The Federal Budget in May 2018 was widely reported as the ‘Baby Boomer Budget’ with key elements including an additional 14,000 home care packages, expansion of the Pension Loans Scheme (PLS) and an increase to the pension work bonus. Of course, the headlines don’t tell the full story.
Home Care packages
The additional 14,000 Home Care packages over the next four years was welcome news. For the 105,000 people currently on the waiting list for a package based on their needs – a list that grew by almost 25,000 between February and December 2017 – the government seems to have forgotten them. The money to pay for these packages has come out of residential aged care funding, which appears set to see similar waiting lists to home care over the coming decade. The MUCHE Health Report 2018 estimates there is will be a “94,200 gap in residential aged care places by 2025”.
Pension Loan Scheme
The expansion of the PLS to provide payments of up to 150% of the age pension and extended eligibility to anyone of age pension age is great news, particularly for full pensioners that are self-funded retirees who currently cannot access the scheme. The interest rate applied to the PLS is a relatively low 5.25% p.a. or around 1% lower than the rates charged for a commercial reverse mortgage. Unlike a reverse mortgage, the PLS is considered income for aged care means testing, meaning that people who use the scheme to fund aged care costs could actually increase those costs by doing so.
Here’s an example: Jack and Jill are homeowners who receive the full age pension. They have $50,000 in bank accounts, $150,000 of shares and $30,000 of personal assets.
Jack has a home care package and pays the basic daily fee of $10.32 per day. Under the expanded PLS, Jack and Jill would be able to receive payments of up to $17,787 per year. If we assume they receive $17,787 per year of payments, because the PLS is included in Jack’s assessable income and pushes him over the $20,704 per year income threshold, his Home Care Package Income Tested Care Fee would go from zero to around $10 per day. So of the $17,787 per year of payments around $3,800 per year would be lost in additional fees.
If Jack moves into residential aged care, and Jill remains at home, Jack will qualify as a low means resident. Jack’s liability to contribute towards the cost of accommodation through a Daily Accommodation Contribution (DAC) will be calculated based on his assets and income. Assuming Jack and Jill are receiving $17,787 per year through the PLS, Jack’s DAC will be $42 per day and his equivalent lump sum refundable accommodation contribution (RAC) would be $268,468. However, if they didn’t receive payments through the PLS, Jack’s DAC would be $32 per day and his equivalent RAC would be around $66,000 less at $202,237.
Other budget measures, potentially worthier of headlines, included the government undertaking analysis to change the allocation of residential aged care beds away from aged care facilities and give them to consumers, combining residential aged care and home care from 1 July this year and creating a levy to secure the $23 billion of accommodation deposits currently being guaranteed by the federal government.
What wasn’t in the Budget?
Some highly anticipated changes to aged care were not included in the Budget but could still be announced, possibly in the Mid-Year Economic and Fiscal Outlook (MYEFO). The changes are expected as a result of the Legislated Review of Aged Care 2017 and the 38 recommendations contained within the report tabled to parliament last September, which include:
In Home Care, the key recommendation is to make the basic daily fee proportional to the value of the package and ensure that providers charge it. Currently the basic daily fee is set at 17.5% of the pension ($10 per day), with funding ranging between $22 and $180 per day. A number of home care providers choose not to charge the basic daily fee and instead just deliver the funded amount of care at a reduced price or free.
In residential aged care, there were several recommendations, including removing the current cap on the basic daily fee which is set at 85% of the pension, $50 per day with the proposed new cap being $100 per day. Aged care facilities would be able to charge more than the new cap with approval from the Aged Care Pricing Commissioner and there would be an exception for people who are financially disadvantaged.
Another recommendation is to increase the price threshold beyond which aged care facilities need to seek approval for their Refundable Accommodation Deposit (and equivalent daily payment). The current threshold is $550,000 and the recommendation is that this be increased by $200,000 to $750,000 and an automatic link created between the threshold and median house prices.
Other recommendations of the report have been publicly ruled out by the government but are not impossible. These include removing the current cap applied to the family home of $165,271, making the full value assessable for residential aged care means testing (except when a protected person is living there). And removing the annual and lifetime caps on income-tested care fees in home care and means-tested care fees in residential aged care.
The industry is now at a tipping point.
The Home Care package waiting list is at 105,000 people and growing, more than 40% of residential aged care facilities are expected to make a loss this year and the industry needs to build an additional 83,500 aged care beds over the next 10 years to meet demand. The industry has only built 35,000 new beds in the last decade. It’s no wonder the government wants to introduce a levy to help secure the $23 billion of accommodation deposits they are guaranteeing.
Change is inevitable, but effective change must do more than shift funding between Home Care and residential aged care. Watch this space.