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Photo: 123RF
Aged care ‘bonds’ could be a way to help ease the pressure on a struggling sector, one expert says.
Pam Newlove, partner and retirement village, aged care and healthcare services lead at Grant Thornton, said aged care providers faced a funding problem and many were losing money and closing down.
She said the government had an opportunity to overhaul the system in this year’s Budget.
“Without aged care facilities in the community, elderly Kiwis are more likely to end up in hospital for longer, which puts pressure on our already struggling healthcare system.”
She said the Aged Care Association had estimated the cost of public hospital care would be $1700 a day, while residential aged care costs around $370 a day.
More providers are charging fixed daily fees for rest home care, even when people qualify for the government subsidy. These can range up to about $85 a day on top of the subsidy.
Newlove said a bond could work as a way to give the sector more capital.
“When an older homeowner sold their house, they would have the option to pay a large lump sum for their residential care which would be repaid at the end of their stay.”
She said when a similar method was used overseas, the sum was usually about 65 percent of the median value of a house in the area.
“An Aucklander might pay a deposit of $650,000, or someone in Christchurch might pay $455,000.
“At the end of their stay in the aged care facility, the resident or their family would receive their deposit back, minus fees that are set by the length of their stay. These fees might be 2 percent of the lump sum per year for up to five years, reaching a maximum of 10 percent of the bond.
“If the Aucklander left after five years, they would get back $585,000; if the Cantabrian stayed for just three years, they would receive a little under $428,000.
“The accommodation bond can be used instead of, or in conjunction with, a daily accommodation charge to give residents mix-and-match options for payment. Those who can’t meet their accommodation costs based on means assessment, can be subsidised by government support.”
She said it worked well in Australia.
“Their sector is funded very differently to New Zealand, a substantially greater amount of government support particularly on the care side… the government really needs to split the funding between the costs of care and costs of accommodation. That’s quite key to the whole thing.
“At the moment what we’re hearing from operators here in New Zealand is they don’t want to put capital at risk to either expand existing aged care operations or build new facilities, because the return on investment is just not sufficient for them to put the capital at risk.
“Something like this would create a new amount of capital that those operators could then access and reduce how much money they then need to go and borrow in order to build new facilities. It increases the amount of circulating capital that’s available to help the sector grow.”
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Photo: 123rf
She said it would be a big cashflow boost for the sector that could lead to more facilities being developed or even reopened.
“More aged care facilities would immediately alleviate pressure on the healthcare system, freeing up hospital beds and cutting costs in primary healthcare. It would also take stress off families in underserved regions.
“Right now, they must choose between providing some type of in-home care, or sending their loved one to a distant facility where visits might be few and far between.
“Bonds also reduce the amount a developer must borrow to build new facilities and makes the sector more attractive as an investment. The bonds sit as a liability on their balance sheets, to be paid back in future, and used in restricted ways to fund capital works.”
She said it would require legislation to manage the risk and clearly set out operator responsibilities.
“Any change like this would need support of government because you’d have to put in place a prudential model to manage the financial risks, because you’d have people handing over a substantial sum of money to operators. They would be taking risks around building new facilities and so forth.
“There has got to be some structure around it. Government would have to underwrite it because if the operator fell over, you couldn’t have that leakage of capital out of the system for people that don’t have the means of replacing it.
“This is planting some early seeds for hopefully some different ways of looking at how the sector could be funded, particularly the accommodation side, perhaps starting to drive conversation around actually wanting to separate costs of care from costs of accommodation.
“The private sector and not-for-profits looking at doing the accommodation side better and knowing they’ve got a stream of funding for that. And then the challenge has got to be on government then to focus on the funding of the care side, which inevitably they are going to have to put more funding into.
“So it’s got to be really, government talking to the operators and future operators… and then building the necessary financial structures around that and necessary legislation.
“It’s not necessarily starting from ground zero, because if you just look at the retirement village model, they are monitored by statutory supervisors under legislation for the management of the occupational rights that agreements that people enter into for units there. So that sort of structure could then be applied to managing the payment of bonds in this model.
“But we see from international models an accommodation bond can work well. They’re popular with residents and their families, who like getting some of their money back at the end of a stay. And while they stay in aged care, their accommodation costs are capped, and not subject to price rises that might be seen with daily charges for accommodation.”
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