By Greg Roberts

 

Greg  Roberts is a Principal of Global Aged Care Services. He is also an EstCare Principal and trains and mentors Aged Care Specialist Advisers™. Greg has many years of specialist experience assisting aged care facility operators and prospective residents – especially those with special needs.

 

 

In January, the Productivity commission released a draft report on caring for older Australians.

 

The economy is faced with the challenges of rapidly growing aged population and the doubling of people in care by 2024. The Federal Government has released it views on the future of residential care. It is important to understand how this will work in a sustainable way, going forward.

 

My interpretation of the report is that the increased demand for beds within aged care facilities will need to be funded by facility operators and that aged care residents will be offered some choices to fund the care they require.

 

Facility Operators

 

The operators of aged care facilities must be able to fund growth, often without the necessary positive cash-flow environment. In reality, very few owners will be able to afford to do so.

 

My interpretation of the report is that the increased demand for beds within aged care facilities will need to be funded by facility operators and that aged care residents will be offered some choices to fund the care they require.

 The recent Grant Thornton survey, which was funded by the Aged Care industry, found a large proportion of operators are in a break even or negative cash-flow situation. There has been a misconception that aged care is a licence to make quick, easy money. This has been proved to be misleading.  The cost of assets, expertise, staffing, legislative compliance, audits and care plans exert a lot of pressure on a facility.

 

The report proves that the funding of aged and residential care now is linked to the provision of more beds in the coming years.

Prominent Aged Care Operators are concerned that without proper financial adequacy, they may need to offer sub-optimal care for their residents.

 

However I believe there is a sustainable and balanced approach to the needs of facilities and residents.

 

It is our view that the payment of accommodation bonds for all residents, not just low care, is certainly an appropriate consideration – as it currently imposes a different set of funding standards on incoming residents.

 

We also believe that advisers should be properly trained if they are to give advice to facility owners and residents – as without this balance there will not be a sustainable future for the industry.

 

Prospective Residents

The report had identified the following weaknesses in the existing system.

• It is difficult to navigate.
• The quantity of services is limited.
• Quality is variable and there are gaps in service coverage and limited choices for care recipients.
• Pricing, subsidies and user co-contributions are inconsistent and sometimes inequitable.
• Workforce shortages are exacerbated by uncompetitive wages and over-regulation.

 

The proposed solution is to develop a single contact point or simplified gateway to get information, assessment of care needs and financial capacity to make co-contributions and easily understood information. This gateway also provides information about entitlement, care co-ordination, the flexible range of care and support service, restorative care and rehabilitation. It will also offer a choice (where feasible) to receive care at home or in a facility of their choice.

 

From a financial perspective the alternatives for prospective aged care residents are :

1. To receive care at home or in a residential facility and choose their approved provider.
2. To contribute in part to their cost of care (with a maximum lifetime limit) and meet their accommodation and living expenses (with safety nets for those with limited means).
3. To have access to a government sponsored equity release scheme to pay for their care and accommodation charges if they have assets but limited annual incomes.
4. To choose  between paying a daily charge or an equivalent bond for the accommodation costs of residential care — with both aligned to the real cost of accommodation.
5. To retain their age pension when selling their home (and if paying a lower capital sum or a daily charge for their new accommodation) by purchasing an Australian Pensioners Bond  and
6. To choose whether to purchase additional services or a higher quality of accommodation if that is what they want and can afford to do so.

The ageing population and their families are in need of guidance. There is a misunderstanding by prospective aged residents about how bonds work , and what is returned to the estate on the passing of the resident. This also poses as problem to facility operators.

 

Financial advisers do not always appreciate the funding problems faced by facility operators and without specialist training themselves to get an appreciation of the industry provide advice that is not in the best interest of the client. As a result prospective residents try to pay as little a bond as possible – when they should be paying a fair price.

 

This  one sided approach also means that in some instances the resident loses their pension benefits, starts paying PAYE & PAYG tax, pays much higher care fees, and is actually worse off than if they had paid a higher bond.

 

Impact of the proposed changes:

 

The fallout of the Governments proposed changes can have a serious and damaging impact on both prospective residents and operators.

 

We are concerned that the changes will grow reverse mortgages or equity release schemes – possibly run through the government, as a means of funding a user pays modality.  It is our view that this will be at a higher cost to residents and their families than the current bond and fee model. It is worth noting that the Government’s financial watchdog has the following warnings for people considering this model on the ASIC website:

1. Interest rates are usually higher than normal home loan rates.
2. Compound interest can rapidly increase debt – sometimes to a value more than the home
3. Onerous maintenance obligations
4. It may badly affect Centrelink entitlements
5. There is no way to calculate the debt amount at the end of the loan
6. There may be insufficient funds to pay for Aged Care
7. There may be insufficient funds to leave an inheritance.

A more acceptable alternative is that the current bond model, expanded to include High care residents, is a logical funding model. To continue the current Centrelink assets test exemption seems reasonable, as these monies primarily come from the sale of the family home, which is also assets test exempt.  

 

This review should also consider the ongoing care of concessional residents – as these Australians should continue to be supported even though they cannot always afford to pay for the care that they require.

 

There are solutions for the aged care facility operators and for prospective residents. It is a matter of educating the public and advisers to get the best solution for all.

The final area of concern is the special funding needs of those under 65,  physically or intellectually impaired residents . In particular, the area of funded care for dementia affected residents is crucial for the provision of best practice care in the Australian system. 

 

There are solutions available at a micro and macro level, it a matter of educating the public and the advisers about these solutions so that everyone benefits.

 

Visit us at EstCare www.estcare.com.au and investigate the Aged Care Investment Service and the Personal Injury Disability and Residential Care Investment Service.