Don’t bet the house on aged accommodation reform

STONE the crows! We might be about to have a proper policy debate!

Unlikely, the crows say. Still, the early response to the Productivity Commission’s report on aged care is remarkably reasoned – which will scare the feathers off the government and opposition.

The PC (generally policy, if not politically correct) was asked to investigate nursing homes by the Rudd Government last year when it ducked doing anything to increase the share of their care the elderly pay for. [i]

It looked like standing operating procedure, ask the PC to report on a difficult issue, hope nobody notices when it does and file under “too hard”.

There is certainly a long tradition of not asking all the old to pay for the cost of their care by drawing on the equity they hold in their homes. It upsets them and infuriates their heirs. In 1997, the Howard Government proposed to extend the bonds, which exist for hostel and very high care accommodation, to standard nursing homes. It was enthusiastically howled down by the Labor opposition, which warned uncaring Canberra wanted to force people to sell the family home.[ii]

The conservatives had another go in 2004, asking Professor Warren Hogan to investigate how to increase the industry’s capital base to meet the inevitable increase of demand as the baby boomers age. Inevitably he suggested unlocking capital held in real estate. [iii]

And inevitably Canberra thanked him very much, promised more money for nursing homes and put Hogan’s call for residents to partly fund the costs of their accommodation by posting bonds in a drawer. As the Professor, as much a diplomat as a realist, put it when asked what he thought of knocking back bonds: “

I wouldn’t say it’s a mistake. I think it’s a decision taken by government in the light of the past history. They don’t want to reawaken apparently the sorts of circumstances of the late 90s.[iv]

But the problem will not go away and the solutions stay the same, as the Productivity Commission explains. The number of Australians aged 80 and over will increase from 400,000 now to 1.8 million by mid century. When the young-old are included, 2.5 million people or 8 per cent of the population will be using aged care services by 2050.[v]

This will make the $10 billion Canberra coughs up now, to house the old, a drop in an ever-bigger bucket as the workforce shrinks and welfare recipients increase. By 2056, the ratio of workers to retired people will have halved. And despite compulsory superannuation some 80 per cent of them will be collecting the pension at mid century.[vi]

Something must be done and the PC knows what. It proposes ending the present arrangements, where some people post bonds and others don’t and the mishmash of public and user pays for living costs, with a scheme where individuals stump up according to their means. And “means” includes capital as well as income.

The draft report recommends a government issued bond, which people moving into care would buy with the proceeds of the sale of the house.

The bond would not be means tested for the pension, and would be indexed to the CPI and free of fees. The income stream would allow people to buy the comfort level of care they wanted in a deregulated market, to a capped value of 40 per cent of the bond, presumably leaving their heirs to collect the rest when they leave the nursing home to play professional tennis, or some other reason. Canberra could also offer a reverse mortgage, whereby people could pay for care by drawing on their equity in their home.[vii]

Sensible stuff, which was met with a sensible response from the industry, the commentariat, as well as in the letters columns. Even bits of the blogosphere were remarkably rant free. As Catholic Health Australia says, breaking the nexus between paying for care and selling the house is a breakthrough.[viii]

But, inevitably, there was also special pleading of the “I paid my taxes and have a right to leave my estate to the children” kind. Michael O’Neill, head of National Seniors Australia warned the PC did not take account of “the emotional significance of the family home. The reality is many Australians will find mortgaging the family home to pay for their aged care unpalatable.” [ix]

This argument is as relevant as the way the Crows struggle to stomach demands from the Tax Office. Just because people are old does not mean they can expect the tax payer to subsidise the size of the estate they leave their kids.

If this is the best opponents of reform can offer, the government should elephant-stamp the PC report and suggest the Tax Office and the pension people get cracking.

Except that, while the argument against user pays may not be smart, the quality of the discussion will degenerate, very far, very fast. There is an inverse relationship between the sense in draft PC reports and the way the self-interested respond and this one is very sensible indeed.

Once the final document is released mid-year, sense may be no defence if the Liberal opposition launches a “Labor wants to make old people sell the family home” campaign. It will upset many old people and drive their children, especially the ones who have already worked out what they will spend their inheritance on, absolutely insane.

The conservatives could run such a campaign on the principal of tit for tat, doing to Labor what Labor did to them back in the 1990s – which would most likely lead to the Gillard Government rejecting the plan, just as the Howard Government buckled on bonds back then.

The Crows hope not. Sooner or later the old will have to start paying more of their way, or the quality of their care will really deteriorate when the taxpayers kick up about the cost.

So, if it does go all pear shaped, here’s an idea to make this report much more saleable. What we need is an alternative PC plan to fund aged accommodation, plus a minister with courage of the Sir Humphrey kind to sell it.

They could call it death duties.


[i] Department of Health and Ageing, Ageing Budget 2010-2011: Building a national aged care system, May 11 2010 @ recovered on January 29

[ii] Ben Mitchell and Paul Chamberlin, “MPs besieged over nursing home beds,” The Age, October 20 1997

[iii] W P Hogan, Review of Pricing Arrangements in Residential Aged Care, @ , April 2004, recovered on January 29

[iv] The World Today, ABC radio February 12 2007 @ recovered on January 29

[v] Productivity Commission, Caring for older Australians: Draft Report (January 2011) 5

[vi] “Time to tackle the high cost of aged care,” The Australian, January 22, Tim Colebatch, “Secrets to ageing gainfully,” The Age, January 8

[vii] Productivity Commission, 213

[viii] Adrian Rollins, “Your home must pay for care,” Australian Financial Review, January 29

[ix] Michael O’Neill, “Innovative ideas are required to fund aged care” The Australian, January 24