Chapter 5

Bond Levy Guarantee

5.1        The Aged Care (Bond Security) Levy Amendment Bill 2013 (Levy Bill) and the Aged Care (Bond Security) Amendment Bill 2013 propose to amend the Aged Care (Bond Security) Act 2006 giving effect to the Living Longer Living Better (LLLB) aged care reform package.

Bond Security

5.2        Currently under the Aged Care Act 1997 certain residential aged care services may charge care recipients accommodation bonds for entry into residential aged care services. These accommodation bonds (less any allowable deductions made by the approved provider) are required to be refunded to care recipients when they leave the aged care service.

5.3        If an approved provider becomes insolvent and is unable to refund the accommodation bond balances that are owing to the care recipients, the Aged Care (Bond Security) Act 2006 provides a mechanism by which the Commonwealth may repay the outstanding bond balances to the care recipients. This scheme is known as the Accommodation Bond Guarantee Scheme (Guarantee Scheme). The Aged Care (Bond Security) Levy Act 2006 enables the Commonwealth to recover the costs of refunding these bond balances (along with administrative costs) from approved providers via a levy.[1]

5.4        UnitingCare Australia provided some operational insight into this policy measure:

Under the Accommodation Bond Guarantee Scheme established under the Aged Care (Bond Security) Act 2006, the Commonwealth guarantees the repayment of bonds in the event of default by a Provider. Other Providers holding bonds may be required to pay a levy to the Commonwealth to compensate it for bond payments made under the Aged Care (Bond Security) Levy Act 2006.

...

In the event of a Levy being imposed under the Levy Act, Approved Providers will be obligated to pay the Commonwealth an amount up to the equivalent of the amount incurred by the Commonwealth.[2]

5.5        The committee learnt that there is currently approximately $24.5 million of debt that is outstanding which the Commonwealth could theoretically levy the industry to cover.[3] This contingent liability is subject to the Minister's discretion and may be imposed at any time.[4]

Aged Care (Bond Security) Levy Amendment Bill 2013

5.6        As discussed in Chapter 4 of this report, LLLB enables care recipients to elect to pay for their accommodation by periodic payment, lump sum, or by a combination of both. The inclusion of the Levy Bill in the LLLB reform package is to ensure that the bonds of care recipients who enter care on or after 1 July 2014 – and pay either a lump sum Refundable Accommodation Deposit (RAD) or a Refundable Accommodation Contribution (RAC) – have the same protections as those currently in effect.[5]

5.7        The protections provided to the Commonwealth under the current regime are also extended by the Levy Bill to cover any costs that may accrue to the Commonwealth should a provider become bankrupt or insolvent under the LLLB scheme.[6] As clarified by the Explanatory Memorandum:

In the event that an approved provider becomes bankrupt or insolvent and defaults on their obligation to repay care recipients’ accommodation payment balances, the Commonwealth would assess the impact of recovering costs from all approved providers that held such lump sum amounts ten days before the default event declaration was made. The Commonwealth has the legislative capacity to recover costs from approved providers in instalments over a number of years. This will minimise the potential impact on approved providers.[7] 

Issues

Levying registered providers and Ministerial discretion

5.8        Although the LLLB does not propose to impose any new levy on industry, the operation of the levy was an important concern of several stakeholders, and as such is considered in this chapter.

5.9        It was put to the committee that it was unfair for the industry to have to cover the debts of failed competitors:

The primary position is we do not believe it is fair. We do not know whether Qantas paid for Ansett's failure, but in our case we do not believe we should be paying for other people's failures or the failure of government, if it wants to guarantee bonds, to provide effective prudential monitoring and control. That is the starting point.[8]

5.10      Grant Thornton similarly emphasized the importance of improving the monitoring and evaluation of provider financial performance and prudential management in order to create a sustainable aged care system.[9]

5.11      Although acknowledging that the levy had been in place previously, it was argued by Aegis Aged Care Group that the levy creates uncertainty for industry:

The levy has always been in place. What is being done now is just a continuation of that. It is just that the industry has never been levied for the defaults that there have been in the past. The government is entitled to levy us based on the bonds that we hold. In answer to the question, if providers go into liquidation and they owe bonds and are not able to pay them back then those bonds will be paid from the guarantee fund. The liquidator will then be getting proceeds to cover the bonds from the sale of the facilities. If facilities do not have bonds and they go into liquidation, there is no obligation on the government or the industry to pay levies for them. It is another thing that brings uncertainty into the industry—that is all.[10]

5.12      Although the Commonwealth has the power to place a levy on industry to recoup the costs incurred through repaying the bonds of a failed registered provider, it is not required to do so. This discretion was an additional cause of concern for some providers. UnitingCare Ageing NSW ACT for instance argued that:

Our network represents a significant percentage of all accommodation bonds held in Australia—I would expect somewhere in the order of at least five per cent. So when we have a levy which can be applied, if you like, for failure of certain organisations to meet their financial observations, we face the situation that, first of all, we are uncertain as to when those events might occur, we do not know at present what the value of those events might be and we do not know whether the government is going to apply the provisions of the levy or not. I know in our own organisation we currently have a contingent liability of almost $1 million waiting to see whether the government is going to send us a bill...That is just UnitingCare Ageing NSW ACT. If you take that across our network, you are talking probably in the order of $1½ million. In that situation, we do not see that we are funded in order to do that.[11]

5.13      It was suggested by UnitingCare Australia that the legislation should create a 12-month deadline for the Minister to make a decision regarding whether or not the Commonwealth would levy industry following the failure of a registered provider,[12] with the rationale being:

...providers need certainty. They need certainty in terms of timing. They need certainty in terms of the limits of the exposure that they can be exposed to.[13]

Protecting capital of bond-holders

5.14      Aged and Community Services Australia's (ACSA) submission argued that the levy should not be extended to Residential Accommodation Deposits (RAD), but did not explain how the capital of older Australians would be protected.[14]

5.15      The government had previously considered requiring providers to take out insurance on RAD collected to protect residents against capital loss in the case of provider insolvency or bankruptcy.[15] ANZ argued that this policy position was taken as 'Treasury apparently sees this $12 billion RAD liability as an unacceptable contingent liability of Government'.[16] Following a four-week consultation period at the end of 2012, the Department of Health and Ageing (the department) explained:

...the Government subsequently decided not to pursue private insurance arrangements for accommodation bond/payments. Instead the Bills seek to extend the current Government-backed bond guarantee scheme to cover new types of lump-sum deposits for accommodation being introduced through the reforms.[17]

5.16      The department offered the following rationale for this decision:

After consulting with industry and consumers the Government has decided not to introduce private insurance arrangements for accommodation payments from 1 July 2014. This decision has been largely based on the lack of availability of a developed private market to insure accommodation payments, creating significant uncertainty around costs for providers and potential flow on costs to consumers.[18]

5.17      The bond guarantee and associated levy was widely regarded by stakeholders as a better system than accommodation bond insurance[19]:

We were gratified to see that the Government has dropped its proposal to require refundable accommodation deposits and contributions to be insured...and has decided instead to extend the Bond Security legislation to cover these new payments.[20]

5.18      Although it appears that the government has made the decision to continue using the prospect of a levy to guarantee future RAD and accommodation bonds, Anglicare raised concerns that the system would be reviewed in 2016:

While the Government has continued to guarantee repayment of the accommodation deposit and dropped the proposal for the provider to obtain private insurance, the legislation provides for the option of private insurance to be considered in the review. We do not support private sector insurance of accommodation deposits, due to increased risk for the consumer and insurance costs for the provider. We believe all reference to this private insurance should be removed from the legislation and not an issue for consideration in the review.[21]

Committee view

5.19      The committee is of the view that it is important that older Australians who have paid bonds are provided with the protections the community expects, while at the same time ensuring that the aged care industry remains viable. To this end, the committee recognises that the Government has responded to industry concerns and moved away from considering an insurance scheme and retained they levy system.

5.20      The committee does agree that the Government should consider establishing a timeline for making a decision to impose a levy on providers. This would enable providers to operate their businesses with additional certainty regarding their liabilities. However, the committee is aware that business and legal proceedings that culminate in a debt being incurred can be protracted and complex, and timeframes should not be set in place that unnecessarily restrict the Commonwealth's ability to await legal clarity around debts it may acquire.

Recommendation 5

5.21      The committee recommends that the government consider amending the legislation to create a statutory timeline to make a decision regarding whether industry will be subject to a levy to recoup a loss.

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