Minister Butler announced the Government's response to recommendations to Significant Refurbishment and Accommodation Payments

Page last updated: 16 September 2014

Ms Lynda O'Grady
Chair
Aged Care Financing Authority
ACFA Secretariat
GPO Box 9848
Canberra ACT 2601

Dear Ms O'Grady

Thank you for your letter of 28 November 2012 and the attached advice from the Aged Care Financing Authority (the Authority) relating to accommodation payments. I would like to take this opportunity to thank you and the other members of the Authority for your work on this topic, and in particular to acknowledge the extensive public consultation undertaken to inform your advice.

I have carefully considered your advice on accommodation payments and have made the following decisions:

Recommendation 1: That three broad pricing levels be established for accommodation payments.

Accepted.

Recommendation 2: That these levels be:

  • Level 1 – up to the level of the maximum Government accommodation supplement ($50 per day (2012 prices) or lump sum equivalent)
  • Level 2 – Prices between level 1 and an upper threshold based on the 95th percentile of lump sum accommodation payments for the most recently available year of data ($104.67 per day (2012 prices) or lump sum equivalent)
  • Level 3 - Prices above the Level 2 threshold.

Recommendations regarding Level 1 and Level 3 are accepted. With respect to the Level 2 recommendation, whilst I appreciate the basis on which the upper threshold was determined, I believe that setting the upper threshold at $85 will offer greater consumer protection whilst still allowing industry sufficient flexibility in pricing. Therefore, the upper threshold for Level 2 prices will be set at a Daily Accommodation Charge of $85 per day, giving an equivalent Refundable Accommodation Deposit of $406,037.

Recommendation 3: Level 1 prices to be up to the maximum level of the Government’s accommodation supplement, and be described as such.

Accepted.

Recommendation 4: Level 2 prices have an upper threshold set annually by the Minister by determining the 95th percentile of the lump sum accommodation payments for the most recently available year of data.

Not accepted. As outlined, the upper Level 2 threshold will be set at $85. I note the comments of several Authority members regarding future values of this threshold. In order to give providers and consumers greater certainty, this threshold will be indexed annually, rather than recalculated annually. I am seeking advice from the Department of Health and Ageing on the most appropriate rate of indexation to apply.

I agree to the Authority examining this threshold on an annual basis and advising me of the effectiveness of the arrangements with a more detailed review to be undertaken after three years.

Recommendation 5: The current interest rate (the maximum permissible interest rate or MPIR) used in aged care legislation for determining the equivalence of periodic and lump sum payments be maintained.

Accepted.

Recommendation 6: Level 3 prices require pre-approval by the relevant government authority, in accordance with guidelines to be established.

Accepted.

Recommendation 7: All pricing and mode of payment for unsupported residents will be agreed between provider and resident on the basis of relevant information disclosure.

Accepted.

Recommendation 8: Providers be required to publish all current prices for all room types in advance from 1 July 2014.

Accepted. As an additional consumer protection, all aged care providers who are seeking Level 2 accommodation payments will also be required to conduct and publish a self-assessment of their accommodation against the same guidelines that will be developed for pre-approval of Level 3 values.

Recommendation 9: Prices be published on a central internet site that allows consumers to readily compare prices from different providers.

Accepted.

Recommendation 10: Individuals considering entering an aged care home should have the right to complain to the relevant Government authority before they agree a price if they consider the prices proposed have not been set on a reasonable basis.

Under consideration. I am currently considering how best to ensure residents can raise any concerns they have over pricing and I intend to discuss this issue further with consumer and industry representatives.

Recommendation 11: Residents have a 28 day choice of payment method period after entering care in which to exercise their absolute discretion in deciding the method of accommodation payment ie periodic or lump sum.

Accepted. Residents who can afford to pay for their accommodation payment will have a choice of payment method. I agree that the term ‘Cooling Off Period’ is not an accurate description of the process and I have decided to rename it the ‘Choice of Payment Method Period’. I have also accepted the Authority’s recommendation that this period be for 28 days.

I have attached full details of the Government’s response.

Once again, I express my thanks to the Authority for your considered advice on this important issue. I look forward to continuing to receive advice from the Authority on matters of aged care pricing and financing issues into the future.

Yours sincerely
Ministers Butler

A. Pricing – Periodic Payments and Lump Sum Equivalents

Recommendation Aged Care Financing Authority (the Authority) Recommendation Australian Government (the Government) Response
1. The Authority recommends the establishment of a methodology that allows for the consideration and tailoring of an appropriate pricing regime by reference to three broad price levels. This regime references Daily Periodic Payments and provides for Lump Sum Equivalency translation based on the current interest rate used in Aged Care legislation (the maximum permissible interest rate or MPIR). Accepted.

Notes regarding terminology:

  1. ‘Lump sum’ accommodation payment will be known as a Refundable Accommodation Deposit (RAD).
  2. ‘Daily periodic payment’ will be known as the Daily Accommodation Payment (DAP).
2. The Authority recommends these price levels be:
  1. Level 1 – Prices up to the level of the maximum Government accommodation supplement ($50 per day from 1 July 20141, or lump sum equivalent).
  2. Level 2 – Prices between Level 1 and an upper threshold based on the 95th percentile of lump sum accommodation payments for the most recently available year of data ($104.67 per day2) or lump sum equivalent).
  3. Level 3 – Prices above the Level 2 threshold.

Recommendations 2(a) and 2(c) accepted.

Recommendation 2(b) not accepted. Level 2 prices will range from the top of Level 1 prices to a maximum Daily Accommodation Payment of $85 per day, giving an equivalent Refundable Accommodation Deposit of $406,037. This limit is set to offer greater consumer protection whilst still allowing industry sufficient flexibility in accommodation pricing.

This leaves approximately 12% of bonds to be approved, while still allowing for greater flexibility.

3. The Authority recommends the following for Level 1 prices:
  • The Authority recommends the upper threshold for Level 1 prices be set at the maximum level of the Government’s accommodation supplement. This would be $50 per day or $238,8453 if the resident chose to pay by lump sum payment.
  • This threshold is a clear marker indicating the maximum level of Government accommodation support for low income residents.
  • The Authority notes that residents with very low means will be eligible for the full Government accommodation supplement (maximum $50 per day from July 20144) and so will have their accommodation payment paid by Government.
  • The Authority notes that residents with limited means (those eligible for a part Government accommodation supplement) will contribute in part to their accommodation payment (while receiving a part Government accommodation supplement). The combined amount of the Government accommodation supplement and the resident’s contribution cannot exceed the maximum Government accommodation supplement payable for the individual.

Accepted.

The Government agrees the appropriate upper threshold for Level 1 prices should be equivalent to a Daily Accommodation Payment at the maximum level of the Government’s accommodation supplement.

Residents who already receive an accommodation supplement prior to a significant refurbishment taking place will not be asked to make a greater accommodation payment just because a significant refurbishment has taken place and the relevant maximum supplement has risen. Instead the Government supplement will increase to cover the difference.

4. The Authority recommends the following for Level 2 prices, with a review after three years:
  • The Authority recommends that the upper threshold for Level 2 prices be set annually by the Minister by determining the 95th percentile of lump sum accommodation payments for the most recently available year of data and determining the periodic payment equivalent of that amount.
  • The Authority will review the upper threshold on an annual basis and advise the Minister of the effectiveness of the current arrangements.
  • The Authority notes this would give a periodic payment of $104.67 per day and a lump sum accommodation payment of approximately $500,000 if the resident chose to pay by lump sum payment, based on the most recently available year of data (2010-11).

Not accepted.

The Level 2 upper threshold will be set at a Daily Accommodation Payment of $85 per day.

This threshold will be indexed annually.

The Authority is to examine this threshold annually and advise the Minister for Ageing on the effectiveness of the arrangements. A detailed review of this threshold and the process for indexation is to be undertaken after three years.

B. Provider Certainty

Recommendation Aged Care Financing Authority (the Authority) Recommendation Australian Government (the Government) Response
5. The Authority recommends that the current interest rate (the maximum permissible interest rate or MPIR) used in Aged Care legislation for determining the equivalence of periodic and lump sum payments be maintained. In addition, consistent with the Government’s decision to no longer allow retention amounts, the formula should no longer refer to retention amounts and should ensure that no amount of insurance costs relevant to a lump sum accommodation payment is included in an equivalent periodic payment calculation.

Accepted.

The Government agrees that the formula and interest rate currently described in aged care legislation for calculating equivalent periodic and lump sum payments is appropriate, noting the requirement to remove the effect of retention payments.

6.

The Authority recommends the following arrangements for Level 3 prices:

That Level 3 prices would be required to be pre-approved by the relevant Government authority.

Guidelines should be established, in consultation with industry and consumer groups, to provide clarity on the requirements to be met to obtain approval of Level 3 prices. The guidelines should determine a set of criteria that would be considered in assessing applications including the quality of the accommodation offered, location of the rooms within the facility, location of the facility itself, local land and housing prices, construction costs relevant to the facility, and any other relevant factors including reference to provider or facility specific cost and price factors.

Once a Level 3 price is approved by the Government authority, the approval should remain valid on an ongoing basis for a “Prescribed Period5” provided the price does not increase by more than a “Prescribed Factor6”. “Prescribed Period” and Prescribed Factor” to be published in legislation.

Accepted.

Guidelines for accommodation payments will be established in consultation with industry and consumer groups by April 2013.

See also the Government’s response to Recommendation 8.

C. Consumer Discretion and Protection

Recommendation Aged Care Financing Authority (the Authority) Recommendation Australian Government (the Government) Response
7. All pricing and mode of payment for unsupported residents would be agreed between the provider and resident having relevant information about, for example, the different modes of payment, the refund of lump sum accommodation payments and any allowable deductions. Accepted, noting this is subject to Recommendation 11.
8.

Providers will be required to publish all current prices (in the form of periodic payments and lump sum accommodation payments) for all room types in advance - over the internet and in documentation provided to prospective residents and their families from 1 July 2014. Providers cannot charge more than the published price. Residents and providers can agree charges less than the published prices.

Providers should be encouraged to adopt this approach voluntarily from 1 July 2013.

Accepted in part.

Providers will be required to publish all current prices (in the form of DAPs and RADs) for all room types in advance - over the internet and in documentation provided to prospective residents and their families from 1 July 2014. Providers cannot charge more than the published price. Residents and providers can agree charges less than the published prices.

To provide additional consumer protection, all aged care providers who are seeking Level 2 accommodation payments will be required to conduct and publish a self-assessment of their accommodation against the same guidelines that will be developed for pre-approval of Level 3 accommodation payment values. See Recommendation 6.

Mandatory publication of prices (to be charged from 1 July 2014), will be required from 1 April 2014.

9. The Authority recommends that prices be published on a central internet site that allows consumers to readily compare prices from different providers.

Accepted.

Approved providers will be required to publish accommodation payment prices (to be charged from 1 July 2014) in materials provided to prospective residents, on their own website and on the MyAgedCare website from 1 April 2014.

10.

The Authority recommends that individuals considering entering an aged care home should have a right to complain to the relevant Government authority before they agree to a price if they consider the prices a provider is proposing to charge have not been set on a reasonable basis.

To provide a high level of certainty, guidelines should be established in consultation with industry and consumer groups to provide clarity on when prices would be considered to have been not set on a reasonable basis.

Providers would be required to amend any pricing that has not been set on a reasonable basis.

The Authority notes that providers who engage in unconscionable conduct with regard to pricing are subject to the provisions of the Competition and Consumer Act 2010.

Under consideration.

Government is considering how to best ensure residents can raise any concerns they have over pricing. Further consultation will take place on this issue with appropriate guidelines to be finalised in April 2013.

11. The Authority notes that residents will be provided with absolute discretion in deciding the method of Accommodation Payments, ie by Periodic Payments or Lump Sum paid in advance. While agreement to the accommodation payment amount for each payment mode will be required before entry, the choice of payment mode may be made at any time within a “cooling off” period. The Authority recommends that the “cooling off” period be renamed the “choice of payment method period” to better reflect its objective and be limited to 28 days.

Accepted.

Residents who can afford to pay for their accommodation payment will have choice over the method of payment.

The term ‘Cooling Off Period’ will be replaced by the term ‘Choice of Payment Method Period’.

The Choice of Payment Method Period will be 28 days from the date of a resident’s entry to care.

  1. The $50 is in 2012 prices.
  2. The $104.67 is in 2012 prices.
  3. The $50 and $238,845 are in 2012 prices.
  4. The $50 is in 2012 prices.
  5. A period no less than 5 years – to be confirmed in legislation.
  6. An index to apply to amendment of all prices on an annual basis.