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Issue #1544      25 April 2012

Proposed aged care reforms no real solution

The Gillard government’s proposed reform of Australia’s aged care system is running into criticism over a number of issues.

The present system involves enormous expenditure for many frail elderly people and their families. The government claims that because of extra government funding for the proposed reforms more aged people will be able to receive aged care while staying at home, and the poorest will still be able to access residential aged care.

Funds of $268.4 million will be used for early diagnosis of dementia and the care of dementia patients. The government also claims it will take action to redress the low wages paid to aged care workers. (Some home care workers are said to be paid as little as $18 per hour, and have to supply their own vehicles, often without compensation.)

Those are praiseworthy objectives. However, the extra home care funding will be derived in part from the abolition of subsidies to nursing homes for high care residents. The aged care organisations have applauded the proposed reforms, and it’s the residents, particularly self-funded retirees, who will be paying higher fees to make up for the lost subsidies.

Of human bondage

One of the most significant changes will relate to the refundable deposits or bonds which are required for admission to a nursing home, and which are often enormous. Under the current system the bond may be paid as a loan, but the interest rate is reported to be very high in many cases.

Under the new scheme, applicants will be able to pay off the bonds by entering into an “equity release” scheme, which involves taking out a reverse mortgage, getting an accommodation loan with security provided by part of the value of the home, or entering into a home reversion scheme involving partial sale of the property.

The equity release industry claims that “Equity release is not about reducing the inheritance of future beneficiaries.” However, interest accrued on the mortgage debt must be repaid after the death of the person concerned. The industry has admitted that reverse mortgages are provided “to meet financial needs, primarily when other needs have been exhausted”. In these cases it is most likely that families will be unable to repay the mortgage debt and that the home will have to be sold anyway.

The family may not like it, but mortgage providers are legally entitled to foreclose and sell a mortgaged property if the debt cannot be repaid. Moreover, in doing so the mortgage provider is only motivated to reclaim the debt, even if the sale price is appallingly low and little is left for the beneficiaries.

None of that is mentioned in the industry’s promotional material. In a selling pitch smacking of emotional blackmail, and with no mention of self-interest, it claims that an elderly person’s future beneficiaries should support the equity release option because of “an understanding of our parents and grandparents needs, and supporting them in living out a respected and independent life, using their assets to achieve the best outcome for themselves.”

It also argues that reverse mortgages should cover other costs, for example home maintenance and private health insurance. “Not only would it give peace of mind to those elderly, but also to their families who would understand that their Mum and Dad would receive the medical attention they needed at the time of need”, it purrs.

The equity release industry declares enthusiastically that its future lies in “the health care and aged care markets”. It certainly does. The greater the debt, the greater the profit for the lender.

A matter of respect

Discussion of aged care all too often creates the impression that our aged citizens are just a burden, now that their working lives are over. Aged care services are a market; there’s little recognition that older folk have contributed to the well-being of younger generations, and that they deserve a decent farewell.

Moreover, the cost of looking after our aged citizens is currently met in their last few years, rather than over the course of their working lives. Even if we remain healthy throughout most of our lives, we will almost certainly require special care as physical and mental health deteriorates in old age. However, Medicare does not cover the cost of this care, nor is there a separate system equivalent to Medicare which does.

There’s surely a better method of meeting our national responsibilities for aged care, for example by creating an aged care levy, which would be collected throughout everyone’s working life, and would provide funds for the care of aged citizens, no matter what proportion of the population they represent.

Our aged care system should not involve loss of the family home before or after the death of the individual concerned, or the imposition of huge financial burdens on the aged person and their families.

It should treat them with respect. We all deserve that.

More on aged care

Guardian reader Paul Dwyer has advised The Guardian that “not-for profit” organisations now run 60 percent of aged care institutions in Australia. We thank Mr Dwyer for this information.

Mr Dwyer has also asserted that the Chinese government “has just asked its banks and insurance companies to provide reverse mortgage products so their elderly can contribute to their care costs.”

With all due respect to Mr Dwyer, we are seeking information on this issue from primary sources. In any case, the fact remains that as a highly developed and prosperous country Australia should be able to treat its aged citizens with greater compassion than they have experienced to date. In particular it should offer aged care services that do not involve its ordinary citizens or their families having to go into debt.

We maintain that the imposition of a bond system for admission to an aged care facility does not meet those criteria, nor does the provision of equity release schemes such as reverse mortgages for bond repayment.

Paul Dwyer is a credit adviser in equity release and aged care.  


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