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Message to Our Federal Parliamentarians


By Paul Carberry

Paul Carberry, in his capacity as CEO of Leading Age Services Australia SA (LASA-SA), has written a message to Federal Parliamentarians, urging them to consider some issues and questions in reviewing the details of the five bills that propose amendments to the Aged Care Act 1997 and which are currently before members of the House of Representatives and up for debate.  These five bills underpin the Gillard Government’s $3.7 billion Living Longer. Living Better aged care reforms.

The views expressed here are the views of Paul Carberry as CEO of the peak body, LASA in South Australia and do not reflect the views of Australian Ageing Agenda or its staff.

Paul Carberry, CEO of Leading Aged Services Australia – SA

The Living Longer Living Better aged care reform package made its way into the Federal Parliament in March, in the form of five bills, introduced exactly eleven months after the policy launch on 20 April 2012. 

The reform package covers a broad range of issues, and its goals of delivering greater access to services, and greater choice and quality for consumers, are commendable. Of equal importance are LLLB’s goals of ensuring that service providers operate in an environment which encourages competition, service diversity and innovation, and allows those who are good enough, to maintain viable and sustainable operations.

The former goals depend upon achievement of the latter.  We hope therefore, that our federal parliamentarians will scrutinise the detail of the bills, and the subordinate instruments supporting them.

What in particular should the Federal Parliament pay attention to? More than I can hope to cover here, however I have a list of suggested questions at the end, and here are the reasons they need to be asked.

The Workforce Compact and Aged Care Subsidies

In launching the Workforce Compact, the Minister for Mental Health and Ageing said it “will provide higher wages, better conditions and more rewarding careers for the nation’s 350,000 aged care workers.”  Every provider I know supports those objectives.

The Productivity Commission did as well, they said: “The Commission proposes that scheduled care prices take into account the need to pay fair and competitive wages to nursing and other care staff.”

What they did not propose was that the government should remove funding used for the care of the elderly, and recycle the money saved to (partly) fund wage increases. Yet that is exactly what has happened.

The government froze the rates it pays for the care of the elderly on 1 July 2012. In other words, the rates which apply today are the ones which came into effect on 1 July 2011.

Because of the compounding effect of this freezing on future years, the Workforce Supplement being offered will leave providers with only a small gain in funding by 2016-17, compared to what they would have had if the rates had not been frozen and there was no Workforce Supplement.

So, for this small gain, what will the Compact offer providers for their troubles, and what will be required in return?

The answer will be different for different employers, because one of the conditions is that wage rates must be a minimum margin above modern award rates.

So, let’s base this this exercise on an employer who already pays rates which are at or above these margins. That is not the case for all employers, so the figures below are the minimum wage increases required to qualify for the Compact payments.

The supplement being offered in return for compliance with the Compact’s criteria will be as follows. The percentages are based on the basic subsidy amount.

2013-14        2014-15       2015-16       2016-17
1.0%               2.0%              3.0%            3.5%

Firstly, all of the supplement payments must be passed on in full as wage increases, with providers being required to fund the 30 per cent or more on-costs which will flow.

Secondly, providers will be required to pay annual increases of 2.75 per cent, or the Fair Work Commission minimum wage increase, if higher. Where will that money come from? Clearly, not from the supplement and, if long-term history is any guide, not from the annual subsidy indexation either.

So, while the supplement is presented as extra funding to provide wage increases for aged care staff, it isn’t and it doesn’t. The money has been recycled from care subsidy cuts, and the funds on offer only partly cover the wage increases required.

Other questions

Of course, the Workforce Supplement and the tinkering with subsidies are just two components of a bigger set of reforms.

On the positive side, from 1 July 2014, there will be higher government accommodation payments in residential facilities for supported residents, and the distinction between high care and low care will cease, resulting in a unified set of rules for how all people can pay for their accommodation.

Unfortunately however, terms and conditions do apply.

The higher supplement will be paid only for places built after 20 April 2012, or “significantly refurbished” (which has its own set of rules) after that date. If you built or refurbished a high-standard residential facility before that date, you don’t qualify.

Regarding the payments by people who can afford to pay for their accommodation, the government will make universal a system which has worked well in low care and extra service facilities, that is, the ability for residents to pay a refundable deposit, or a daily payment, or a combination of the two.

A good idea, but accompanied by more rules, which, if not amended, have a very good chance of undermining the capital base which the sector depends upon for new investment.

I should mention that the information below is the subject of a Department discussion paper, seeking submissions, however this is how it stands at the moment.

If a provider’s charge is more than $50 per day they need to conduct a self-assessment to justify their price, and if their price is above $85 they have to apply to the government for approval. The refundable deposit will be an amount calculated from the daily payment by a government-determined interest rate, which changes each quarter and is currently 6.95%.

So, the rate at which providers have to start applying to the government is currently equivalent to a deposit of $445,000. But what happens when interest rates rise, as they inevitably will? The equivalent deposit will go down, and with it the capital base upon which the industry depends.

Why are these new rules and red tape being introduced into a system which has worked so well; is it to stop providers charging “super bonds”? You could be forgiven for thinking so, except that the Aged Care Financing Authority (ACFA) blew the whistle on that story, when they told us that 95 per cent of all refundable deposits are less than $500,000.

On the day LLLB was launched, the Minister, as justification for these policies, spoke about the ”excessive bonds being charged in parts of the sector, up to $2.6 million, as the Prime Minister said….”

That claim sits incongruously alongside the statistic provided by ACFA. The best anyone could say about it, is that a whole new set of red tape, caps and government approvals is being imposed on all providers, to fix a problem which is completely unrepresentative of the system. Why?

Finally, the new system removes a long-standing and uncontroversial consumer payment, a fixed and time-limited draw-down from deposit balances, known as a retention.

Retentions are an important source of funding for all providers who take refundable deposits, and the lower the deposit level, the more important they become.

For example, the average deposit in remote areas was $127,383 in 2009-10 (AIHW). If an already-struggling provider in one of these areas can get 4.5 per cent interest on this money, that’s $5,732 a year, plus a retention payment of $3,876. Take the retention away and this income drops by 40 per cent. What then for the facility and the community which depends on it?

 What can the Parliament do?

Older Australians have waited a long time for reform, and the bills now before Parliament do represent the best chance for substantive improvement which we’ve seen for a long time.

The reforms have many positives and Leading Age Services, and other bodies, have acknowledged these. So we would simply ask the Parliament to scrutinise the details and question those which don’t stack up against the goals of LLLB, as outlined in the second paragraph (above). If they don’t meet the test, they need to be changed.

With respect to the issues I have raised here, some of the questions might be:

  1. Has the Workforce Compact been funded by removing funds from aged care subsidies? How will this contribute to a viable and sustainable industry, one in which the bottom quartile averaged losses of $6,000 in 2009-10? (Dept. of Health & Ageing)

 

  • Does the Workforce Subsidy fully-fund the wage increases which are required? If not, how does that help the viability issue mentioned above? Should the subsidy be increased so that it fully-funds the required wages?

 

  • Does the current system of care subsidies properly meet the costs borne by providers? What independent studies have been done to verify this? If none, will the government conduct one, and when will this take place?

 

  • The government is proposing a new system of red tape and rules relating to how consumers can pay for their accommodation? Why is this necessary and what problem is it intended to solve? Is the solution proportionate, and is it the most efficient way to ensure fair pricing for consumers? Won’t the requirement for providers to publish their prices achieve this anyway?

 

  • Given their vital importance as a source of capital, shouldn’t providers be allowed to set their deposit amount first, and have the daily charge calculated from it, rather than the other way round? If this is not allowed, what will happen to refundable deposit levels as interest rates rise?

 

  • Are retention payments an important source of income for providers, and does their importance increase the lower refundable deposit amounts become? What work has been done to measure the impact of their loss on the sector, in particular on those in regional and remote areas? (Perhaps Parliament could ask some of these providers to confidentially disclose their financial position, now, and after retentions have gone.)

 

We know the Parliament will be busy in the coming months, and we trust that the opportunity will be taken to fully examine the LLLB Bills, and for these and other questions to be asked and answered.

Paul Carberry
Chief Executive Officer
Leading Age Services Australia – SA



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