Parliament's Health Select Committee to look at funding and asset thresholds as the aged care industry heads towards crisis point

The unwelcome subject of asset testing for the infirm elderly is expected to be thrust back onto the political agenda in the coming months. 

Proposals could include letting the Government dig deeper into old people’s assets to pay the huge costs of caring for those with serious neurological disorders. 

An alternative would be to leave asset thresholds at current levels and find some other way of filling the funding gap for aged care.

There has also been talk of increasing thresholds but this is not thought likely to gain traction.  

Any reduction in asset thresholds would reduce the wealth available to be passed on to children as an inheritance, but it could help the aged care industry survive a looming crisis.

There will be 100,000 people over 85 next year, according to the Aged Care Association (ACA), and two thirds of them will need Aged Residential Care (ARC) at some stage in their life.

That number far exceeds the 40,000 beds the sector currently has. 

This problem has been developing for many years, and led New Zealand First to call for an increase in funding for the sector in its election manifesto last year.  

The subsequent coalition agreement with National included a pledge to hold a select committee inquiry into aged care. 

The terms of reference for that inquiry have now been unveiled. They include looking at how the sector is funded, referenced against best practice and policies in other countries. They also look at “appropriate and sustainable asset thresholds for people with neurological cognitive disorders” as well as projections for the level of need in future.

Submissions to the Health Select Committee close on the 19th of August.

Groups involved in this matter are keeping their powder dry for now.  But the issue of asset testing will have to be looked at by the select committee, according to the ACA, which represents the organisations that quite literally do the heavy lifting in aged care. 

“They are going to have to make a recommendation, but whether that recommendation is picked up and implemented by the Government is a whole other story,” says the chief executive of the ACA, Tracey Martin.

“It will be very interesting to see if the Select Committee comes back and recommends the threshold is lowered to reduce the cost to the Crown and shift that cost onto residents.”

'The can that has been kicked down the road'

Martin says New Zealand must face up to the real costs of caring for growing numbers of elderly people. 

“We knew this was coming, and every 30-year-old today is part of this wave (of old people). This won’t peak until 2078, so we must address it. If we do not, we are going to have large numbers of 80-plus New Zealanders, trying to manage at home, without proper support, hurting themselves from falls and other incidents.” 

Age Concern agrees this issue must be faced up to.

“In some ways, it is the can that has been kicked down the road, so talking about it, getting it on the table, and having the will to make the policy changes that will support this is important,” says Age Concern's chief executive, Karen Billings-Jensen.

“There is no alternative, it does need to be dealt with.”

At present, people’s income and assets are assessed for subsidised aged care. This contrasts with many other state benefits, which are income tested only, and NZ Super, which has no tests at all. 

At present, the asset testing threshold for an aged care subsidy is set at $284,636 including people’s homes, or $155,873 excluding the home if a partner or dependent child lives there.

These numbers are controversial and produced intense and sometime angry debate when thresholds were amended by the Bolger/Shipley Government.

"It got really brutal," recalls a politician who lived through that era.  

 Any attempt to change levels again would unquestionably produce renewed controversy.

In the 2022-23 year, the Government, via Te Whatu Ora, paid $1.4 billion in ARC costs, while residents paid $1 billion via means testing, including superannuation deductions. 

But a report done for Te Whatu Ora by the consultancy, Sapere, says the current arrangements cannot last. Not only are not enough new facilities being created, but some are closing down, and patients can wait over six months to get into a place, even if they have serious dementia or a severe psychogeriatric illness. 

Despite these needs, one third of all aged care operators are not planning to increase their total number of beds, according to a survey of ACA members.  The most common reason was "insufficient income to justify the cost". 

The New Zealand Council of Christian Social Services is adding to this concern with a just released action plan. 

Its executive officer, Nikki Hurst, says her members who are in the not-for-profit sector, have been underfunded for years, and in some cases are having to close their doors.

But reducing the threshold for asset testing would not necessarily be the right way to go.

"We have means testing and asset testing in other areas, and it results in financial arrangements making it appear that some people have assets and others don't, and it would take quite a bit of work to be able to look through and see actually what (the real situation is). 

"I think in the short term we probably are at a point where the thresholds could be adjusted, particularly as we are adjusting other thresholds for tax.

"But I think we need a better longer term solution, since New Zealand has a social contract where we look after our people as they age."

Comprehensive funding review

Meanwhile Te Whatu Ora is completing the final stage of a comprehensive review of all aspects of funding for the sector.

 The real costs of running aged care facilities are rarely appreciated by the public.  Figures released by the ACA show the organisations running them get a payment of $177 per day on average for reasonably competent residents, and $317 a day for people with high-level problems.  The weighted average is $235 per day, but wage and price inflation add $20 to $30 a day onto the real cost, and the number is greater still if an adequate return on capital is factored in to fund future development.  

This controversy is developing at the same time as the ACA and Te Whatu Ora argue over the level of payments for the current year. But the ACA says any settlement reached for the 12-month period will not solve the sector’s long term problems.

It adds only about a third of this suite of problems will land on the desks of big, listed retirement companies, like Summerset or Arvida. Two thirds of aged care providers are small operators, or church groups and community trusts with limited funds.

Altering thresholds is only one potential solution to the huge burden facing the aged care sector.  Another would be to augment schemes which help older people age in place with visits by nursing staff to their home.    

Another option would be to direct asset testing to the accommodation costs for elderly people, and keep the costs of their medical or pharmaceutical care separate. 

This would preserve the tradition of people paying for their own housing, which they do throughout their lives, while making sure they get taxpayer funded healthcare, which would also match their earlier experience. 

The Associate Health Minister Casey Costello, who is also Minister for Seniors, is saying little about this except that the Government is committed to "a sustainable, effective system for aged care provision." 

She adds the select committee work is separate from her job as a Minister, but it will be an important forum to the funding of aged care and people's personal contributions to it. 

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