You won’t HAVE to sell your home

By Yasmin Noone

Older Australians will no longer be forced to sell their family home in order to pay for residential aged care under a new system proposed by the Productivity Commission (PC) in its final Caring for Older Australians report.

However, residential aged care will hardly be free.

The final report, which is currently being considered by the federal government, suggests a new ‘user pays’ system of aged care, where seniors will be required to pay up to $60 000 (up to 25 per cent) towards their own residential aged care expenses.

How seniors pay the cost of their care will be entirely up to them, the report states, as under the proposed system more options for payment will be made available.

Individuals will be able to choose to contribute by paying either a daily charge, an accommodation bond, or they can draw against the value of their home through a new government-backed reverse mortgage-type scheme.

In the report, the PC recognises that this kind of scheme would not be attractive to everyone, especially those nervous about their house’s worth over time (for various reasons). So, the report states, the proposed scheme will therefore protect people from owing more than their house is worth by setting a credit limit.

“If the outstanding balance and accumulated interest reached the minimum limit set by the Australian Seniors Gateway Agency, the interest rate would fall to zero, and no further draw down would be permitted under the scheme,” the report said.

“The outstanding balance of the line of credit would become repayable upon the disposition of the former principal residence including upon the death of the individual, except where there is a protected person permanently residing in the former principal residence.”

Interest paid on the government-backed loan is set to be kept on par with inflation.

The report also places a strong focus of enabling older adults to stay in their home for longer so that the time spent in a residential aged care facility and costs are kept minimal.

CEO of Catholic Health Australia, Martin Laverty, stressed that older Australians will have more choice under the recommended system which provides measures to enable them to choose to keep their family home.

“No older Australian will need to sell their home or have to pay a bond to access aged care, if the Parliament adopts the PC’ aged care plan,” Mr Laverty said. 

“…Media editors always focus on bonds, and the sale of the family home.

“The Commission’s report changes the dynamics; if the government adopts the Commission’s recommendations, no one will have to sell their home, no one will have to pay a bond.”

A comprehensive means test, undertaken through a new Australian Seniors Gateway Agency by Centrelink, would also be introduced to assess an individual’s rate of aged care co-contributions. It would also be combined with a mechanism that would allow people receiving care to continue to use their house while they can do so.

Such an initiative, the report states “…could form the platform for a change in attitude towards accepting responsibility for contributing to one’s own aged care costs”.

“…The care recipients’ co-contributions scale should be regularly reviewed by the Australian Government based on transparent recommendations from the Australian Aged Care Commission.”

CEO of National Seniors Australia, Michael O’Neill, supports the recommendations “in principle” believing that those with the financial means to pay for residential aged care, should.

“I think it’s realistic that over time, we will have people making a contribution to their care,” Mr O’Niell said.  

But, he said, “for us it is a question of how much”.

“This is one of a range of issues to be worked through.

“The PC is certainly saying that there will be a requirement for people to pay a certain amount towards the cost of their care, capped at $60 000.

“In terms of how you pay that, you have a choice that is up to you…There are a range of ways for you to pay. In theory, yes, you don’t have to sell your home but that assumes that people will feel comfortable with reverse mortgages. But a lot of people won’t feel comfortable.”

Mr O’Neill also expressed concern for the first wave of seniors to face the new user pays system of aged care.

The transition arrangements, he said, must be worked through and be made fair on those who will encounter the system in both the long and the short-term.

“We must accept that people have made decisions about financial arrangements and structures based on one set of rules and that they didn’t prepare to pay for their care,” Mr O’Neill said. 

“It’s unreasonable to change the rules without any opportunity for [this group of baby boomers] to have time to adjust to the circumstances to deal with that.

“So [if adopting these recommendations], we need to be more generous with the transition arrangements than not generous.”

Although the federal government has stated that it will work through the finer detail of the reform transition arrangements, the PC report stated its preference to change the system as soon as possible.

“Importantly, population ageing will not happen over-night, with the baby boomers starting to retire but not entering their eighties for another two decades.

“This means that there is a limited opportunity to develop policies that increase people’s capacity to pay for their own aged care and smooth out the costs of care associated with population ageing over time.

“The earlier that changes are made to funding arrangements, the more equitable they are likely to be from an intergenerational perspective. While there has been some ‘rebalancing’ of public and private funding of aged care in response to increasing cost pressures over the last decade or so (with users paying an increasing proportion of their care costs), this has largely been within a framework where taxpayers continue to meet most of the costs.”

Why should the user pay?

A system of co-contributions is essential, the report states, if the aged care system of the future is to be sustainable.

“Australian Government spending on aged care is projected by the 2010
Intergenerational Report to increase from 0.8 to 1.8 per cent of GDP over the period 2010 to 2050,” the final report states.

“…Part of the public expenditure burden could be shifted further onto individuals through increasing their share of the costs, rationing access and/or constraining service quality. Cutting or further rationing services that yield significant benefits to the community is clearly not a desirable option.”

The PC argues that there are also only two other alternatives to a user pays system available to government, in order to properly provide for the growing number of seniors who will require accommodation and care in the future.

The first, the report states, is to raise taxes, which will create intergenerational inequity as the income of younger citizens will essentially be what funds care.

The second is to reduce government spending in other areas, which is not preferable given that there are inefficiencies embedded in the current aged care system that need to be addressed by requiring higher co-contributions from care recipients who can afford to pay.

“Funding arrangements could be improved by separating the costs of aged care (accommodation and living expenses, personal and health care) and applying funding principles consistently across care settings. This would allow prices to better reflect underlying costs, enable better targeting of subsidies to those most in need, and overcome inconsistencies and inequities between different forms of care.

“Accommodation costs and everyday living expenses are reasonably predictable and should be the responsibility of individuals, with a safety net for those of limited means.”