SOME FACTS AND FIGURES ABOUT INCOME AND ASSET TESTING FOR LONG TERM RESIDENTIAL CARE FOR OLDER PEOPLE

Introduction

Many people, particularly older people, think that income and asset testing is a new policy of this Government. This is not the case. The purpose of this newsletter is to provide:

• some background information on income and asset testing, and,
• some key statistics which may be of interest to people affected by this policy.

Brief History

The Rest Home Subsidy Scheme (now the Residential Care Subsidy) was established in 1961 in the Auckland Area Health Board area. Its aim was to free up much needed public hospital beds occupied by elderly long-term patients needing supervisory care, as opposed to specialised care provided by hospitals. It was considered that the care of these people would be more appropriately met in rest homes.

Between 1951 - 1961 financial assistance towards the cost of rest home care was available under the Supplementary Assistance Programme (DSW), and was subject to an income and asset test. This not only took into account the person's ability to contribute to the cost of their care, but also that of their family members. It was only after these factors had been taken into consideration that financial assistance was made available.

People who needed geriatric care were subsidised by hospital boards. The amount they had to contribute themselves varied depending on whether they received their care in a public or psychiatric hospital, or a convalescent or rest home.

In July 1962 approval was given for the Rest Home Subsidy Scheme to be extended and from 1966 it was progressively introduced around New Zealand. The programme has always had an income and asset test.

In 1989 the Rest Home Subsidy Scheme was extended to religious and welfare homes following a review of the scheme.

1993 Universal Income and Asset Test

In 1993 the Government introduced a universal income and asset test replacing the ad hoc arrangements that had developed over the years.

Prior to 1993 five different regimes were used to target financial assistance for long-term residential care.

• from 1961, people in private rest homes were subject to an income and asset test under the Rest Home Subsidy Scheme;
• people in private geriatric hospitals placed there under the Geriatric Hospital Special Assistance Scheme (GHSAS) were income tested,
• people who placed themselves in private rest homes or hospitals paid the full cost of care;
• people in public hospital geriatric beds contributed their New Zealand Superannuation less a personal allowance after 13 weeks;
• people in public rest homes were subject to a range of income and asset testing.
  

Where a person needed financial assistance to cover the cost of care, the income and/or asset test that applied depended upon the type of facility providing that care, and sometimes where the person lived. This meant that people with similar needs were treated differently and often unfairly.

Because of the different targeting arrangements in place before 1993 there was a perverse incentive for people to access public hospital care, which only required the contribution of New Zealand Superannuation less a personal weekly allowance. This had been seen as a way to avoid paying for long-term residential care services.

The universal income and asset test introduced in 1993 treats all older people assessed as requiring long term residential care in the same way irrespective of whether they receive that care in a public or private rest home or geriatric hospital.

Chronology of Changes In Assets Thresholds
The asset threshold was originally 100 pounds which was considered to be the amount necessary to cover the cost of a funeral. The table below shows the level of asset thresholds from 1961 to the present. The value of the thresholds has more than kept pace with cost increases over the years.

Changes Since 1993

In 1994 the Government announced that a maximum amount of $636 per week would be payable by people requiring long term residential care that is purchased by an RHA. Where fees are in excess of this amount the difference is paid by the RHA. People who are eligible for a Residential Care Subsidy contribute their New Zealand Superannuation less a weekly personal allowance.

Pre-paid funerals (up to $ 1 0,000) were also made exempt from the income and asset test.

In 1995 the Government announced further changes to the income and asset test. These included a provision to financially recognise care given by a non-core family member prior to the older person entering residential care. Up to $5,000 over 5 years can be retrospectively gifted,

A loan policy that protects the home shared by a non-core family member, such as a sibling or single adult offspring, through an interest free loan was also announced.

Special conditions apply to both these provisions.

Some Facts and Figures

Currently there are around 31,000 people in long-term residential care. Of these approximately 22,000 are supported by the State through the Residential Care Subsidy at a cost of about $450 million each year. The cost of removing the asset test, which has been suggested, would be $230 million.

Only a small percentage (7.4%) of people over the age of 65 will ever need residential care. The vast majority of older people live in the community where they care for themselves or are cared for by others. Increasingly older

people are receiving support services that enable them to live independent lives in their own home

Is higher taxation the answer?

People sometimes argue that they are willing to pay more taxes to cover the cost of long-term residential care. Such a move would mean that low and middle income earners would be paying more tax so that an older person with the means to contribute to their care would not have to do so.

Should income and asset testing be removed it would mean that a wealthy person would be able to have a public hospital bed and pay nothing apart from their superannuation less a personal allowance.

Why have income and asset testing?

The cost of providing long-term residential care is around $1,000 per week for people requiring a high level of care. The Government considers that older people that can afford to pay should do so in order that those in financial need can be assisted.

The reasons why we have income and asset tests are as much an issue for future generations as the present group f people who are faced with the prospect with residential care for themselves or a relative.

We know that by the year 2011 there will be 543,000 people aged 65 and over. By the year 2031 this figure will reach 940,000 and will comprise 21% of the total population. In 1994 one person in nine was over the age of 64; by 2031 it will be 1 in 5. We can expect to have a similar percentage of older people needing residential care as we move through the next thirty years.

What Happens in other Countries

There are a number of other countries facing a large increase in their older populations over the next thirty years. These include Australia, the United Kingdom, Canada, Germany, the United States of America and Japan.
All of these countries have income and/ or income and asset testing in various forms. In most cases the family home is not taken into account where there is a spouse still living there, which is the policy here in New Zealand.

Australia - People have to be eligible for the Age Benefit which is subject to an income and asset test. Residents pay up to 87.5% of their Age Benefit to meet the cost of their care with the balance paid as a personal allowance.

United Kingdom - People have to make a contribution towards the cost of care subject to their ability to do so. Income and assets are taken into account and the spouse of a person may also have to contribute.

Canada - People who qualify for age pensions are required contribute a high percentage of their pensions. People who do not meet the eligibility criteria for welfare payments have to contribute from their own resources.

Germany - People who cannot meet the cost of their care from their pension have to use their assets. Where tnese are insufficient the family members are obliged to pay the balance.

United States -Entitlement to a subsidy to help meet care costs is dependent on entitlement to Medicaid. Income and asset restrictions also apply.

Japan - Most Japanese elderly are cared for in their own home by family members who sometimes have the support of home care services. People who are admitted to nursing homes must meet the full cost themselves from their own resources.

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