LLLB a boon for the bush

Contrary to popular views, the government’s Living Longer Living Better reforms are just what is needed to even up the return on capital for rural, regional and remote aged care providers, writes James Underwood.

As part of our efforts to deliver more of the high-quality feature and opinion content from our magazine in a digital format, Australian Ageing Agenda is sharing some of our favourite long form print journalism with our online audience. We hope you enjoy this opinion piece from our May-June 2013 edition.

James Underwood, Director of James Underwood and Associates.

By James Underwood.

The new accommodation payment system to commence from 1 July 2014 has great advantages for regional, rural and remote (RR&R) residential aged care services and here’s why.

By using Daily Accommodation Payments (DAP’s), the new system addresses a major imbalance in the Australian system. Currently, although the capital cost of building is similar in the city and in the country, the income available to the operator to cover that capital cost has been effectively ‘capped’ at an accommodation bond that has been tied to the lower average house prices in most RR&R locations, or at an inadequately low accommodation charge.

Essentially, because of the lower home prices in RR&R locations, it has meant that only low bonds can be sought. Now, the bank interest received from investing a typical RR&R bond of $180,000 is far below the income received from a typical metropolitan lump sum bond of $473,000 (the likely maximum Level 2 Refundable Accommodation Deposit or RAD at current rates). So currently there is a capital income shortfall from bonds in RR&R.

This will change on 1 July 2014.

A more equitable approach

Under the government’s Living Longer Living Better (LLLB) reforms, both metropolitan and RR&R services will be able to legally seek and gain an equivalent return on capital.

Services with similar capital costs may seek to self-assess a maximum Level 2 DAP of up to $90 per day* or $33,000 per annum for all those new residents with assessable assets above $153,000. This is very different to the current system where RR&R services can charge high care residents only a maximum of $33.29 per day or $12,000 per annum, regardless of their capital outlay on buildings.

By contrast, metropolitan services can levy very large accommodation bonds on new high care residents (and low care residents) through the extra services system and be far less impacted upon by this low maximum accommodation charge cap.

In the future, both could seek a charge of $90 per day ($33,000 per annum) for the same level of accommodation. That’s $21,000 per annum extra per new resident over the previous $12,000 per annum capped accommodation charge! See the below diagram for a demonstration of the before and after effect of LLLB for RR&R providers.

All good news

Through LLLB, the nexus between houses prices and capital costs is broken. If a person hasn’t the assets to pay a $473,000 lump sum, they can be asked to pay the relevant DAP instead. Most residents would have the assets to be able to afford to pay a maximum Level 2 DAP of $90 per day for many, many years, even with the lower house prices we see in RR&R.

In addition to the DAP arrangements, we see a major boost to the capital supplement for financially-disadvantaged persons, subject to services meeting new or substantially refurbished rules. This big boost applies to all residents – both existing and new – and will be more beneficial to services with higher levels of financially-disadvantaged persons as are often seen in RR&R locations.

In the view of this financial consultant, LLLB should be very advantageous to the capital equation for many or most RR&R services.

*The announced 2012/13 figure of $85/day plus two years’ indexation at 2.9 per cent per annum.

James Underwood is Director of James Underwood and Associates, a Brisbane-based management consulting firm specialising in aged care.



Tags: daily-accommodation-payment, james-underwood, legal, lllb, refundable-accommodation-deposit, rural-and-remote,

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