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Great leap forward leads to great famine


Above:  LASA CEO, Patrick Reid at the Tristate Conference in February this year

This is an opinion piece submitted by Patrick Reid, Chief Executive Officer of Leading Age Services Australia (LASA) for publication in response to the article published earlier this week entitled, The great leap forward, by Keryn Curtis.  

There is perhaps an unwitting correlation of historical reference in the Australian Ageing Agenda news article ‘The great leap forward’ (Tuesday 28 May) unintentionally highlighting the folly of governments in setting reforms without understanding their true impacts. In referencing in the article’s title the agrarian reforms undertaken by China through 1958-61 which, subsequently led to the great famine and the deaths of up to 45 million Chinese citizens, Ms Curtis inadvertently puts a spotlight squarely on LASA’s stated concerns with the Living Longer Living Better (LLLB) reform process to date and the evolving realisation by the senate and others that the impacts of LLLB have not been adequately assessed.

The forebears of Leading Age Services Australia (LASA) have been supporters of reform for over a decade, but they have always called for reforms that are sustainable and prepare the industry for challenges that lie ahead. Our submission to the senate committee and our advocacy has staunchly applied this outlook in calling for sober and responsible amendments to prevent regulatory failure.

Far from praising the ‘group of 22’ [see referenced article], Senator Claire Moore responded to NACA on their letter, admonishing the group of 22 signatories for attempting themselves to reopen the inquiry and slow down the process:

“The committee does not wish to delay the process through a further extension to hearing times, which might reduce the capacity of all parties to consider the bills, and the committee’s findings, in a timely manner.”

So on the topic of mixed messages, let us be clear that LASA has been rock steady in its approach and advocacy and at no time has it deviated from its position.  Unfortunately some utterly conflicted stakeholders have sought to promote their own political agenda at the cost of the whole sector, something that our members have not missed.

Poor consideration 

If you add to this the prescient call from LASA seeking the Aged Care Financing Authority (ACFA) to reconsider the accommodation payments methodology, duly delivered as per the incomplete KPMG report, we see further evidence of reform without due consideration of impacts. LASA acknowledges ACFA for listening to the industry in seeking the independent advice. However, the KPMG report:

  • does not consider the cash outflow impact (see example);


  • does not support its conclusion that $ 3.5bn of Refundable Accommodation Deposits (RADs) will flow to high care;


  • does not consider the impact on low care facilities previously reliant on bonds, as to how they will survive with this outflow of bonds and its replacement with a Daily Accommodation Payment (DAP) – particularly those in rural and remote areas.  


It is also interesting to note that the impacts of the home and RAD/bond are being treated differently for means testing, leading to a situation where we contend that it is inequitable and discriminatory that older Australians’ assets will be treated differently depending upon whether they are held in a house or in the bank. The Productivity Commission made this point very strongly, yet the government is doing exactly that with its means test proposal.

Further to this, it is inequitable that some older Australians will face huge cost imposts when moving from home to residential care. It is also dangerous, as it will lead to people avoiding or delaying this move beyond the point which is in older people’s best interest.

A practical solution

This situation can be remedied by having the word ‘not’ put into section 44-26(5) so RADs/bonds are not part of the asset test. This would remove the bias towards the DAP, as evidenced in the KPMG report, by treating the home (whether it be bricks and mortar or cash from the proceeds of sale) in an identical manner (via the deemed value).

The only downside of this change that we can foresee is reduced consumer contribution so lower savings for government in the short term.  However this can be offset with a range of benefits, including:

  • Removal of the inherent bias on DAP
  • Makes it consistent with current treatment, albeit not as far as consumer care costs are concerned


  • Provides first step along more consumer contributions consistent with government intent


  • Ensures a stable funding/capital stream to underpin growth demands short and long term


On the other hand, if this is not changed, it will:

  • ensure a retraction of funding/capital source to undermine meeting growth demands short and long term i.e. no new beds built;
  • reduce ‘choice’ for consumers in real terms as demand will outstrip supply; 


  • force placement of ‘unplaceable’ consumers [particularly those who are most at risk] into public hospital care.


Other concerns and inequities

This leads us to the suggestion that all the other changes including the removal of retention amounts have been made on the basis of ideology rather than evidence.”

Another inequity foreshadowed is the difference in the yearly and lifetime cap for care. Care co-contributions should be treated identically in home and in residential care and therefore be capped as a daily rate. Presently it is set so that residential clients will be greatly disadvantaged by having to pay all costs, up to the cap, upfront. This means that on average most residents will have 4-6 months of paying their costs fully out of their own pocket before the cap kicks in, unlike community care where the amount paid is capped at a daily rate.

Other factors contributing to our unease about  the development of this legislation which have been highlighted by the committee process and confirmed through the evidence provided, are that the change to assets tests and other critical elements of the LLLB package have been made on either limited [late, specific modelling by ACFA through KPMG] or no modelling at all. This leads us to the suggestion that all the other changes including the removal of retention amounts have been made on the basis of ideology rather than evidence.

As can be seen from this example [see link], based upon accumulated data across approximately 20,000 beds,  the cash flow issue is of critical importance but has not been picked up by ACFA in the KPMG report.   In the years ahead this reform may cause the industry to reach an ‘economic cliff’ – simply because modelling and analysis has not been performed or sought from industry by the Department.

We are also at a loss as to why good parliamentary process is lost in the Department of Health and Ageing and a model ‘principles’ document cannot be supplied at the same time as the ‘guidelines’ documents? Other government departments such as Treasury seem to manage this process more effectively. Inability to provide this detail in a timely manner leads to the industry being incapable of planning adequately and is leading to some volatility because of this vacuum of information.

So the ‘Great Leap Forward’ crowed about in this article may be reminiscent of a quote from economist Dwight Perkins, who suggested that the Great Leap Forward led to “enormous amounts of investment producing only modest increases in production or none at all. … In short, the Great Leap was a very expensive disaster.”

Leading Age Services Australia commends the reforms to the parliament but on the basis that sober and responsible amendments are made with a view to ensuring the great leap forward is not off a fiscal cliff.

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