At a time when demand is outstripping supply, the government is putting tethers on the aged-care sector.
ONE of the clearest and most abiding messages governments and the providers of aged care have received from older Australians is their desire to see out their days in fitting accommodation in the communities in which they live. The message is explicitly recognised in the Gillard government's own Living Longer, Living Better strategy for older Australians.
But the government's newly announced position on aged-care accommodation bonds poses a direct threat to this very reasonable aspiration for the ever-expanding cohort of Australians hitting their 70s, 80s and 90s. And despite being promoted by Ageing Minister Mark Butler as "driving strong investment and renewal" in aged care, the proposal will have the opposite effect on a sector in which the construction of new accommodation, both retirement villages and aged care, is rapidly falling hopelessly behind future demand.
In mid-November, the newly formed Aged Care Financing Authority (ACFA) produced draft recommendations for the minister that proposed introducing a cap on the accommodation bonds that secure a place in an aged-care facility. ACFA proposed an initial upper limit of $500,000 (equivalent to a $104 per day periodic payment), and if the provider sought a higher bond, prior approval from a pricing regulator would be required.
Butler announced just before Christmas that this intervention in the market wasn't deep enough, determining that prior approval is to be sought for any bond higher than $410,000, or a periodic payment of $85 a day. The minister's changes mean prior approval of bonds will be required for nearly one in eight residents.
Bonds do not pay for an elderly resident's care needs, just their accommodation. They are effectively short-term loans from new residents to the provider, varying in amount depending on the type and location of the facility and, most importantly, the resident's financial status. They are repayable on the resident's death or movement out of the facility. Any financial benefit derived from holding the bond can only be used for specific purposes such as maintaining existing infrastructure or building new facilities.
Why is this important? Based on an analysis of the most recent Australian Institute of Health and Welfare figures on dementia, the nation will require 80 new aged-care facilities to be built each year between now and 2020 to meet growing demand. Compare that with the 25-30 facilities currently in construction.
So, does the minister's new formula encourage more investment to meet the serious shortfall in aged care? Quite the reverse.
First, it infantilises older Australians. They are more than capable of finding and recognising value in the aged-care sector. Australians of all ages have long taken personal responsibility for the location, standard, style and financing of their accommodation. Why treat older people differently?
Second, it discourages aged-care providers from rebuilding their ageing stock and stifles investment in the high-cost inner-city or inner-suburban accommodation that many people want. Land and construction is expensive in these locations.
Assuming the costs of the additional 200 beds to the Box Hill Hospital, at a total cost of $447 million, was one-third accommodation and two-thirds theatres and fitout, it calculates out to more than $700,000 per bed. Yet somehow aged-care providers are expected to construct quality accommodation for half the price governments deem acceptable for their own budgets. The result of this intervention will be lower quality, more homogenous aged-care facilities located further from elderly people's own communities.
Third, it plays to a political, rather than a policy, agenda. The Gillard government first railed against the unfairness of so-called "superbonds" that providers were allegedly demanding residents pay, and now seek credit for tearing down its own straw man. But in many cases it is the customer who proposes a large bond as a result of their personal financial advice, negotiating other benefits in return. This trend towards consumer-directed care should be welcomed, rather than unfairly restricted in this way.
These changes will reverberate through the aged-care sector as providers respond by ending investment in quality aged-care centres in desirable locations. And it is not just a theoretical concern, as an increasing proportion of elders will soon find out that at a time in their lives when they could really benefit from more choice, that their options have been taken from them.
Here's a sobering thought. Aged-care facilities constructed today should have a 30-40 year lifespan. So it is not just today's elders who will be forced to live in a place and manner they would not choose, but it will be the next two generations who will also bear this cost. This is not the time to be putting an ill-considered and unnecessary tether on the aged-care sector.
Derek McMillan is the chief executive officer of Australian Unity Retirement Living - a company that provides community care including retirement villages and residential aged-care facilities across Victoria and New South Wales.
Frequently Asked Questions about this Article…
What are aged-care accommodation bonds and what do they pay for?
Accommodation bonds are essentially short-term loans paid by new residents to aged-care or retirement providers to secure their accommodation. They do not pay for care services — only the accommodation component — and are usually repaid when a resident dies or moves out. Providers can use any financial benefit from bonds for specific purposes such as maintaining existing infrastructure or building new facilities.
What cap on accommodation bonds did the Aged Care Financing Authority (ACFA) propose and how did the minister change it?
ACFA’s draft recommendation proposed an initial upper limit of $500,000 (equivalent to about a $104-per-day periodic payment) and required prior approval from a pricing regulator for higher bonds. The minister, Mark Butler, tightened that to require prior approval for any bond above $410,000 or a periodic payment above $85 a day, meaning prior approval will be needed for nearly one in eight residents.
Why do bond caps matter to everyday investors and aged-care providers?
Bond caps affect the cash providers can raise from residents to fund accommodation projects. The article argues lower caps discourage providers from rebuilding ageing stock and investing in high-cost inner-city locations because land and construction are expensive. For example, the Box Hill Hospital expansion estimated accommodation costs imply more than $700,000 per bed — well above the caps being imposed — which could make quality projects financially unattractive.
How could the new bond approval rules affect the future supply of aged-care facilities?
The article points out a widening supply gap: Australia may need about 80 new aged-care facilities a year between now and 2020 to meet demand, yet only 25–30 facilities are currently in construction. The tightened bond rules are likely to reduce private investment in new builds, which would worsen that shortfall and leave fewer options for an ageing population.
Will these bond limits affect consumer choice in aged care?
Yes. The article argues the policy effectively restricts consumer-directed choices by limiting the ability of older Australians to negotiate larger bonds in exchange for different benefits. The author describes this as infantilising older people and removing options many would otherwise choose for location, standard and style of accommodation.
What are the expected quality and location consequences for aged-care accommodation under the new rules?
According to the article, tighter bond rules will likely lead providers to build lower-quality, more homogenous facilities and to site them further from residents’ communities where land and construction costs are lower. That means fewer high-quality inner-city or inner-suburban options for future residents.
Who commented on these aged-care bond changes and what is their perspective?
Derek McMillan, chief executive officer of Australian Unity Retirement Living, wrote the commentary. He argues the government’s intervention is political rather than policy-driven, will stifle investment, reduce choice for older Australians, and harm the long-term supply and quality of aged-care accommodation.
What should everyday investors watch in the aged-care sector following these bond policy changes?
Everyday investors should monitor government regulation around accommodation bonds, the construction pipeline for retirement villages and residential aged care, announcements from major providers about capital spending, and data on supply versus demand (for example, the number of facilities under construction compared with estimated annual needs). These are the factors the article highlights as most likely to influence investment prospects in the sector.
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