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Chapter 2: Accommodation bonds

2.1 This chapter addresses issues related to the proposed introduction of accommodation bonds for entry to nursing homes. In particular, it looks at the implications of charging accommodation bonds for access to nursing homes; the application of an assets test to the homes of older people living alone; measures to guarantee access to nursing homes for financially disadvantaged people and the role of the market in determining the level of accommodation bonds to be charged.

Accommodation bonds

2.2 Accommodation bonds will be introduced across all residential care from 1 July 1997 (now extended to 1 October 1997). The aim of the bonds is to provide a source of capital funds and incentive for nursing homes to invest in upgrading facilities. As noted in Chapter 1, Professor Gregory in a review of the structure of the funding for nursing homes, estimated that ongoing funding of $125 million a year would be needed for a substantial level of immediate building and upgrading activity to address existing problems as well as providing a continuing provision to maintain the quality of stock. [1] Aged Care Australia (ACA) indicated that the introduction of accommodation bonds will generate approximately $130 million in revenue for capital purposes in the nursing home sector after four years of operation. [2]

2.3 Accommodation bonds are a bond from which a provider can draw down a maximum of up to $2 600 (indexed) a year, for up to five years (up to a maximum of $13 000, indexed). The provider is also able to retain the interest earned. The balance of the bond is to be returned to the resident or their estate on departure. All certified aged care facilities may charge an accommodation bond to new residents. [3]

2.4 Accommodation bonds will be charged as a capital deposit on the assets of prospective residents. There is no upper limit that may be charged but residents must be left with a minimum asset level of 2.5 times the pension (currently $22 000 for singles and $45 000 for couples). There are also specific provisions for people entering care who leave a spouse, close family member or long term carer in their home. In these cases, the family home will be excluded from consideration as an asset when determining whether a person can reasonably pay a bond.

2.5 `Concessional residents' will not have to pay an accommodation bond. Concessional residents are classified as people who are full or part pensioners, who have not owned their own home for the past two years and who have assets less than 2.5 times the single age pension (about $22 500). [4] Issues relating to concessional residents are discussed later in this chapter.

2.6 If the resident transfers to another facility, the bond will be `rolled over' to the new facility and no resident will be required to pay a bond more than once. Accommodation bond refunds must be made within 2 months. An administrative fee will apply in cases where a resident stays in a facility for three months or less, or has not paid the agreed bond by the time they leave. This will be based on the amount the provider would have retained plus an externally set interest component. [5]

2.7 The quantum and timing of accommodation bond payment will be agreed between the service provider and resident at the time of entry. Providers will be required to offer each resident an agreement which sets out minimum requirements such as the amount and method of payment (Section 57-9 of the Aged Care Bill). Residents will have at least seven days after entry before they can be asked to sign an agreement in relation to payment of a bond. [6]

2.8 The money raised from accommodation bonds will be used to improve and upgrade facilities. The legislation requires that the retention amount must be used for the purpose of providing aged care services (Section 57-2(m)). If funding is not used on aged care services, providers may lose the right to charge accommodation bonds and receive supplementary funding for concessional residents. To provide an incentive to invest in upgrading building stock, only those facilities which are certified/accredited as meeting building standards will be able to charge a bond. [7]

Imposition of accommodation bonds

2.9 The Committee is opposed to the imposition of accommodation bonds for nursing home entry. It has grave concerns that the charging of accommodation bonds effectively imposes a charge for the provision of health care on those who are most vulnerable in the community the frail elderly. The Committee believes that it will also lead to a two-tiered system of nursing home care. The Committee's specific concerns in relation to the imposition of accommodation bonds are outlined in this and succeeding Chapters of the report.

2.10 The Committee considers, however, that should the Aged Care Bill be passed by the Parliament with the inclusion of accommodation bonds, the Committee's other recommendations to improve the functioning of the legislation and the overall operation of the Aged Care Structural Reform Package should be implemented. These recommendations are detailed in this Chapter and in the following Chapters of the report.

Recommendation 3: The Committee recommends that:

the payment of accommodation bonds for entry to nursing homes should not be introduced;

if the Aged Care Bill 1997 is passed by the Parliament with the inclusion of accommodation bonds that the Committee's other recommendations contained in this report be implemented.

Level of bonds

2.11 In relation to hostels, where entry contributions (accommodation bonds) have been operating since 1987, a 1993 survey of hostel funding arrangements by ACA showed an average entry contribution of $26 000 (this figure was based on persons who paid a bond). [8] A more recent survey indicated, however, that the average entry contribution in hostels was $40 000 in 1994-95. [9] The Department of Health and Family Services (DHFS) stated that 75 per cent of hostels currently charge an entry contribution. [10]

2.12 DHFS stated that the entry contribution system has been operating `successfully' in the hostel sector and that there had been no calls for hostel bonds to be capped and `very few' complaints about the size of individual bonds. [11]

2.13 Some evidence suggested that the bonds that would be charged for nursing home entry may be considerable. The nursing home industry indicated a broad range of possible accommodation bond charges. The Australian Nursing Homes and Extended Care Association (ANHECA) indicated that the maximum bond charged could be about $100 000 for high standard facilities. [12] The National Association of Nursing Homes and Private Hospitals (NANHPH) stated that a `ballpark' figure may be $50 000 for a single room `there are obviously going to be bonds set on private room accommodation, a second level on double room accommodation and probably the lowest on four-or three-bed ward accommodation'. [13] Tricare Ltd., the largest private aged care operator in Queensland, indicated that the maximum bonds charged would be $75 000 for that organisation. [14] The Australian Pensioners' and Superannuants' Federation (APSF) argued that in urban areas bonds would be around $90 000. [15]

2.14 Evidence from DHFS and others including Community Services Australia (CSA), the Australian Catholic Health Care Association (ACHCA) and NANHPH suggested that the size of accommodation bonds may be limited to an informal ceiling of $88 500 which is the cap for eligibility for rent assistance. [16] One not-for-profit provider stated at the NSW Aged Care Alliance Public Meeting held on 7 April that their organisation `has estimated they will have to charge at least $88 500 per person to remain viable'. [17] ACHCA argued that the amount of $88 500 `will be seen as a sort of benchmark because of the impact on people's eligibility for what used to be called rent assistance and in terms of how Social Security would look at the deeming or non-deeming of accommodation bonds'. [18]

2.15 DHFS also argued that the ceiling will be reinforced by competition from existing hostels, most of which charge `moderate entry contributions'. [19]

`Capping' of bonds

2.16 Some evidence suggested that there should be an upper limit or `cap' on the size of accommodation bonds that could be charged. [20] APSF argued that this would help ensure that older people are less vulnerable when negotiating the financial arrangements and would ensure that they would be guaranteed some non-pension income to cover expenses while in residential care. [21]

2.17 An option suggested by Dr Marinovich was that accommodation bonds could be capped at the presumptive cost of building one nursing home or hostel unit (between $40 000 and $50 000) with the amount increased to provide for depreciation. [22]

2.18 The Committee raised the issue of how such amounts could be raised where an aged care institution has a large proportion of concessional residents who are not required to pay an accommodation bond. [23] Dr Marinovitch conceded that `there would either have to be an in-built factor in the funding of the concessional patients for depreciation...or it would have to be made up by an increase in the levy on those who are paying an ingoing fee'. [24]

2.19 DHFS stated that although the Aged Care Bill enables the Minister to set a cap on the level of accommodation bonds (Section 57-12(1)(c)), it does not believe `at this stage' it will be necessary to further regulate or cap accommodation bonds. [25]

2.20 DHFS argued that there are sufficient protections in the Bill to provide safeguards for residents in negotiating payment arrangements with providers. The safeguards include assistance from advocates and access to independent complaints mechanisms. The Department also noted that the prudential requirements will provide security for residents' funds in the event of provider insolvency. The accreditation system will also establish standards for providers to adhere to in negotiating bond amounts and payment arrangements with residents. [26]

2.21 Representatives of the industry were opposed to the capping of bonds, arguing that the bond levels should be left to market forces. [27] In addition, given the variable house prices across Australia the capping of bonds would be difficult.

Recommendation 4: The Committee recommends that the level of accommodation bonds charged be monitored by the Aged Care Standards Agency.

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Footnotes

[1] Professor R. Gregory, Review of the Structure of Nursing Home Funding Arrangements: Stage 2, May 1994, p.5.

[2] Submission No.60, p.9 (ACA).

[3] Submission No.94, p.20 (DHFS).

[4] Submission No.94, p.22 (DHFS).

[5] Submission No.94, p.20 (DHFS).

[6] Submission No.94, p.21 (DHFS).

[7] Submission No.94, p.21 (DHFS).

[8] Study cited in Submission No.94, p.44 (DHFS). See Transcript of Evidence, pp.277-79 (DHFS).

[9] James Underwood & Associates Pty. Ltd., 1994-95 National Hostels Costs Survey. The results were based on those hostels charging entry contributions. See also Submission No.38, p.12 (ACHCA).

[10] Transcript of Evidence, p.278 (DHFS).

[11] Submission No.94, p.44 (DHFS).

[12] Transcript of Evidence, p.100 (ANHECA).

[13] Transcript of Evidence, p.18 (NANHPH).

[14] Transcript of Evidence, p.69 (Tricare Ltd.).

[15] Submission No.58, p.14 (APSF).

[16] Submission No.94, p.44 (DHFS); Transcript of Evidence, p.170 (Community Services Australia); Transcript of Evidence, p.209 (ACHCA); Transcript of Evidence, p.7 (NANHPH).

[17] NSW Aged Care Alliance, Additional Information, 9.5.97, pp.1-2.

[18] Transcript of Evidence, p.209 (ACHCA).

[19] Submission No.94, p.44 (DHFS).

[20] Submission No.58, p.20 (APSF); Transcript of Evidence, p.115 (APSF); Submission No.44 p.2 (Dr Marinovitch).

[21] Submission No.58, p.20 (APSF).

[22] Submission No.44, p.2 (Dr Marinovich). See also Transcript of Evidence, pp.189-99 (Dr Marinovitch).

[23] For a definition of `concessional' resident see paragraph 2.5.

[24] Transcript of Evidence, p.191 (Dr Marinovitch).

[25] Submission No.94, p.23 (DHFS).

[26] Submission No.94, p.23 (DHFS). See also Transcript of Evidence, p.241 (DHFS).

[27] Transcript of Evidence, p.102 (ANHECA) Transcript of Evidence, p.6 (NANHPH).