House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP

Schedule 9 - Aged care amendments

Summary

This Schedule amends the Aged Care Act 1997 ( the Aged Care Act) to provide additional support to aged care homes to compensate them for the increased costs that they will incur on behalf of residents from the introduction of a price on carbon.

Background

To align with the Household Assistance Package, from 1 July 2012, the Support for Aged Care Homes measure will provide an additional $132.1 million over five years to aged care homes to compensate them for the increased costs that they will incur on behalf of residents from the introduction of a price on carbon.

In an aged care home, some of the cost impact of a carbon price is borne by the aged care home, which pays for some of its residents' living costs, including electricity bills. Nevertheless, residents of aged care homes do incur incidental expenses, and so will experience some of the cost impact of a carbon price. It is, therefore, important that they receive some portion of the increase to help with costs of additional day-to-day expenses.

Broadly, under the Household Assistance Package, pensioners will receive up to $338 per annum through the Clean Energy Advance (a lump sum to be provided before commencement of carbon pricing) and, from 20 March 2013, fortnightly or quarterly payments of Clean Energy Supplement. Similar assistance will also be provided to self-funded retirees who hold a Commonwealth Seniors Health Card.

The amendments are to ensure that some of the compensation that eligible residents of aged care homes will receive as part of the package is passed on to aged care homes. The amendments increase the maximum standard resident contribution (a daily fee charged to cover living expenses), payable by most eligible residents of aged care homes, from 84 per cent to 85 per cent of the total basic age pension amount. This is an increase from the projected daily rate as of 1 July 2012 of $42.08 per day to the projected daily rate as at 1 July 2012 of $42.58 per day.

Through this measure, aged care homes will receive over half of the Household Assistance Package that eligible residents receive through the increased standard resident contribution. This equates to approximately $3.50 per week per resident. Pensioners living in aged care homes will retain almost half of the assistance they receive through the Household Assistance Package to help meet their incidental expenses - a higher proportion than they would normally receive through routine pension increases. This equates to approximately $3.00 per week.

The Aged Care Act provides that the standard resident contribution is 84 per cent (rising as a result of these amendments to 85 per cent) of the basic age pension amount unless the care recipient is:

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a protected resident - applies to people in care on 19 September 2009 who did not get the benefit of the 2009 pension increase;

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a non-standard resident (certain pre-2008 reform residents) - applies to certain people who entered care prior to 20 March 2008;

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a phased resident - applies to people who entered care on or after 20 September 2009 who did not get the benefit of the 2009 pension increase.

To implement the policy intent in relation to carbon compensation across other applicable categories of care recipient, further amendments are included in this Schedule to provide for proportional increased standard resident contributions for protected, phased and non-standard residents from 1 July 2012.

Non-pensioner residents of aged care homes who do not hold a Commonwealth Seniors Health Card will not receive assistance through the Household Assistance Package. To ensure these residents are not disadvantaged through the higher charges implemented by these amendments, a new Government aged care supplement, equal to one per cent of the basic pension, will be payable in respect of these residents where they are in care prior to 1 July 2012. This will effectively mean the standard resident contribution for these residents will not increase. The new supplement will be implemented through aged care delegated legislation (the Aged Care Principles).

Explanation of the changes

Context and summary of the changes

Section 58-2 of the Aged Care Act provides that the maximum daily amount of resident fees payable by a care recipient is the amount worked out in accordance with the resident fee calculator in section 58-2. The calculator requires the addition of a number of different payments and types of supplement. One of the amounts included in the calculation is the 'standard resident contribution'. Under the Aged Care Act, all residents in aged care can be asked to pay a standard resident contribution to cover living expenses such as meals, cleaning, laundry, heating and cooling.

For most care recipients, the general rule regarding the standard resident contribution provided under section 58-3 is applicable. However, due to arrangements introduced as part of the 2009 Secure and Sustainable Pension Reforms, there are three classes of resident for whom the maximum basic daily fee is not currently 84 per cent of the basic age pension amount:

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for protected residents (people who were in permanent care on 19 September 2009, including part-payment pensioners whose pension, on 20 September 2009, did not increase by more than the corresponding increase in the standard resident contribution, and self-funded retirees), the maximum rate is 76.7 per cent of the basic age pension amount;

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for non-standard residents (certain people who entered care prior to 20 March 2008, including self-funded retirees, pensioners who agreed to pay a bond referred to in paragraph 58-3C(1)(c)(ii), 58-3C(1)(e)(ii) or 58-3C(1)(e)(iii), and residents who chose not to disclose their financial information to Centrelink), the maximum rate equivalent to 95.5 per cent of the basic age pension amount; and

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for phased residents (people who enter permanent care between 20 September 2009 and 19 March 2013, whose pension did not increase by more than the corresponding increase in the standard resident contribution, and who, therefore, did not benefit from the changed pension arrangements of 20 September 2009), the maximum rate will increase to 81 per cent of the basic age pension amount from 20 September 2011, rising to 84 per cent over time.

In summary, this Schedule amends the Aged Care Act such that:

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from 1 July 2012, the standard resident contribution will increase to 85 per cent of the basic age pension amount (rather than 84 per cent);

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for a protected resident, the standard resident contribution will increase to 77.5 per cent of the basic age pension amount;

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for non-standard residents (certain pre-2008 reform residents), the standard resident contribution will increase to 96.5 per cent of the basic age pension amount; and

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for phased residents, the applicable percentage rate has been determined for the various periods required (being a percentage of the basic age pension amount) and is detailed below.

Amendments to the Aged Care Act

Currently, sections 58-3, 58-3B, 58-3C and 58-4 of the Aged Care Act describe different calculations for the standard resident contribution, depending on the circumstances of the individual, including whether the person is a pre or post-September 2009 resident or one of certain pre-2008 reform residents, and whether or not they are receiving an income support payment. These sections have been amended as follows:

Item 1 amends subsection 58-3(1) such that (from 1 July 2012) the standard resident contribution for a care recipient is the amount obtained by rounding down to the nearest cent an amount equal to 85 per cent of the basic age pension amount (worked out on a daily basis).

Item 2 repeals subsection 58-3B(3) and replaces it with a provision stating that the standard resident contribution for a care recipient who is a protected resident is the amount obtained by rounding down to the nearest cent an amount equal to 77.5 per cent of the basic age pension amount (worked out on a per day basis).

The repealed subsection expresses the standard resident contribution for this type of resident as a dollar figure as indexed on and after 20 September 2009. This item coverts the rate to a percentage to make the legislation less complex. This is necessary as it is impossible to calculate in advance the dollar amount to replace the current figure of $33.41 (given indexation will occur twice - on 20 September 2011 and 20 March 2012) before the new arrangements take effect on 1 July 2012.

If a person is a protected resident, they will continue to pay a standard resident contribution equivalent to their pre-20 September 2009 rate, as indexed in line with the indexation arrangements for the basic rate of the pension and adjusted for the introduction of the Household Assistance Package.

Item 3 repeals subsection 58-3C(3) and replaces it with a provision requiring that the standard resident contribution for non-standard residents (certain pre-2008 reform residents) is the amount obtained by rounding down to the nearest cent an amount equal to 96.5 per cent of the basic age pension amount (worked out on a per day basis).

The repealed subsection expresses the standard resident contribution for this type of resident as a dollar figure as indexed on and after 20 September 2009. In line with other provisions under section 58-3, this item converts the rate to a percentage for consistency and to make the legislation less complex.

Item 4 repeals items 5 and 6 of subsection 58-4(5) to provide that, for phased residents, the applicable percentage rate for the various periods (being a percentage of the basic age pension amount) is as follows (noting that only items 5-7 introduce new arrangements):

Under the phased resident arrangements introduced in 2009, phased residents pay a standard resident contribution starting at an amount equal to the protected rate for the first six months (until 20 March 2010). This was to be phased up to an amount equal to 84 per cent of the basic age pension over the period from 20 March 2010 to 20 March 2013. This phasing period ensures that those residents who did not benefit from the increase to the basic age pension, and who enter care from 20 September 2009, will not have a significant jump in the amount they could be asked to pay as a standard resident contribution.

This policy is retained under the amended percentages and time periods shown above. The amendments simply allow for some of the carbon compensation arrangements to be passed to the aged care home through a proportional increase in the standard resident contribution for these residents. In line with previous policy, the general rule for standard resident contribution will apply to these residents post 19 March 2013 when they too will pay 85 per cent of the basic aged pension in accordance with subsection 58-3(1).

Item 5 provides that amendments made by this Schedule apply in relation to the calculation of the standard resident contribution for a care recipient under Division 58 of the Aged Care Act in respect of a day that is on or after 1 July 2012.