Reforms added ‘more complexity’ to financials: advisors

With accessing aged care traditionally likened to “navigating a maze”, a key goal of the current reforms was to simplify and streamline the system for consumers. But there is debate over whether the new financial arrangements in particular have had the opposite effect. 

The Living Longer Living Better reforms made improved access to the aged care system a central priority, after the Productivity Commission’s 2011 inquiry strongly identified the myriad challenges faced by consumers as they attempted to navigate the system.

In addition to greater information about available services and care, the reforms also sought to create a system where the framework for paying for aged care would be more transparent.

While My Aged Care has undoubtedly furnished consumers with previously unavailable information, some financial planners argue that the reforms – the new financial arrangements in particular – have in effect made navigating the system more challenging.

How much?

“The problem with aged care is that you quite simply don’t know what it’s going to cost. In all transactions we generally we know the price, but in this case the real cost is so hard to define,” says Brendan Ryan, principal of Later Life Advice.

From Ryan’s perspective, getting the right financial outcome for the consumer is based on several factors including their unique financial situation, the offer they received from an aged care provider, and the providing legislation.

“It’s very hard for consumer to get that balance right or even be aware of what the balance will be as they progress through the system,” Ryan says, referring to the fact that how the client pays for aged care (RAD or DAP) and how they treat their assets will all impact on the ultimate “price” they pay.

“I suspect most people going into care have some idea [of price] but there isn’t certainty in terms of costs and how they’ll be treated by the system… I think in this system, in the majority of cases, the actual cost is revealed after you’ve made the big decision, and that’s not good enough.”

Designed for means testing, not simplicity

Ryan argues that the system was always going to be complicated, because the government is seeking to make a fair assessment of what a consumer can contribute, “and consumers’ financial situations come in so many shapes and sizes that there has to be a bunch of rules to assess them all.”

There is a fundamental conflict between having a system that has to cover a variety of financial situations with an objective to be straightforward – they just can’t reconcile, he says.

Therefore, the system is “necessarily complex,” Ryan adds.

“If you were to look at the system from the perspective of how effective it is at measuring means and drawing out capacity to pay, I’d say it’s quite ruthlessly efficient. For the consumer there’s no way out, it’s very well designed, but it’s designed with a purpose of making sure consumers with capacity to pay do pay; it’s not designed from the perspective of being easily understood and allowing certainty for consumers navigating the system.”

Echoing this view, Donald Swanborough, an aged care advisor with Affinity Aged Care, does not believe the changes have made the system easier to navigate, although he believes the system gives consumers more payment options.

“It is hard for consumers to understand the formulas regarding income and assets,” he says. “In an attempt to make the system more flexible, they have introduced more complexity.”

Ian Yates, chief executive of Council on the Ageing (COTA) Australia, acknowledges that the means testing component has, up to now, “made life more difficult” but this was in part due to the software problems and subsequent delays within the Department of Human Services.

“It was an almighty stuff up,” he says.

Compounding that issue is the fact that some consumers belatedly discover the time it takes to gather the necessary documents, and in some cases they are providing inaccurate information, which further prolongs the means testing process.

Overall Yates acknowledges there is “some ironing out to be done” and the mean testing component ought to become more streamlined than it is currently.

He adds that COTA will continue to press this with government even if that ultimately leads to the government “grasping the nettle of replacing Centrelink’s antiquated systems.”

My Aged Care

A cornerstone of the reform measures to streamline access is the centralised gateway, My Aged Care. According to Yates, consumer feedback indicates that My Aged Care is helpful, as it is making up-to-date information publicly available for the first time.

Before the pricing information was listed, there was little transparency in the negotiation process around what providers wanted consumers to pay versus how much consumers could afford to pay, says Yates.

Swanborough agrees that My Aged Care is helpful to consumers as it provides information on facilities in their area, as well as their amenities and prices.

“The calculator can be dangerous,” he cautions. “People can put the wrong information in and get the wrong information out.”

Ryan says that while the government is attempting to explain the fees via My Aged Care, “the consumer needs to dig into the legislation and to construct an array of financial models to see how it will all work.”

While My Aged Care provides a lot of general information and in that sense is a “great step”, people are still confused about the financial aspects, he says. “There is this great unknown; the sums of money are vast.  I don’t think that My Aged Care website helps enough.”

Going it alone

Arguably a big test of the transparency of the system will be the extent to which consumers can navigate it themselves – without turning to financial advisors for help.

Ryan says that all the necessary information is publicly available, but he concedes consumers are faced with “really challenging concepts to get their heads around.”

Swanborough says My Aged Care is a good starting point, “but I wouldn’t use it as the only tool… If you have time, maybe, but most people are time poor.”

Yates says: “For vast bulk of people it ought to be possible in the end to do it yourself because, you can go and do a basic run through of the assets and the income test on My Aged Care.”

However, he adds that there will be people who have a collection of assets and income that is unusual and they might find self-assessment a challenge.

COTA is advising consumers that if they think they may need to access aged care, they should start thinking about the financials in advance, so as to avoid making decisions at time of crisis.

Yates says this was why COTA had fought so hard on the Future of Financial Advice (FOFA) reforms. “Because we actually want to be able to elevate a financial planning profession, so people say [the financial advice] might cost money but you get the value for it, you get a good service and the service actually saves you money.”

28-day rule

Another emerging talking point is the 28-day rule, the designated period within the new system for a resident to decide how they will pay for accommodation.

In a blog post, Ryan argues this is a challenging timeframe for providers, “who quite reasonably seek some certainty as to how residents will pay for their care.”

Ryan believes the issue is “likely to be tested in 2015 as providers consider ways they can lock in resident contracts in shorter timeframes.”

“For the resident this should not be a problem – as long as they are clear in the decisions they make. It will be interesting to see if the DSS will need to step in and clarify what is acceptable,” he says.

Yates says he hears individual providers complain about the 28-day rule, but that the industry hasn’t raised the issue with COTA.

“At the moment we think it’s a good thing because people actually need in a time of crisis a little bit of time to figure out the options… In terms of access, the 28-day rule gives consumers more time to think through their circumstances,” he says.