Aged care providers should explore higher bonds for income: StewartBrown  

With a growing difference between the average refundable accommodation deposit (RAD) and median house prices in Australia, aged care providers are being advised to consider increasing their bonds.

With a growing difference between the average refundable accommodation deposit (RAD) and median house prices in Australia, aged care providers are being advised to consider increasing their bonds.

The average RAD last financial year was $298,627, which is $360,000 below the national median house price of $660,000, highlighting that RAD pricing is an area of income “that remains to be fully explored,” said Patrick Reid, the firm’s director of aged Care, community and disability.

“In real terms it could be said that aged care accommodation is too cheap, leading to pressure on other parts of the business where costs outstrip income, which should push management and boards towards re-pricing their accommodation,” said Mr Reid.

Providers need to be “more strategic and a little more courageous” in setting their RAD and combination pricing higher before exploring “more exotic fees and charges such as asset replacement charges,” he said.

As providers struggle to find efficiencies in the face of “a weakening government income stream” it is likely that a more pragmatic view of accommodation prices will be required, Mr Reid said.

However, any moves by providers to substantially increase their RAD prices will be closely watched by government, which has already flagged it is concerned by the increasing value of the total bond pool (read AAA’s coverage of that here and here).

Mr Reid pointed out that last year just 33 per cent of all houses and 40 per cent of apartments sold for less than $400,000, illustrating that the majority of real estate market is currently valued well above the average RAD.

Hobart, which has the lowest median house price of $382,500, is still far higher than the average RAD received in Australia, he said.

“Of course, there are exceptions at both ends of the market – with the lowest RAD in Australia being $34,000 and the highest $2.7 million – but generally there is scope for a more progressive RAD price growth.”

The analysis by StewartBrown also showed that less than 1.8 per cent of the beds in the sector last financial year were re-priced above the $550,000 mark at which permission must be sought from government.

Means testing changes having an impact

Rachel Lane, principal of Aged Care Gurus, said that perceived competition among residential providers was prompting facilities to publish RAD prices that were often lower than what consumers were prepared or wanted to pay.

This push to publish lower RADs also removed the flexibility for providers to subsequently charge a higher RAD, even if consumers wanted to pay a greater deposit, Ms Lane said.

Recent changes to means testing for both aged care and the pension were putting increased pressure on seniors to sell their houses in order to fund residential care, as the new arrangements meant that keeping and renting out the home was no longer viable, she said.

“The government is now including rent in the calculation of pension entitlement which means renting the house to meet the cost of care reduces your pension. We’re seeing significant cash-flow deficits and people saying it’s unaffordable to go with that strategy,” she said.

Seniors were now inclined to pay a RAD because they were effectively trying to swap one pension exempt asset – their house – for another pension exempt asset – a RAD, Ms Lane said.

She agreed with StewartBrown’s analysis in that a major disincentive currently was where house prices were way above the RADs being charged. See case study:

Aged care payments

Ultimately the mind shift for operators needed to be understanding that if they set a higher RAD price upfront they could still reduce this later if it impacts on occupancy, Ms Lane said.

“By increasing RAD prices I would hope to see it lead to more flexibility in the pricing of bonds available,” she said.

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Tags: aged care gurus, patrick-reid, rachel-lane, slider, stewartbrown,

7 thoughts on “Aged care providers should explore higher bonds for income: StewartBrown  

  1. It’s folly to apply a “national median house price” mentality in regional and rural Victoria where house prices are quite depressed. It’s not ethical to raise the maximum Room Price so as to be unachievable for most people, not to mention that then making price adjustments according to an individual’s circumstances will not sit well with residents. At their age, they want certainty not negotiation!

  2. I agree with Country carer. Using median house prices as a parameter to determine RADs will isolate all of Regional and Rural Australia, not just Victoria. It will further entrench the social and economic divide that plagues Australia today. In addition, if providers raise their RADs to a certain level using median house prices as an input, and if providers have an option to reduce RADs, as commented above, one has to question the voracity of this model in the first place. Or is it another way to blatantly increase profits.

  3. The remainder of the release, not in full here, suggested that providers need to frame their pricing in line with their local market. For example Hamilton and surrounding districts in rural Victoria have RADs usually at or above the median house price of $225,000 for that area ($194,000 for aprtments) – so they do not necessarily need to reconsider their pricing, but in many localities the RAD is far below the median house or unit price. In those areas it requires a review. That said, there is no ‘median farm price’ to compare for areas where the family farm is the main asset held.

  4. I agree with the views shared with our regional and rural areas.Patrick has mentioned the family farm. Our older farming communities are another story. The tradition of passing the farm on is now becoming something of old history . But unfortunately if the farm is bequeathed by will or word and the Parent requires permanent care our current laws don’t match up. The Parent requires funds for care, is asset wealthy but perhaps income poor, the siblings can fight and contest under the old law of a “promise”. Inheritance impatience and greed….this is happening more often than people realise. If our RAD’s are going to increase, our laws and protection for older people must change. I understand the Commission into Law Reforms into Elder Abuse are under way with discussion papers released. Submissions for input close on 27/2/17. People may think this has nothing to do with the increase in RAD’s….but the financial protection (also planning) for older people is significant…..and all of it weaves in together.

  5. There is consideration that Government may well delete “lump sum payments” (RADS) and require providers to charge a daily rate only. This will eliminate Government’s concern on its Guarantee on the return of the lump sums (currently about $20.5b)

    Providers will then charge according to their costs.

    Government would need a rethink on age pension and agred care considerations

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