All the rules and regulations concerning an accommodation bond are defined in the Aged Care Act 1997 (ACA-97), and the accompanying User Rights Principles 1997 (URP-97).

Schedule 1 of the ACA-97 defines the accommodation bond as "an amount of money that does not accrue daily and is paid or payable to an approved provider by the person for the person's entry to a residential care service or flexible care service through which care is, or is to be, provided by the approved provider."

In summary the accommodation bond is an interest free, unsecured loan (the majority of the bond is returned when the resident leaves the facility) and can range in value from $50,000 to $750,000+ , depending upon a range of conditions including the financial status of the new resident.

The aged care provider is entitled to the income derived (interest) from the accommodation bond. The income derived from the accommodation bond must be used for specific purposes, essentially concerned with maintaining existing or building new infrastructure (buildings and equipment).

Income derived from the accommodation bond pool is not to be applied to the provision of care services. ACA-97 s57.2 (1) (n).

When do you need to pay an Accommodation Bond?

Currently (from 20th March 2013) an accommodation bond can be requested from a resident entering into a low care (hostel) care and those receiving high level care in a facility with an "extra service" status. ACA-97 s57.2 (1) (a).

When is an Accommodation Bond not required to be paid?

An accommodation bond is not payable under some circumstances:

Where the admission is for respite care. ACA-97 s57.2(1)(b)
Where a determination has been made that by paying an accommodation bond, that this would cause the resident to experience financial hardship. ACA-97 s57.2(1)(h)
Where the person is "fully supported" that is that the person receives an income support payment (pension) and has not been a home owner for more two or more years (or, if so, the home is occupied by a protected person such as a spouse) and the value of the persons assets is less than 2.5 times the basic aged pension at the time in question. ACA-97 s57.2(1)(g)
Where the Department of Health and Ageing has imposed sanctions on the aged care provider prohibiting the charging of an accommodation bond. ACA-97 s57.2(1)(o).

How much Accommodation Bond can the Aged Home ask for?

This is the question that perplexes most of our family clients. The ACA-97 provides only one limiting criteria on the level of the accommodation bond to be paid, and that is that a resident must be left with a minimum permissible asset value. This value will always be 2.5 times the basic aged pension at the time that the resident enters the residential care service.

The current minimum value that a resident must be left with as at 20th March 2013 is $43,000.

It should be understood that the resident can be left with more than the minimum of assets and this is where the discussion with the aged care provider begins to get interesting.

Assessing the Resident's level of Assets

Centrelink or the Department of Veterans' Affairs (DVA) can assist a person to complete assets testing for entry into permanent residential aged care on behalf of the Department of Health and Ageing. Centrelink has the responsibility of all assessments except those for people who receive a means tested pension from DVA.

Assets assessments may be undertaken before a person enters residential aged care.

An assets assessment is not compulsory unless a person wants to find out if they are eligible for government assistance with their accommodation costs for permanent residential aged care.

Prospective residents may instead choose to negotiate the payment of an accommodation bond with an aged care home directly rather than having an assets assessment.

If the resident does not provide the aged care home with sufficient information about their assets, then there is no limit set upon the accommodation bond that can be negotiated.

However, usual competitive pressures stops most aged care providers from requesting exhorbitant aged care accommodation bonds. Usually.

If a resident's previous family home is rented out to pay some or all of the bond by periodic payments, the value of the family home and the rental income is exempt from the pension assets and income tests for as long as the resident is liable to pay a periodic payment.

Many of our family clients, especially those with valuable real estate, choose not to sell the family home, but to simply negotiate the accommodation bond based around the rental income. The family benefits from the capital appreciation of the family home over a period of time.

We would suggest that new residents and their families seek professional advice on the average accommodation bonds being paid in the local area, and professional advice related to the financial implications of the payment of the bond.

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What is the Accommodation Bond Retention Amount?

The aged care provider is allowed to retain a fixed amount from the accommodation bond. As at the 20th March 2013, the accommodation bond retention amount is $323 per month, or part of a month, for a maximum of 5 years (60 months).

The retention amount is regularly reviewed in relation to changes in the CPI index.

Example 1 - if a resident stays within the residential care facility for a period of 2 years (24 months), then $7752 will be retained from the bond by the aged care provider. Ie 24 x $323.

Example 2 - if a resident stays within the residential care facility for a period of 10 years (120 months), then a maximum of 60 months of retention amount can be deducted ie. $19380 will be retained from the bond by the aged care provider. Ie 60 x $323.

If a resident moves to a new aged care home, then the 5-year retention period does not begin again.

Is the Accommodation Bond Guaranteed?

The ACA-97 specifies that the Commonwealth Government will refund the residents accommodation bond if the aged care provider becomes bankrupt or insolvent.

Under these exceptional circumstances, a levy may be imposed on an aged care provider by the Commonwealth Government in relation to refund and administrative costs associated with the repayment of the accommodation bond balance to a resident. Source: Aged Care (Bond Security Levy) Act 2006.

What Methods of Payment can be used?

The accommodation bond can be paid in three ways:

Lump sum
Periodic Payment (ie. interest only)
Lump sum and periodic payment.

The option chosen by the resident will depend upon the individual's and family situation and preferences.

It is important to seek quality professional advice at this stage in order to maximise the benefit to the resident.

If you agree to pay the bond as a lump sum, you cannot be required by the aged care provider to pay that lump sum during the first 6 months following the residents entry into the home. Although you can choose to do so.

What if the residents care needs change from low care to high care?

If care needs change from low-level care to high-level care, and the resident remains in the same aged care home (typically an ageing in place facility) and the resident has already paid an accommodation bond, then the bond arrangements that were in place when entering low care will continue.

If the resident moves to another home to receive high-level care, they can, with the agreement of the new home, transfer the balance of the accommodation bond to the new home.

Otherwise, the resident can receive a refund of the accommodation bond and may be asked to pay an accommodation charge based on their level of assets.

When is the Accommodation Bond refunded?

If a resident dies, the accommodation bond refund must be paid to the estate within 14 days after the date that the aged care provider is shown a grant of probate or letters of administration (ACA-97, s57.21(3)(aa))

If a resident moves to another aged care home, the date for the accommodation bond refund will depend upon when notice is given:

Equal to or more than 14 days notice: refund is due and payable the day that the resident leaves the aged care home.
Less than 14 days notice: refund is payable within 14 days after the date that the notice was received.
No Notice: refund is payable with 14 days after leaving the home

What does the Accommodation Bond Agreement cover?

If a resident is required to pay an accommodation bond, the aged care provider must prepare and enter into an accommodation bond agreement with the resident within 21 days of the resident entering the aged care home as a permanent resident.

The "accommodation bond agreement" will contain specific terms and conditions relating to the following:

The amount of the accommodation bond
The interest rate applicable to periodic payments
The entry date (to permanent residential care)
The method of payment
The retention amounts and when these will be deducted
The resident's entitlements to specific services
Additional fees (ie administrative fees) and conditions when they will apply
Refund conditions

Accommodation Bonds in Mainstream High Care?

Currently (as from 20th March 2013) there is no accommodation bond applicable if a person enters a mainstream (general service) high care home.

However, this situation is expected to change if the current Productivity Commission Submissions recommend that bonds are applicable in all level of Commonwealth subsidised residential care.

In 2008, Aged care providers refused to take up over a third of the new bed licences issued by the Commonwealth because they cannot afford the cost building and staffing new facilities.

This is not surprising since 40% of high care providers now operate at a loss. The Hogan Report into Aged Care Funding arrangements found that a fair, efficient and sustainable solution to the problems facing high care nursing homes was to extend the existing accommodation bond system, and allow 'high care' nursing homes to charge residents a bond to offset the cost of their care, as well as fund the construction of additional capacity.

Bonds can currently be levied by aged care providers for places in "low-care" facilities. This has led to spectacular growth in that segment of the aged care market. Demand for high care beds will increase over the next 20 years as the proportion of the population aged over 85 expands.

The Hogan Report found that the uncertainty the inability to levy bonds creates discourages investment and restricted long-term planning and development decisions. The high care sector is already heavily dependent on taxpayer funding.

The Commonwealth government will not be able to provide the estimated $27 billion capital required over the next decade alone to expand and modernise high care facilities.

The Accommodation Bond in Residential Aged Care

What is an Accommodation Bond?