Introduction

This departmental instruction (DI) provides legislative, policy and procedural information relating to amendments to the Veterans' Entitlements Act 1986 (VEA) that affect certain residents of approved nursing homes.

Legislation

The legislative amendments to the SSA and VEA are contained in Schedule 2 (SSA), 3 and 4 (VEA) of the Aged Care (Omnibus) Act 1999 - No 132 1999. The act received Royal Assent on 21 October 1999.  The following hyperlink provides internet access to the Act:

http://scal — e — p — lus.l — a — w.gov.au/html/comact/10/6044/top.htm

Background

Under the provisions of the Aged Care Act 1997, that commenced on 1 October 1997, persons entering Commonwealth Government funded residential care could be required to pay an accommodation bond to the nursing home or hostel they were entering.

The introduction of accommodation bonds generated significant adverse publicity for the Government – particularly in relation to the introduction of such bonds for nursing home residents.  On 5 November 1997, the Government replaced the accommodation bonds payable by nursing home residents with a new payment known as an accommodation charge.  This change commenced 6 November 1997.

Generally, the accommodation charge is paid as a periodic payment with aged care fees.  It should be noted that hostel residents continue to be required to pay an accommodation bond, that is, there were no changes to the accommodation payment rules in respect of hostels.

• In association with the introduction of accommodation charge, a number of other measures were introduced to assist residents in paying the charge (C13/98 refers in detail).

Summary of changes

The majority of the VEA income and assets test changes contained in Schedule 3 of the Aged Care Amendment (Omnibus) Act 1999 have been in operation since 6 November 1997 and 1 March 1998 respectively (see attachment A for a summary).  Departmental Instructions C13/98 of 3 March 1998 and C45/98 of 30 October 1998 provide policy and procedural details of these changes.

In addition to existing policies already being administered however, the new Act also introduces additional changes announced as part of the May 1999 Budget.

One of the additional changes introduces a new term, “charge exempt resident”.  New section 44-8B, 'Meaning of charge exempt resident', of the Aged Care Act 1997, provides a retrospective exemption from payment of the accommodation charge for people who entered a nursing home prior to 1 October 1997 and who subsequently move to another nursing home on or after 1 October 1997.

The flow-on impact of this change is that amounts of accommodation charge paid by this group will be refunded and are exempt from the income and assets tests applicable to income support pensions, benefits and allowances.

Unintended Consequence

Following the introduction of the accommodation charge, Department of Health and Aged Care (DHAC) became aware of an unintended consequence.  With the introduction of the Aged Care Act 1997 it was the intended that all pre 1 October 1997 existing residents would not be adversely affected.

It later became evident however, that the legislation did not protect pre 1 October 1997 nursing home residents who move to a different nursing home from being required to pay the accommodation charge to the new residential care provider.

Budget  changes

To rectify the situation a new charge exemption for affected residents was introduced in the May 1999 Budget.  Flow-on changes to income support pension rules were also introduced to ensure that any retrospective reassessment of accommodation charge and resident status would not adversely affect the rate of income support pension payable.

The income support pension-related changes include:

• Exemption of refunded accommodation charge under the pension income and assets tests, for those residents who occupied an approved nursing home bed in a nursing home on 30 September 1997 and who subsequently moved to another nursing home and started paying an accommodation charge.

• Income test exemption of any amounts that could subsequently be derived from these amounts if the capital amount is invested.  The above threshold deeming rate is to be applied when determining exempt income.

• Where the person was receiving rent from the former home, an exemption applies to the asset value of the family home and the rental income received for the period up to and including 21 October 1999, that is the date of proclamation of the Aged Care (Omnibus) Act 1999.  To date no DVA cases have been identified that are affected by this rule.

Charge exempt resident

A charge exempt resident is defined at section 44-8B of the Aged Care Act.  A person can be described as charge exempt if:

“(a) at any time on 30 September 1997, the person occupied an approved nursing home bed in a nursing home approved under section 40AA of the National Health Act 1953; and

(b) the person is receiving residential care, having entered an aged care service at any time after 30 September 1997; and

(c) apart from this section, the person would have been eligible to pay an accommodation charge for the entry.”

Note 2 of 44-8B states that, “a charge exempt resident cannot be required to pay an accommodation charge”.

Refunded accommodation charges

An accommodation charge is generally paid as a periodic payment that an aged care facility (in most cases a nursing home) can ask certain residents to pay to cover the cost of their accommodation.  This payment is separate to the residential care fees and is payable for a maximum of 5 years.

The amendments resulting from the May 1999 Budget introduced the term charge exempt resident.  Any person who was a nursing home resident at the end of 30 September 1997 is not required to pay an accommodation charge and is categorised as a charge exempt resident.  In the case of those who moved to a different nursing home, the accommodation charge paid in the new residence will be refunded and no further charges will be required from 21 October 1999.

The refunded amount is to be regarded as an exempt lump sum for income and assets test purposes.  The relevant new VEA legislative references are:

• Subsection 5H(12)-income exemption of certain lump;
• Clause 14 of Part 2A of Schedule 5, Person's ordinary income reduced using financial assets rules; and

• Clause 15 of Part 2A of Schedule 5, Value of a person's assets reduced.

It should be noted that in cases where the nursing home resident has a partner, the exemptions may affect the pensions paid to both partners (New clause 13, Part 2A of Schedule 5 of the VEA refers).  This means that when the aged care resident passes away, an excluded income/assets amount may continue to apply to the partner's pension.

The exemptions will apply whether the person has retained the funds or not (New clauses 17C and 17D, Part 2A of Schedule 5 of the VEA refers).  That is, it is assumed that they would be part of a person's financial assets and therefore deemed if the exemptions did not apply.  A deduction equivalent to the amount refunded is to be deducted from the persons total assets and the total income will be reduced by an amount equivalent to the deemed interest that is derived on the lump sum.  The above threshold deeming rate, currently 4.5% will be applied.  This means cases will require ongoing review as the deemed interest rates change.

Rental Income exemption

Where a person is reclassified as a charge exempt nursing home resident and they have been renting out their home in order to pay the accommodation charge, there will be no retrospective reassessment of rental income received.

Similarly there will be no retrospective assets test assessment of the family home.

From 21 October 1999 however, the special rent exemptions will cease to apply.  To date no cases have come to light.

In the event that a case comes to light the rental income will need to be included.  Generally the 2/3rds rule will apply.  The person's former home will need to be assessed under the 2 year assets test exemption applicable to aged care residents.  In other words whether the former home will be assets tested or not will be dependent on the length of time that the person has been an aged care resident.

Delegations

The Repatriation Commission approved the VEA Instruments of Delegation relating to this initiative on 26 October 1999.

On 7 December 1999, the Secretary to the Department of Family and Community Services approved the instruments of delegation for DVA employees who are required to administer age/wife pension cases.

Signed copies of the Instruments of Delegations were forwarded to the state aged care contacts on 21 December 1999.

5H(12) Delegation

Please note that a separate instrument of delegation was prepared in respect of new subsection 5H(12).

This subsection provides the income test exemption of certain lump sums including refunded accommodation charges to charge exempt residents.

5H(12) states that:

An amount received by a person is an exempt lump sum if:

1. it is not a periodic amount (within the meaning of subsection 5K(1A)); and
2. it is not income from remunerative work undertaken by the person; and
3. it is an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum.

This section aligns the VEA with the subsection 8(11) of the SSA.

The delegation to determine that certain lump sums will be exempt income, is restricted to Branch Head (Income Support).  The Instrument of Delegations was signed on 22 December 1999.

Apart from refunded accommodation charges there are a range of other lump sums that will be determined to be exempt.  A separate Departmental Instruction specific to subsection 5H(12) will be issued shortly.

Target Population

The Department of Health and Community Services (DHACS) have identified 440 aged care or former aged care residents who are DVA income support recipients or self-funded retirees.

DHACS have advised that:

66% or 290 are on maximum rate of pension.  As the refund will have no impact on pension or aged care assessment for these cases they will not require review, unless pension is reduced at a later date.  This leaves approximately 150 cases nationally that may require review.

Refund details

The maximum refund is estimated to be $9,492 with the average refund being around $4,200.

DHAC refund

strategy

Where a person is still a nursing home resident the refund will be paid by the facility.

If the person is no longer in the facility or deceased, the DHAC will arrange the refund.

DHACS expect that all charge exempt residents will receive the refund within 6 months.

For those no longer in an aged care facility the refunds will commence from February 2000 with an end date of October 2000.

DVA review

Once a person has received their refund they (or their representative) should advise DVA/Centrelink.  This will trigger the following action:

• If the person is a maximum rate pensioner and the information provided is not going to affect the pension rate no action is necessary.

• If the person is a reduced rate pensioner obtain the current income and assets details.

• Ensure that the person is not receiving exempted rental income and the 5yr exemption on the family home.  This can be checked on view in the pension assessment Tab/ Residential Folder under 'rent assistance not payable reason.'  Please note that no cases in this group have come to light.  If a case is identified, notify Oona O'Beirne of Income Support Policy section immediately.  The exemptions on rental income etc. will have to be reassessed
  [9]

  Unless the person failed to notify of the excluded income previously or the case involved fraud there will be no retrospective reassessment of the rent as income.

  [9] (go back)
  as income and the exemption on the family home will be reduced to the general two years duration.

• Confirm via the DHAC schedule of refund cases (provided to state aged care contacts) that the person is on the list and the amount of refund recorded.  The amount listed on the DHAC schedule is the amount that will be exempted from the income and assets tests.

• Review the case using the manual rate procedures mentioned below.

• Advise the state aged care contact who will list the name and reference number of the case for subsequent review action at the time of statutory increases, deeming rate changes etc..

Systems impact

There are no system changes associated with this initiative.  The exemption action will be via the manual rates screen.

Manual Exemption Procedure

Set out below are the steps to apply when exempting the refunded amount:

Steps

Action

1

Update the person's pension assessment as per current income and assets details.

2

Determine the amount to be exempted under the assets test from the DHACs schedule of affected cases.

3

Determine the reduction to be applied to the person's income.  This will be the amount to be exempted under the assets test multiplied by the above threshold deeming rate (currently 4.5%).

4

Deduct the income and asset exemption amounts from the person's total income and assets.  For couples, apply 50% of the deductions to each member.

5

Go to the Manual Rates screen and select “Miscellaneous (manual assessment) Type”.  Record the income and assets assessable balances.  Give a reason for the manual rate assessment in Text:  For example, 'Refunded accommodation charge exemption applies'.

Aged Care Contacts

Should you have any queries regarding the policy or legislation please contact Oona O'Beirne on (02) 9213 7771.

A copy of the State instruments of delegation and listing of residents who will receive the refund were provided to these officers.  For review purposes the state contacts will also maintain a list of those who have an income and assets test exemption that is affecting their pension.

Set our below are the State contacts for Aged Care:

NSW

Roger Avery & Michael Gore

SA

Diane Blandford & Frazer Day

VIC

Des Kelly & Dave Saunders

TAS

Phil Beattie & Chris Craven

QLD

Jill Irish

WA

Kim Gooding and Sandy Vidot

Summary of changes

The changes that announced since 1 October 1997 up to but not including the May 1999 Budget changes, and the dates from which the changes take effect are summarised as follows:

• Existing hostel residents at 1 October 1997 protected from increase in basic daily resident contribution associated with the alignment of nursing home and hostel daily fees from 1 October.  This change has no income support impact.

• When calculating a person's assets for the purposes of determining the accommodation bond or charge they must pay, the former home will not be counted where a carer has lived in it for two years (previously five years).  Effective from 1 October 1997.  This change has no income support impact.

• Accommodation charge replaces accommodation bond for new entrants to nursing homes (other than extra service facilities).  Effective from 6 November 1997.

• Exemption of former home under pensions income and assets test (and hence for fees purposes) extended from 2 to 5 years where pensioner pays an accommodation charge and rents former home.  Effective from 6 November 1997.

• Rental from former home exempted from pensions income tests (and hence for fees purposes) where a pensioner pays an accommodation charge and rents former home.  Effective from 6 November 1997.

• Certain exemptions introduced under the pensions income and assets test, for residents of nursing homes who paid an accommodation bond between 1 October 1997 and 5 November 1997 (both inclusive) and then commuted to an accommodation charge.  Effective from 6 November 1997.

• Income testing of aged care fees deferred to 1 March 1998.