Authors: Dr Anam Bilgrami1, Professor Henry Cutler2, Dr Yuanyuan Gu3 and Mona Aghdaee4

  1. Research Fellow, Macquarie University Centre for the Health Economy (MUCHE), Australian Institute of Health Innovation, Macquarie University, New South Wales, Australia, bilgrami@mq.edu.au
  2. Professor and Director, Macquarie University Centre for the Health Economy (MUCHE), Australian Institute of Health Innovation, Macquarie University, New South Wales, Australia
  3. Senior Research Fellow, Macquarie University Centre for the Health Economy (MUCHE), Australian Institute of Health Innovation, Macquarie University, New South Wales, Australia
  4. Research Fellow, Macquarie University Centre for the Health Economy (MUCHE), Australian Institute of Health Innovation, Macquarie University, New South Wales, Australia
Full report

The Royal Commission into Aged Care Quality and Safety emphasised the importance of informed and empowered decision-making by aged care consumers. A recent study by the Macquarie University Centre for the Health Economy (MUCHE) explored the way people make accommodation payment decisions when entering residential aged care in Australia. Bilgrami and co-authors analysed survey data collected from 581 informal carers who helped aged care residents make payment decisions over 2016-2020, and found both expected and unexpected factors potentially weighed on decision-making (Figure 1).

A person entering residential aged care is typically in their mid-80s and experiencing cognitive impairment. Therefore, they may rely on help from family and friends, meaning several parties may be involved in financial decision-making. In Australia, residents can pay a refundable accommodation deposit, a lump sum given to providers and returned to the resident once they leave the facility. The average refundable accommodation deposit per resident in 2021 was $332,000. Residents can also pay through a daily accommodation payment, which is a rental-style payment calculated from the refundable accommodation deposit, or they can pay using any combination of refundable accommodation deposit and daily accommodation payment.

The payment decision is complex, with many residents having to reorganise their asset portfolio (mostly through selling their homes), which can impact means-testing arrangements for co-contributions to care and the aged pension. The decision also impacts providers as they rely on refundable accommodation deposits to finance capital expenditure on renovations and building new facilities. Providers hold around $32 billion in refundable accommodation deposits on their balance sheets.

Some of the largest associations with paying a refundable accommodation deposit included factors influencing the ability to sell assets and access required funds, such as whether a resident was a home-owner, whether they had a partner or child left at home, whether they were from a lower-income group and whether they were moving directly from hospital after a health shock.

However, one strong association with refundable accommodation deposit payment was whether the provider had expressed a payment type preference to the resident before they entered care. This suggests that providers may influence accommodation payment decisions, which is counter to legislation suggesting providers should be neutral in the decision.

Financial advisor use was also associated with choosing refundable accommodation deposit payment. This may suggest that refundable accommodation deposits are the best financial option for many residents. There may, however, be a potential conflict of interest between advisors and residents. Selling the family home to pay a refundable accommodation deposit often results in residual funds leftover for the resident to be invested elsewhere, upon which advisors may seek a commission. More research is needed to quantify whether this problem exists.

The authors suggest several policy options to reduce decision complexity and align incentives between residents and providers. The Government could consider simplifying the payment decision by phasing out refundable accommodation deposits as a payment option, instead introducing a purely rent-based system. Other options include alleviating financial pressures on providers' capital financing to prevent them from unduly influencing payment decisions. This could include increasing capital grants to providers or guaranteeing commercial debt given to providers by banks.

Another option may be to introduce an intermediary between residents and providers to hold refundable accommodation deposits and provide low-cost loans to providers to fund capital expenditure. This would reduce provider incentives to influence payment decisions while still preserving consumer choice.

Figure 1: Change (%) in refundable accommodation deposit proportion in payment, associated with the selected resident, informal carer and provider characteristics*

Note: * Statistically significant associations with the refundable accommodation deposit proportion in the accommodation payment using fractional logistic regression (at a 10% level of significance)

For more information contact:bilgrami@mq.edu.au

Photo by Georg Arthur Pflueger on Unsplash