Easing the test of time

The issue of making elderly people pay for their hospital or rest-home care may have had some of the heat taken out of it by a Government announcement this month, but it hasn't gone away just yet.

Changes to the user-pays rules will not happen for more than two years, and even then elderly people in long-term care will still face asset-testing - albeit in a gentler form than now.

Asset-testing has long rankled with some older people, who believe it is unfair that they have to pay when they go into long-term hospital or rest-home care, whereas the Government pays for younger people needing similar care.

That disparity isn't about to disappear, but the asset test promises to be more generous from July 1, 2005.

As things stand, people over 65 (and younger, in some circumstances) who are assessed as needing long-term rest-home or hospital care can apply for funding from the Government, in the form of the Residential Care Subsidy.

But, they won't get the subsidy if their assets exceed certain limits (see "The asset test", below). If that's the case, they are expected to pay for their care, up to a maximum cost of $636 a week, until their remaining assets fall below the threshold and they qualify for the subsidy.

"Assets" includes the obvious things, such as cash in the bank, shares and other investments, and also the family home - unless it is occupied by a partner or dependent child.

Personal effects are not counted, and nor are pre-paid funerals (up to limit of $10,000 a person) but Work and Income, which administers the asset test, may count gifts made to other people before applying for the subsidy.

Work and Income notes that the present limits mean: "If your home counts as an asset, you probably won't qualify for a subsidy."

So single people, or couples both in care, may have to sell the family home - or get an interest-free loan from Work and Income - and spend most of the money before qualifying for the subsidy.

By the time they are eligible, they'll be down to their last $15,000 (for a single person) or $30,000 (for a couple).

Or, in the case of a couple where only one partner is in care, the other partner may have the family house, but can have only a maximum of $45,000 in assets.

Even after the limits rise, many single people or couples in care still won't qualify. From 2005 the asset threshold for them rises to $150,000.

Given that the national median house price is in the vicinity of $190,000, owning a house will still be enough to make many people ineligible for the subsidy.

And while the limit will then increase by $10,000 a year, that may not be enough to keep up with house values.

The net effect is that it may be a very long time, if ever, before houses are entirely free of the asset test.

However, even if people do have to sell, the new limits mean those going into care can keep much more of the proceeds.

In the case of a couple with one partner still at home, the house isn't an issue. In that case, the asset limit will rise from $45,000 to $55,000, then increase by $10,000 a year, the Government has promised.

Garth Taylor, chief executive of lobby and support group Age Concern, applauds the change as "a good first step".

"2005 we think is far too far away - they should be bringing it in from 1 July next year. However, it is very pleasing to see they're finally making some movement.

"It will satisfy pretty much all middle-to low-income people who are caught up in this inequitable requirement to pay for their own residential care.

"Our experience shows that it's generally the middle-to-upper-income people who avoid it, because ... their assets are protected in some way."

One worry is that some older people, or their families, may delay the move into care until the new rules apply.

"We know right now that there are families that keep the older person away from residential care because they're trying to protect their own inheritance," says Taylor.

Dennis Paget, Grey Power's health spokesman, says it would have preferred total removal of the asset test, but the planned changes are "at least a step in the right direction".

Grey Power also has reservations about the planned $10,000-a-year increase in the asset threshold; double that amount would be more realistic, says Paget.

Whatever the changes to the asset test, people who qualify for the subsidy will still have to use any income to help pay for their care, as they do now, up to a maximum of $636 a week.

So, elderly people in care will still have to pass on any money coming in from NZ Superannuation (apart from a $29.60 weekly allowance and a $209.64 annual clothing allowance), investments or family trusts, among other sources.

However, they can keep half of any income from New Zealand-registered superannuation schemes or annuities.

That will not change from 2005, and the Government has said the $636 weekly limit on the amount people are expected to contribute will be increased in line with inflation.

But while asset-testing continues to arouse strong emotions, there's one comforting fact - it isn't an issue that most older people have to grapple with.

In 2001, only 1.8 per cent of people aged 65 to 74 lived in residential care; for 75- to 84-year-olds it was 5 per cent; and even in the oldest age group - 85 plus - the percentage was still only 27 per cent, according to Ministry of Health figures.

During 2000-01 the ministry says, there were about 29,000 people in residential care, 9500 of whom were paying for all the cost of their care, with the rest either partially or fully funded from the public purse, at an annual cost of about $426 million.

* To contact personal finance editor Mark Fryer write to: Weekend Herald, PO Box 32, Auckland. Email Mark Fryer . Ph: (09) 373-6400 ext 8833. Fax: (09) 373-6423.