New Aged Care Reforms - Continuing Complexity
Introduction
The Aged Care Bill, tabled in Parliament on 12 September 2024, introduced significant reforms aimed at addressing the financial challenges represented by a rapidly ageing Australian population - and the need to place the aged care sector on a stable economic basis. Reportedly, almost 50% of aged care providers are making a loss - but whether this represents a reason for fundamental change depends on whether this is a structural or temporary issue reflecting recent huge legislated wage increases, and also whether supporting poorer performing providers is in our wider economic, if not political, interest.
Many of the changes reflect both the recent Royal Commission and the Aged Care Taskforce reports, responding to the growing demand for aged care services and the need for increased investment. The new reforms seek to better balance government funding and user contributions - but the approach adopted probably reflects politics as much as economics - with the changes having bipartisan Labor and LNP support.
True reform in Australia is only currently capable within a narrow, constraining ambit, and can't apparently extend to the (much simpler) funding mechanism recommended by the Royal Commission - an aged care levy, although our support for this approach has always been dependent on carving out protection for younger taxpayers.
The summary below is intended as providing a very quick introduction to the major reform changes - and how they contrast with existing provisions. Note that the residential fee changes are not proposed to come into effect until 1 July, 2025.
We regard the changes as adding additional complexity to an already Byzantine system - with multiple tiers and bi-annual indexation of many factors - making it absurdly complicated for mere mortals. Many figures are also dependent on an individual's "daily means tested amount" and that suggests an unlikely level of accuracy and sophistication.
To provide you with a summary cost overview, the Chart below looks at service - not including accommodation - costs for an individual in residential aged care from 1 July, 2025 based on their income and assets (daily means tested amount). As an example, we estimate the annual services cost for an individual with assets exceeding $1M will be around $65,000 per annum, with accommodation costs (RAD/DAP/RAC/DAC) payable in addition. These are substantial costs and the fact that many factors will be indexed and subject to means testing making the whole system complex and difficult to track/manage for the families involved.
A. Residential Age Care Accommodation Fees - Major Changes
It should be note that there is "no change to who is eligible for government support with accommodation costs" and, we presume, how this is assessed. The treatment of the family home will be unchanged, with only the first $206,039 currently assessable for means-testing.
1. Increasing the approval cap to $750,000 effective 1 Jan 2025 - with the cap level indexed to CPI
Comment: this will lead to an immediate bump in average RADs as providers pricing at the old $550,000 boundary relish "frictionless" pricing.
2. Apply a retention (non-refundable) amount to RADs and RACs up to 10% over the first five years - that is to say 2% of the RAD/RAC per annum, debited monthly
Comment: It will be interesting to see how financing via RAD and DAP now compare - see below.
3. Index DAPs in line with CPI every 6 months.
Comment: Previously, the same DAP applied for the duration of an individual's stay in accommodation. Now that this no longer applies and the amount is subject to indexation comparing DAP vs RAD financing will be interesting - but note that DACs will not be subject to indexation, it is not clear why and it just adds another element of complexity and apparent inequity.
4. Consider eliminating new RADs from 2035.
Comment: We have never liked RADs as a funding mechanism for aged care accommodation so we support their elimination in principle, but this is just "aspirational" at the moment so it is not worthy of applause. DAPs are still left as a highly volatile funding mechanism because they are linked to interest rates through the MPIR and now this is exacerbated to some degree by indexation. There is also little logic behind indexation, other than as a route - like retention for RADs - to increase fees to providers.
5. Increase room subsidies for low-means residents
Comment: we can't provide any response in the absence of more details about what this actually means...
B. Residential Age Care - Daily Fees - Major Changes
Daily Care fees in residential accommodation will be divided into three categories and attract the following fees - noting that the current means testing rules will be abolished and replaced with a new set.
1. Everyday Living Costs - BDF
All residents are currently required to pay a Basic Daily Fee (BDF) which is set by government at 85% of the single base rate of the Age Pension. This contribution partially funds services like meals, cleaning and laundry.
Fees: The BDF will not change under these reforms. Fully supported residents will continue to only pay the BDF, and partially supported residents will continue to only pay the BDF and a contribution towards their accommodation costs (ie DAC/RAC).
2. Hotelling Supplement Contribution - HSC
Residents who have more than $238,000 in assets, more than $95,400 in income or a combination of the two, will make additional contributions towards their everyday living costs. This Hotelling Contribution (HC) will be calculated as 7.8% of assets over $238,000 or 50% of income over $95,400 (or a combination of both), up to a limit of the Hotelling Supplement ($12.55 per day, as at 20 September,2024 - $4580.75 per annum).
It is not clear as yet, but it would appear that no lifetime or other cap exists in relation to this payment.
3. Clinical Care
The Government will fund all clinical care. A Quality Standard has been developed with respect to Clinical Care within Aged Care so we would expect that there are clear boundaries delineating between clinical and non-clinical care, but we can't express confidence yet.
4. Non-Clinical Care Contribution (NCCC)
A new means-tested Non-Clinical Care Contribution will be introduced to cover non-clinical care costs such as bathing, mobility assistance and provision of lifestyle activities. The Means Tested Care Fee (MTCF) will be abolished but replaced by another means testing system of only slightly less complexity, resulting in "residents with sufficient means" contributing 7.8% of their assets over $502,981 or 50% of their income over $131,279 (or a combination of both) up to a daily limit of $101.16 (or $36,923.40 per annum).
There will be a Lifetime Cap - the non-clinical care contribution will only apply for the first four years or to a dollar limit of $130,000, which will be indexed by CPI twice per annum.
"No worse off principle" for existing residents
A "no worse off principle" will apply to everyone in residential aged care on 30 June 2025, such that existing residents will have their current arrangements maintained until they leave care. The new arrangements for means testing will only apply to new entrants to residential aged care from 1 July 2025.
C. Home Care Fees - Major Changes
The new "Support at Home" program will start from 1 July 2025 and the major changes are as follows:
1. Services will be divided into three categories, which parallel the approach in residential care - Clinical care, Independence support and Everyday living costs.
2. Care will be approved under 10 package levels, with the highest level having a higher budget than the current Level 4 package.
3. In terms of Fees:
- Clinical care will be fully paid by government.
- Full pensioners will pay 5% of independence support costs and 17.5% of everyday living costs. Self-funded retirees will pay 50% of independence support costs and 80% of everyday living costs. Part-pensioners or recipients of the Commonwealth Seniors Health Card (CSHS) will pay between these levels with means-testing (assets & income) that aligns with age pension means-testing rules.
- The lifetime cap for client contributions will increase to $130,000 (indexed) and count towards residential care cap - see above. Individuals who start a Home Care Package after 30 June 2025 will only be able to accumulate unspent funds of up to $1,000 or 10% of package budget (higher of) across quarters.
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