth of the population aged 85 and over. ACA cited an Australian Institute of Health and Welfare study that considered the current planning ratios for residential care facilities had serious shortcomings arguing in particular that the 70 and over planning ratio is not sensitive to the changing internal structure of the population aged over 70, and hence to likely changes in demand for residential care. [29]

2.83 The Committee raised the issue of how the proposed system would monitor access for concessional residents. DHFS advised the Committee that there will be a reporting mechanism based on the payment system as to the numbers of concessional residents that are in a facility at any one time. If a facility has not met its target in terms of access a financial penalty will apply to the service. [30]

Recommendation 6: The Committee recommends that the quota system for concessional residents be monitored to ensure equality of access for financially disadvantaged people, particularly to aged care facilities within the prospective residents' locality.

Level of the supplement

2.84 The rate of the concessional resident supplement was announced on 26 May 1997 and was set at $5 per resident per day. [31] During the inquiry, several submissions noted that unless the concessional supplement was comparable with the equivalent income earned from accommodation bonds, ensuring access to nursing home places for financially disadvantaged people would be difficult. [32]

2.85 ACHCA argued that the supplement should be set at $19.17 per resident per day. [33] APSF noted that the access for concessional residents will only be assured if the concessional subsidy is sufficient to ensure the `financial attractiveness' of concessional residents. [34]ANHECA noted that:

The main incentive for service providers to admit concessional residents is that the provider will receive the full Government benefit in advance and on time. However, if the amount of the supplement is substantially below the daily dollar equivalent of a reasonable accommodation bond, then the incentive will be considerably reduced and the equity of the entire funding reform package jeopardised. [35]

2.86 Several groups argued that the $5 a day subsidy for concessional residents was inadequate. ACHCA argued that it was `totally inadequate' and Community Services Australia described the amount as representing `an act of derision to the work of the charitable sector '. [36] ACHCA argued that while the subsidy would provide $5 a day per bed for financially disadvantaged people, the payment of an accommodation bond would generate an average of $19 per bed per day for other residents, representing a $14 per bed per day shortfall in accommodation subsidies for concessional residents. ACHCA argued that this would lead to concessional residents being placed in multi-bed wards in lower quality standard buildings. [37]

2.87 Church groups argued that the subsidy level would make it difficult for homes catering predominantly for concessional residents to maintain and upgrade facilities. The Uniting Church (NSW Synod) stated that:

This subsidy is supposed to contribute to the capital regeneration of aged care facilities but the amount of the subsidy is totally inadequate. It is hard to see how facilities will be able to be maintained at the appropriate level over the long-term. [38]

2.88 Several organisations noted that the subsidy would only provide $1825 per year for each concessional resident towards the capital costs of aged care facilities, which is considerably less than the allowable annual retention rate from an accommodation bond of $2600. Church groups noted that the subsidy provided for concessional residents is well short of the capital injection provided by a resident paying an accommodation bond. [39]

2.89 ACHCA noted that for some facilities, cross-subsidisation may account for this subsidy shortfall, but it was a concern for the Catholic Church where over 70 of its aged care facilities provide at least 55 per cent of places to financially disadvantaged people. Church based organisations indicated that it would put upward pressure on the amount that they would be obliged to charge for accommodation bonds. [40] CSA noted that `for church-based facilities with the majority of residents as concessional, it does nothing to meet the current huge capital shortfall'. [41]

2.90 The Committee believes that the amount of the concessional resident subsidy is inadequate and needs to be substantially increased to provide sufficient capital to maintain and upgrade nursing home facilities. The Committee is particularly concerned that the subsidy does not provide any real assistance to the not-for-profit sector who look after the most vulnerable sector amongst the aged financially disadvantaged aged people. The Committee believes that unless the concessional subsidy is substantially increased it will lead to a two-tiered system where financially disadvantaged people will be accommodated in lower standard accommodation with no real prospect of facilities being upgraded in the future.

Recommendation 7: The Committee recommends that the concessional resident supplement be substantially increased to a level that will provide for the necessary capital injection to maintain appropriately high standards of accommodation in aged care facilities.

 

Development of a two-tiered system of nursing home care

2.91 Evidence to the Committee suggested that the proposed arrangements may lead to the development of a two-tiered system of nursing homes in terms of quality of, and access to, nursing homes. [42] A notable feature of the current system is its equity nursing home residents have equal access regardless of income or assets.

2.92 Some evidence suggested that access to nursing homes will increasingly depend on the capacity to pay the accommodation bonds charged by nursing homes. ACHCA argued that:

This has the potential to result in a two tiered system. Socio-economically deprived suburbs will have lesser quality buildings, whilst within some facilities the quality of accommodation will depend on the residents capacity to pay an entry contribution. In this era of more competition and increased user pays, low income and assets customers will not be as financially attractive to service providers as those who are better off. [43]

2.93 Residential Care Rights also noted concerns that as the system depends on the capacity to pay there will be `grading' system develop among homes:

Those homes with the capacity to attract higher bonds, and increased ongoing fees may have more capacity to continue to upgrade and perhaps to staff at a higher level, smaller homes may not, and will become second tier in quality terms. [44]

2.94 Evidence from the churches, in particular, indicated a strong desire to avoid a two-tired system of accommodation standards developing. CSA noted that the Uniting Church `does not wish to run silver service wings in its nursing homes. Our interest in people's care and how people ought to be treated would make it very difficult for us but it certainly could occur'. [45] Similar views were expressed by ACHCA. [46]

2.95 COTA also noted that the introduction of accommodation bonds could mean that well-off older people and their families will be able to access nursing homes more readily than poorer people. [47] ACHCA stated that it was likely that people on low incomes `will have to accept a bed wherever they can afford one, this may be within their local area, or outside it even if this means a move away from their local area, friends and family'. [48]

2.96 Evidence also suggested that facilities that focus their service on financially disadvantaged persons and special needs groups will not be able to plan for capital upgrading and replacement in the same way as those facilities charging accommodation bonds or periodic payments. [49]

2.97 DHFS stated that access to facilities for financially disadvantaged people is addressed through the concessional resident quotas. This will mean that these people will have `access to the same proportion of places irrespective of their location or capacity to pay an accommodation bond'. [50] DHFS also noted that all facilities will be required to set aside a proportion of places for concessional residents.

2.98 It was also put to the Committee that the introduction of accommodation bonds may also give rise to different standards of accommodation within nursing homes. [51] For example, a person paying a high accommodation bond may get a single room while people paying a low bond or a person designated as financially disadvantaged and unable to pay a bond will have to share a four or six bed ward or accept lower quality services generally. [52]

2.99 The ACTU argued that the imposition of accommodation bonds will result in a two-tiered system of aged care `with the standard of quality care dependent upon capacity to pay'. [53]

2.100 DHFS stated that the fact that people will pay according to their means `does not mean that people who cannot afford to pay more, will receive a lower standard of care or accommodation. The accreditation framework will ensure that all residents benefit from improved facilities and good quality care'. [54] The Department noted that the accreditation standards address the issues of quality of accommodation and care considerations that must be met by facilities that wish to charge accommodation bonds. DHFS noted that the Aged Care Standards Agency will monitor standards `to ensure that all residents benefit through improved care outcomes'. [55]

2.101 Concerns were also expressed in relation to the Government's intention to allow an increase in the provision of exempt status homes (to be known as Extra Service arrangements). These homes provide higher level services for residents who pay additional charges. Evidence suggested that this will encourage further market segmentation for consumers and will lead to distinctions in service levels within facilities. [56] ACA argued that the Government should exercise caution in granting exempt status to ensure that this does not disadvantage access to aged care facilities by financially disadvantaged people or people in rural and remote areas. [57]

2.102 Other concerns were expressed that non-accredited services (that is, services not certified as of sufficient standard to be allowed to charge accommodation bonds) will become the last resort for people who would not be eligible for a concessional subsidy, nor able to pay a significant accommodation bond. ACHCA stated that `there is a risk that poor quality building stock will end up being used to accommodate older people with low income and low assets in services which fail to meet accepted community and industry standards'. [58]

2.103 The Committee believes that a two-tiered system of nursing home care in relation to the quality of, and access to, nursing homes may develop as a result of the proposed changes. The Committee considers that access to nursing homes will increasingly depend on a person's capacity to pay. Access for financially disadvantaged people may also be compromised given the inadequate level of the concessional supplement. The Committee considers that it is would be unacceptable if, as a result of the reforms, different standards of care within nursing homes were to develop and believes that the accreditation framework must ensure that this does not occur.

 

Role of the market in determining the level of accommodation bonds to be paid

2.104 Contributors to the inquiry generally recognised that market forces would play an important role in determining the level of bonds charged. [59] ACA identified a number of market forces that will apply with respect to bonds. These include:

• what potential residents can afford and are willing to pay;
• what other service providers are charging;
• the nature and type of the residential aged care facility;
• the range and standard of services provided;
• the location of the residential aged care facility and the real estate values and saleability of properties in the area; and
• the criteria for entitlement to the pensioner supplement will continue to place some constraint on what residents are prepared to pay and what the market is prepared to ask. [60]

2.105 ANHECA noted that market forces will play a role in determining the level of bond payable, both between facilities and within the one facility. ANHECA stated that:

Socio-economic variations will result in regional differences in the amount of accommodation bonds and the quality of “PC items” evident in aged care facilities. It is not unreasonable to expect that the fabric of nursing home buildings will reflect regional variations in housing in the community. [61]

2.106ANHECA also stated that market forces would most likely result in aged care facilities offering a range of accommodation bonds for the different types of accommodation available for example, a single room with its own bathroom will almost certainly attract a higher accommodation bond than a twin room with a share bathroom. [62]

2.107 Evidence to the Committee questioned whether market forces are an appropriate way of determining the level of entry fees given the severe imbalance in the market between supply and demand for nursing home places. [63] CSA noted that the supply side is characterised by strict Government regulation of the number of places offered at any time and the price at which supply can be made is fixed by Government `thus prices will, in an imperfect market like this where demand substantially exceeds supply, be inclined, without the moderating presence of the not-for-profit sector, to be what the market will bear'. [64]

2.108 Pensioner and resident advocacy groups expressed concerns that pensioners would be vulnerable in a competitive market environment. [65] APSF argued that older people who need residential care are limited in their ability to take advantage of the market `older residents are among the most vulnerable groups in our community. Their ability to exercise choice and explore options or to “vote with their feet” is limited by their frailty and/or illness'. [66]

2.109 Residential Care Rights also noted:

Most of those entering nursing homes, and their families, are under great stress. They will often not be in a position to negotiate, on an equal basis, the amounts of fees involved. Many of those entering nursing homes will also lack the requisite mental capacity (because of dementia) necessary for negotiation of fees and, indeed other contractual issues. The combination of these factors leaves open the likelihood of exploitation and financial abuse of people entering nursing homes....In addition, it is apparent that few, if any, potential nursing home residents have any real market choice as to the nursing home they eventually enter, or as to the quality and level of care that they receive. In such a circumstance, it is...untenable and inequitable that pure market forces should operate in relation to the level of accommodation bond payable. [67]

2.110 Many groups argued that it was important that that the impact of market forces in determining the level of accommodation bond be monitored to ensure equitable access to nursing home places for older people. [68] COTA argued that this monitoring role be carried out by DHFS in consultation with peak organisations. [69]

2.111 The Committee believes that the simple solution of market oriented `user-pays' to the growing demand for aged care services is misinformed and misguided. The Committee does not believe that access to essential services, such as aged care facilities, should be left to the vagaries of the market and considers that the Government has a responsibility to provide equality of access to these services for the aged sector of the population. The market and the user pays principle both ignore the needs of those individuals who are not recognised by the market those without the financial resources to become a market participant or who because of acute need must access the market with little option to exercise real choice.

Recommendation 8: The Committee recommends that the Government ensure equality of access to aged care facilities is provided for all aged people and that the provision of aged care services not be left to the vagaries of a market user-pays system.

 

Rural and remote areas and areas of socio-economic disadvantage

2.112 A number of submissions and other evidence argued that under the proposed system there is a risk that significant differences will develop in regard to the quality of facilities between different geographical areas. [70] APSF stated that:

The differences in levels of investment that facilities in different parts of the country may be able to attract are likely to be considerable, thus creating differences in the quality of buildings across the country. Poorer socio-economic areas will continue to have poorer quality homes, while those in richer areas may be able to develop much better standard facilities. [71]

2.113 The Commonwealth Government will continue to provide $10 million capital program over the next four years to assist facilities that are unable to generate sufficient capital funds because of their location in country areas or because they target Aboriginal or Torres Strait Islanders or financially disadvantaged people. [72]

2.114 DHFS argued that the capital program `acknowledges the difficulties faced by facilities in country Australia in serving their communities because of limited funding for building and upgrading as well as higher building costs arising from their remoteness'. [73]

2.115 Evidence from numerous groups suggested that this capital grants program was inadequate to meet the needs of rural Australia and the financially disadvantaged and that the funding for this program needed to be substantially increased. [74] Concerns were expressed by several churches, in particular, because of their emphasis on providing places for concessional residents. CSA stated that most Uniting Church facilities in the hostel sector take in excess of 60 per cent of residents as concessional residents and some in rural and remote areas are 99 per cent concessional residents. [75] ACHCA noted that 55 per cent of Catholic aged care facilities provide over 50 per cent of their accommodation to financially disadvantaged people and 15 per cent cater for 100 per cent of this group. [76]

2.116 Several organisations, including ACA and CSA stated that as accommodation bonds will not generate significant income in the short term, the $10 million capital funding per annum will not provide sufficient flexibility to meet urgent needs or to cater adequately for the capital development of aged care facilities which cater predominantly or exclusively for financially disadvantaged residents. [77] CSA stated that:

We would argue that $10 million will basically cover two facilities of around 30 beds based on $100 000 per bed, taking into account additional costs associated with remoteness. In Australia, the ability of the church to provide those beds of course has been because of capital grants available. For under $10 million, you cannot provide or meet those services at the current level of demand in rural and remote areas. [78]

2.117 ACA also noted that the current capital funding will not address the 'catch 22' situation which may arise where aged care facilities do not meet building standards for certification and hence are unable to charge accommodation bonds but do not have access to sufficient capital funding to undertake the upgrading required in order to be certified. [79]

2.118 ACA stated that the $10 million capital funding would provide for only the capital cost (excluding land) of only 150 new beds a year. [80] ACHCA stated that the capital funding would provide for the construction of only two nursing home facilities per year. [81]

Recommendation 9: The Committee recommends that funding for the $10 million capital grants program directed to rural and remote areas and for financially disadvantaged people be substantially increased.

 

Impact of the reforms on hostels

2.119 During the inquiry, issues were raised in relation to the impact that the withdrawal of hostel variable fees and the removal of hostel care level subsidies would have on hostel residents and the viability of some hostels.

Withdrawal of hostel variable fees

2.120 Hostel variable fees for new residents will be abolished from 1 October 1997. Currently, some hostels charge residents variable fees. Under the system, they can take, in addition to the base fee charged, up to half of a resident's first $49 of private income above the pension plus almost all income they earn above this level, provided they leave the resident with at least a minimum amount. Under the proposed reforms, variable fees will be replaced by income testing. The Government's subsidy to the provider will be reduced by the amount of the income tested fees. [82]

2.121 The existing arrangements will be `grandparented' during the transitional period to the new system. Under the grandparenting of variable fees, existing hostel and exempt nursing home residents who already pay an agreed higher amount than under income testing will continue to pay the same amount. Their subsidies will be reduced by the amount of any income tested charge, and the provider will be able to keep the difference. [83]

2.122 Some evidence suggested that the withdrawal of hostel variable fees will have serious implications for the viability of many hostels, particularly in rural and remote areas. ACA argued that the decision will effectively mean that service providers will have no discretion to generate additional income to offset reductions in the recurrent care funding due the new requirements (accreditation, prudential arrangements) and indexation mechanisms which undercompensate for cost increases. [84]

2.123 ACHCA argued that the measure may mean the loss to hostels of between $15 and $35 million a year that is currently spent on care. ACHCA noted that critical to calculating the real potential loss will be the funding levels set for the new RCS and how this impacts on hostel residents and their dependency levels. [85]

Removal of hostel care level subsidies

2.124 Under the aged care reforms, hostel care level subsidies will be withdrawn from 1 October 1997. Hostel providers currently receive a subsidy of between $2.95 and $3.55 a day for financially disadvantaged residents. DHFS noted the Government decided to withdraw the subsidies because residents classified at this level have primarily social and housing needs, rather than care needs and that their numbers decline each year as hostels increasingly focus on care needs, rather than social or lifestyle needs. [86]

2.125 DHFS advised that Hostel Care level residents will remain part of the new system with security of tenure. These residents will not have to pay an income tested charge. Residents classified at the Hostel Care level will, however, have there income assessed and may later pay an additional income tested charge should their care needs increase and they become eligible for a care subsidy. They may also be required to pay an accommodation bond, subject to the same conditions that apply to other residents. [87]

2.126 Evidence from several groups raised concerns about the Government's failure to provide a new program of funding for appropriate housing and support services for people who previously sought accommodation for social reasons, and particularly for the existing 5000 hostel residents who are financially disadvantaged. [88]ACA stated that if no action is taken, it is `inevitable' that there will be an increase in the numbers of `vulnerable homeless elderly people'. [89]

2.127 Anglicare also noted that:

If these people did not receive care within the residential facility, they would move into a world where we know there are going to be cuts to public housing...We already know again that the costs of some basic services like home care delivered meals in the HACC program are going up....So when you take away a hostel level of care but do not devise a system to pick up those people in its place, you create quite a problem that we do not believe has been addressed. [90]

2.128 The Committee also raised the issue of the need to ensure access to hostel care for people with very low level or `social' care needs. [91] The Committee believes that although these people are in hostels for largely social reasons the social isolation faced by many people living alone can be debilitating and hostel care of this type will often ensure that these people maintain a better state of health and are provided with a safer lifestyle than when living outside a hostel setting. In the long term, providing this type of accommodation may also reduce expensive medical or nursing home costs in the future.

2.129 The Government stated that under the new funding arrangements hostels that cater for people with low level or `social' care needs `can expect their total funding to at least be maintained, if not increased. The new classification scale is a much better measure of care needs, including social needs, and some Hostel Care level residents move up the scale'. [92]

Financial viability of hostels

2.130 As noted above, some concerns were raised as to the effect the withdrawal of hostel variable fees and the removal of hostel care level subsidies would have on the financial viability of some hostels. [93]

2.131 ACA noted that of the three major components of capital funding for hostels entry contributions, variable capital funding and variable fees, the Government has `only applied one part of the tri-partite system of capital funding for hostels, and that, in doing so, it has dismantled the other two components of capital funding for hostels'. [94] ACA noted that the financial viability of many hostels will be threatened and argued that there needed to be greater provision for capital funding to ensure their continued viability.

2.132 The Gregory report also stated that, while the combination of variable capital funding and variable charges would enable the majority of hostels to access sufficient income to maintain and upgrade their building stock, `the Government will need to continue to give significant capital support to those hostels which provide for a high level of Financially Disadvantaged residents'. [95]

2.133 DHFS argued that the net impact of the changes on hostels will not be as severe as some hostels claim. The Department noted that `a good number of particularly HC residents, to wit, those who either receive a very small amount of funding or who indeed no funding is attracted to, will actually move up into the funded category. That means that for a good proportion of those hostels their position is going to be a better one'. [96]

Conclusion

2.134 The Committee believes that the withdrawal of hostel variable fees and the removal of hostel care level subsidies may effect the viability of some hostels. The Committee is also concerned that the removal of hostel care level subsidies may adversely those residents of hostels who are financially disadvantaged, especially in the absence of other measures to address their needs.

Recommendation 10: The Committee recommends that the Government monitor the impact of the proposed funding changes to hostels, especially in relation to the financial viability of hostels; and that capital funding be provided to hostels that cater for a high proportion of financially disadvantaged residents.

Recommendation 11: The Committee recommends that the Government provide appropriate funding for the Home and Community Care program and other community services and housing programs to address the needs of financially disadvantaged Hostel Care level residents that may be affected by the withdrawal of Hostel Care level subsidies.

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Footnotes

[1] Submission No.94, p.37 (DHFS).

[2] Submission No.94, p.36 (DHFS).

[3] Submission No.65, p.4 (COTA); Submission No.17, p.6 (Mr Boyce).

[4] Submission No.65, p.4 (COTA).

[5] Submission No.94, p.24 (DHFS); Transcript of Evidence, p.259 (DHFS).

[6] Transcript of Evidence, p.259 (DHFS).

[7] Submission No.94, p.37 (DHFS).

[8] Submission No.65, p.4 (COTA); Submission No.58, pp.12-13 (APSF). See also Submission No.38, p.8 (ACHCA).

[9] Transcript of Evidence, pp.259-60 (DHFS).

[10] Transcript of Evidence, p.260 (DHFS).

[11] Submission No.58, pp.16-17 (APSF); Submission No.50, p.6 (CPSA of NSW); Submission No.105, p.11 (HRECOC).

[12] Transcript of Evidence, pp.111-112 (APSF).

[13] Transcript of Evidence, pp.14-15 (NANHPH) and Transcript of Evidence, p.25 (Mr Boyce).

[14] Submission No.50, p.6 (CPSA of NSW).

[15] Submission No.58, p.16 (APSF).

[16] Submission No. 94, p.38 (DHFS).

[17] Submission No.58, pp.16-17 (APSF).

[18] Submission No.94, p.22 (DHFS).

[19] Submission No.94, p.40 (DHFS).

[20] Submission No.94, p.42 (DHFS).

[21] Submission No.94, pp.34,39 (DHFS).

[22] Submission No.94, p.39 (DHFS).

[23] Minister for Family Services, Media Release, 26 May 1997.

[24] Transcript of Evidence, p.209 (ACHCA).

[25] Submission No.105, p.13 (HREOC).

[26] Transcript of Evidence, p.148 (ACA).

[27] Transcript of Evidence, p.281 (DHFS).

[28] Transcript of Evidence, p.281 (DHFS).

[29] Submission No.60, pp.11, 15 (ACA).

[30] Transcript of Evidence, p.282 (DHFS).

[31] Minister for Family Services, Media Release, 26 May 1997.

[32] Submission No.38, p.10 (ACHCA); Submission No.62, p.4 (Anglicare Australia); Submission No.58, p.17 (APSF).

[33] This figure is based on an average entry contribution of $40 000 `thus reflecting the reality of today's entry contributions averaging closer to the actual capital cost of aged care facility beds'. See Submission No.38, p.12 (ACHCA).

[34] Submission No.58, p.17 (APSF). See also Submission No.66, p.10 (CSA).

[35] Submission No.56, p.7 (ANHECA).

[36] ACHCA, Media Release, 26 May 1997; CSA, Media Release, 27 May 1997.

[37] ACHCA, Media Release, 26 May 1997.

[38] Uniting Church (NSW Synod), Media Release, 27 May 1997.

[39] CSA, Media Release, 27 May 1997; Uniting Church (NSW Synod), Media Release, 27 May 1997.

[40] ACHCA, Media Release, 26 May 1997; CSA, Media Release, 27 May 1997.

[41] CSA, Media Release, 27 May 1997.

[42] Submission No.38, p.16 (ACHCA); Submission No.50, p.9 (CPSA of NSW); Submission No.65, p.6 (COTA).

[43] Submission No.38, p.16 (ACHCA).

[44] Submission No.51, p.6 (Residential Care Rights). See also Transcript of Evidence, p.171 (CSA).

[45] Transcript of Evidence, p.171 (CSA).

[46] Transcript of Evidence, pp.209-10 (ACHCA).

[47] Submission No.65, p.6 (COTA).

[48] Submission No.38, p.17 (ACHCA).

[49] Submission No.50, p.9 (CPSA of NSW); Submission No.38, p.16 (ACHCA).

[50] Submission No.94, p.46 (DHFS).

[51] Submission No.50, p.9 (CPSA of NSW); Submission No.79, p.4 (ACTU).

[52] Submission No.65, p.6 (COTA).

[53] Submission No.79, p.4 (ACTU).

[54] Submission No.94, p.47 (DHFS).

[55] Submission No.94, p.47 (DHFS).

[56] Submission No.60, p.16 (ACA); Submission No.65, p.6 (COTA).

[57] Submission No.60, p.16 (ACA). See also Submission No.65, p.6 (COTA).

[58] Submission No.38, p.18 (ACHCA).

[59] Submission No.9, p.5 (NANHPH); Submission No.58, pp.18-20 (APSF).

[60] Submission No.60, p.16 (ACA).

[61] Submission No.56, p.7 (ANHECA).

[62] Submission No.56, p.7 (ANHECA).

[63] Submission No.58 p.18 (APSF).

[64] Submission No.66, p.12 (CSA).

[65] Submission No.58, pp.18-19 (APSF); Submission No.51, pp.5-6 (Residential Care Rights); Submission No.67, pp.2-4 (ADACAS).

[66] Submission No.58, p.19 (APSF).

[67] Submission No.51, p.5 (Residential Care Rights).

[68] Submission No.65, p.5 (COTA); Submission No.66, p.12 (CSA); Submission No.60, p.16 (ACA).

[69] Submission No.65, p.5 (COTA).

[70] Submission No.66, p.13 (CSA); Submission No.62, p.5 (Anglicare Australia).

[71] Submission No.58 p.19 (APSF).

[72] Submission No.94, p.45 (DHFS).

[73] Submission No.94, p.30 (DHFS). See also Transcript of Evidence, pp.266-67 (DHFS).

[74] Submission No.66, p.13 (CSA); Submission No.58, p.20 (APSF); Submission No.62, p.5 (Anglicare Australia); Transcript of Evidence, p.210 (ACHCA).

[75] Transcript of Evidence, pp.171-72 (CSA);

[76] Transcript of Evidence, p.204 (ACHCA).

[77] Submission No.60, p.15 (ACA); Transcript of Evidence, p.172 (CSA).

[78] Transcript of Evidence, p.172 (Community Services Australia).

[79] Submission No.60, p.15 (ACA).

[80] Submission No.60, p.15 (ACA).

[81] Transcript of Evidence, p.211 (ACHCA). See also Transcript of Evidence, pp.267-68 (DHFS).

[82] DHFS, Fact Sheet 6: Variable Fees.

[83] DHFS, Fact Sheet 6: Variable Fees.

[84] Submission No.60, p.10 (ACA).

[85] Submission No.38, p.28 (ACHCA).

[86] DHFS, Fact Sheet 16: Hostel Care Subsidy. See also Transcript of Evidence, p.296 (DHFS).

[87] Submission No.94, p.15 (DHFS).

[88] Submission No.60, p.21 (ACA); Transcript of Evidence, p.78 (Anglicare Australia); Transcript of Evidence, p.135 (ACA).

[89] Submission No.60, p.21 (ACA).

[90] Transcript of Evidence, p.78 (Anglicare Australia).

[91] For a discussion see Transcript of Evidence, pp.296 -97 (DHFS).

[92] Minister for Family Services, Media Release, 26 May 1997, p.4.

[93] Submission No.60, p.10 (ACA).

[94] Submission No.60, pp.9-10 (ACA).

[95] Gregory, op.cit., p.57.

[96] Transcript of Evidence, p.295 (DHFS).