Providers against overhauling aged care bonds scheme as authority launches review

There is no compelling case to change the Accommodation Bond Guarantee Scheme in aged care given most aged care operators have adequate prudential arrangements and the government can already levy industry to recoup costs, providers will tell the Aged Care Funding Authority’s review of the scheme.

There is no compelling case to change the Accommodation Bond Guarantee Scheme in aged care given most aged care operators have adequate prudential arrangements and the government can already levy industry to recoup costs, providers will tell the Aged Care Funding Authority’s review of the scheme.

As a result of changes to how older people fund their residential aged care introduced in 2014, the value of accommodation bonds in the sector has been steadily increasing – to about $20 billion currently.

The Commonwealth, which is ultimately liable for the repayment of bonds should a provider become insolvent, tasked ACFA with reviewing the current scheme and examining any alternatives in November 2015.

On Friday ACFA issued a call for submissions and gave stakeholders until 3 March, one month, to lodge a response, before it is due to report to government on 30 April.

However, the current review into the Living Longer Living Better aged care reforms is also considering the adequacy of the bond guarantee scheme and submissions from provider peak bodies show that most are against any major changes to current arrangements.

The Aged Care Guild has said it is in favour of maintaining the current scheme and argued “there is no compelling rationale to amend or replace this.”

Like several provider peaks, the guild pointed out that since its introduction in 2006 the scheme has been activated on a handful of occasions, with the Commonwealth honouring bond balances of $25 million owed to residents.

While the Federal Government already has the capacity to levy providers to recoup any losses incurred by failures within the industry it has so far refrained from doing so, the guild said in its submission to the aged care reform review.

“It can be argued that there is no cost and, with the levy in place, no real risk to the Commonwealth in providing this guarantee,” the guild said.

Similarly, Leading Age Services Australia said that the history of triggering the scheme suggested that 0.13 per cent of providers had defaulted over nine years.

“We also know that the prudential arrangements for providers are thorough, and departmental scrutiny should be able to identify any provider who is at risk of insolvency,” LASA said in its submission to the reform review.

Catholic Health Australia argued that from a provider perspective “there is no reason to question the effectiveness of the current bond guarantee scheme and prudential standards, as implemented to date.”

The scheme currently protects resident deposits while avoiding the cost of establishing and administering a guarantee fund or equivalent, CHA told the reform review.

Aged and Community Services Australia said that any alternatives to the current scheme, including consideration of an insurance model, must ensure there is “minimal cost impact on providers”.

Any changes should not negatively impact on industry development or viability, and an impact assessment should be undertaken for all options considered, ACSA told the reform review.

NSW-based provider HammondCare told the reform review that aged care providers which have taken “adequate steps to manage the risks associated with refundable deposit liabilities ought to be exempt from any fees, levies or insurance requirements.”

As AAA reported in January, consumer lobby National Seniors told the reform review that bonds should continue to be guaranteed by government.

But both government and providers should share any costs associated with refunding bonds if a provider became bankrupt, the group said.

“Providers should also bear a degree of the cost of providing a guarantee because this will encourage the sector to strengthen their financial management practices,” said National Seniors.

Council on the Ageing Australia agreed that consumers needed a guarantee that their bonds would be returned, but it did not stipulate government’s role in this.

“Any changes to arrangements for protecting lump sum deposits must maintain the absolute confidence in the return of refundable accommodation deposits, and must not impose any significant additional costs on consumers,” COTA said in its submission to the reform review.

Roadmap, audit commission call for change

Despite the protestations of providers, several high-level reports have proposed changes to the current scheme.

In April, the government-appointed Aged Care Sector Committee released its Aged Care Roadmap, a blueprint for future reform of the sector, which called for the bond guarantee scheme to be reformed or replaced, based on the findings of the reform review.

Previously the Productivity Commission recommended the government charge providers a fee to reflect the costs of providing the guarantee on bonds, as did the Commission of Audit in 2014 (read AAA’s story on that here).

In the Living Longer, Living Better reform package announced in 2012, the former Labor government originally proposed aged care providers privately insure new accommodation bonds from July, 2014. However the government later backed down arguing neither the sector nor the insurance market were ready for a private insurance model.

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Tags: accommodation-bonds, acfa, aged care reform review, Aged Care Roadmap, aged-and-community-services-australia, aged-care-funding-authority, aged-care-guild, aged-care-sector-committee, bond guarantee scheme, catholic-health-australia, cota, council-on-the-ageing, hammondcare, lasa, leading-age-services-australia, living-longer-living-better, national-seniors,

2 thoughts on “Providers against overhauling aged care bonds scheme as authority launches review

  1. The Government clearly wants to avoid a large-scale call up on The Guarantee. Such a call-up would be using tax payers monies and, as such, risk to Government must be minimalised.

    The risk includes the potential of a large scale provider with 5,000 beds + becoming insolvent, thus exposing in excess of $300m in Guarantee payments, as any purchaser of an insolvent provider would not be buying the liability.

    So who pays for the Guarantee. One option is for providers to actually pay the residents a return on their payment. Based upon the 90 day Bank Bill of around 1.76%, this would be sufficient for residents to fund an insurance policy on their monies. It means aged care providers would still have 4-5% to offset their liabilities.

    One aspect we have all seemed to have forgotten is the consumer (resident). Where else does an asset not receive a return. Is it time to view these questions not only from the Government’s perspective, or the aged care industry, but from the consumer’s need to fund their care.

    Or should we be looking to remove the lump sum option and everyone pay daily. This means no need for the Government Guarantee, no need for insurance, and providers set a daily rate which meets their liabilities. The industry would then negotiate with their lenders, as does every other business, and borrowings are based accordingly.

    This is a bigger question than just the Government Guarantee.

  2. Isn’t prudential insurance mandatory to cover bonds and deposits? Why isn’t it compulsory to provide a certificate of insurance annually with the Annual Prudential Compliance Statement? Why should providers who have always done the right thing be subjected to a levy as a result of rogues? Can we get reimbursed for the horrendous cost of this insurance if we have to pay a levy? The cynic in me looks at this as a way of thinning out providers, particularly the smaller not for profit groups, just leaving the big for-profit operators to pay their taxes and deal with government.

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