ACFA provides final advice on bond guarantee
Providers should contribute to costs of any scheme guaranteeing lump sum accommodation payments if the benefit exceeds the cost, says the Aged Care Financing Authority.
Providers should contribute to costs of any scheme guaranteeing lump sum accommodation payments if the benefit exceeds the cost, says the Aged Care Financing Authority.
ACFA has also recommended against providers being able to opt-out from a scheme and provide their own guarantees.
The authority’s review of the Accommodation Bond Guarantee Scheme, which was handed to government on 1 May and released last week, outlines options for government. These are:
- the current scheme where the minister can decide to implement a levy after an event,
- an automatic retrospective levy on providers, or
- a guarantee fund pool with prospective levy.
At 30 June 2016, the residential aged care sector held more than $21 billion worth of accommodation bonds from consumers.
These are protected by various laws in addition to the guarantee scheme, which acts as a government-backed safety net if a provider becomes bankrupt.
Between its inception in 2006 and March 2017, the scheme has been triggered 10 times for 11 aged care facilities, all from the for-profit sector, and provided $43 million in refunds.
With the size of the bond pool growing, government tasked ACFA in November 2015 with evaluating the existing scheme and alternatives.
Other options on the table included industry arranged bank guarantee and private and pooled insurance models.
Provider peaks have lobbied to retain the current system arguing there was no reason to change it, while consumer groups agree a system guaranteeing bonds is needed but differ on models (read that story here).
But some analysts have called for government to mandate the regular publication of financial details for each residential aged care provider as happens for general insurers (read that story here).
ACFA’s advice
In line with Productivity Commission and National Commission of Audit recommendations, ACFA said that providers should pay towards the costs of the guarantee, but only if the benefit of a levy was greater than the cost.
If government retains the current scheme, ACFA has recommended bond defaults to date be quarantined from future levies and a formal process for notifying the sector about costs of a default and whether a levy would apply.
ACFA found that the automatic retrospective levy option was effective for consumers, but left providers facing issues of uncertainty and inequity.
It said the guarantee fund pool could be effective for consumers, providers and government and offered an alternative solution to those issues.
Allowing providers to opt-out from a scheme would likely impair its sustainability by requiring a higher levy from fewer participants as well as be complex to administer and manage, it found.
The report will inform the aged care legislated review, which is due to report on 1 August 2017.
The report is available here.
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