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RotoruaResidential Care

AssociationJune 17th 2003

The removal of asset testing and its implications

Susan St JohnUniversity of Auckland

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In the mail ….

“I am delighted to report that the Labour-led government has delivered on a promise we made to remove asset testing of older people in long-term residential care”

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History of promise to remove asset testing

• 1996 Coalition agreement• 1997• 1998 Revised asset test• 1999 Labour Manifesto• 2000• 2001• 2002• 2003 Bill to be introduced• 2004• 2005 Revised asset test to be implemented (if

Labour elected?)

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What has been the problem?Labour’s problem is that it made a

rash promise

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The ACTUAL problem

– Lack of insurance for catastrophic costs of long term care

– Inequitous apportionment of costs

– Badly designed and anachronistic means test

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What might have been done in an ideal world?

• Royal Commission on Long term care– Focus on insurance for middle income

peopleor

• Periodic Report Group 2003 with wide terms of reference

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Demographic change

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Health expenditure

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Residential care usage

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What has been done?Single Couple one

in careCoupleg both in care

Today $15,000 $45,000+ house, car, chattels

$30,000

From 2005

$150,000 $55,000+ house, car, chattels

$150,000

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Policy is costly

• But not as costly as full removal– (507m in 2002)

• Also depends on the income test

2005/6 2020/21 2040?

103m 345m ?

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What problems did Government face in design of policy?

• Bill of Rights obligations• Need to remove incentives to over

invest in homes• Problems of timing of introduction• Anomalies in the income test

– Concern about the spouse at home– Income on exempt assets

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Does the policy address the problems?

• Current residents miss out

• Housing still advantged

• Problems of the younger spouse unaddressed

• Costs of future ignored?

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Announced policy• Is it clever?

– Unindexed exemption rises $10,000 a year

– Less valuable as time goes on– Asset testing is never removed

• Lots of wriggle room– Are we also going to see a revised

income test?

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The case of the younger spouse at home

– House is exempt– She can keep $55,000– Income test applies to all income

over low limit– How does she

• Save for her own retirement?• Replace car and other assets?• Provide for older student offspring?

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The case of the single person in care v couple in care

• Is the couple best to divorce?

• Using the marital unit remains discriminatory

• Did they think this one through?

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Assessment of policyMost problems remain

– Bill of rights issues– Use of marital unit issue– Discrimmination and harshness of

the income test– Lack of insurance– Over investment in housing– Use of trusts

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What should have been done?

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– Relief signalled for current clients whose assets are being run down

– Signal that more of the costs of ageing in place will have to be carried by the baby boom generation

Reform means test – deal with trusts

– Investigate social insurance options for care in old age- eg annuities with long term care insurance attached

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Concerns for the residential care sector

• Not retrospective- unhappy clients in the introduction of the chnage

• Costs have to be paid for from somewhere – Does it make needed increases in subsidies for

care less likely?• Is the income test making it too difficult

for people to have enough extra income in residential care?– Is the income on the $150,000 exempt?