Asset testing of older people to be removed

The government will progressively remove asset testing of older people in long-term residential care from 1 July 2005, Associate Health Minister Ruth Dyson announced today.

From 1 July 2005, single people and couples with both partners in care will be able to keep up to $150,000 in assets (including both property and savings) before their assets are used to contribute to the cost of their care, up from $15,000 and $30,000 respectively. Couples where one partner is in care will retain their current exemptions of a house and car, while their cash asset exemption will rise from $45,000 to $55,000.

The exemption thresholds for all groups will then increase by $10,000 a year, progressively removing asset testing.

Ruth Dyson said the decision was in line with the government’s 1999 election promise and was based on human rights considerations.

“It is unfair that people aged 65 and over are required to use up their assets to contribute to the cost of their care, whereas younger people are not. The gradual removal of asset testing will balance these important human rights considerations against the very substantial costs involved.”

The policy is expected to cost $103 million in 2005/2006, rising to $163 million in 2010/11 and $345 million in 2020/21.

“The increased costs over time reflect the annual increase in the exemption thresholds, and the growing number of older people in the population, ” Ms Dyson said.

Around 31,000 people, seven per cent of those aged 65 and over, are currently in long-term residential care. The new policy will apply to all new admissions, and to people already in care who are not currently eligible for a residential care subsidy. Around 5,600 additional people are expected to receive the subsidy from 1 July 2005, taking to 70 per cent the proportion in care who receive the subsidy.

Legislation to remove asset testing will be introduced later this year. Public submissions will be called for at that time.

Removal of asset testing: Questions and Answers

The Labour-Progressive government has announced the progressive removal, from 1 July 2005, of asset testing for people aged 65 and over in long-term residential care. The following questions and answers explain this decision in more detail.

1. What is the current situation?

When a person aged 65 and over is assessed as needing long-term residential care, they can apply for a residential care subsidy to cover the cost of their care. Eligibility for this subsidy is subject to an asset test. The following level of assets is currently exempt from asset testing: $15,000 for a single or widowed person in care; $30,000 for a couple with both partners in care; $45,000 for a couple where one partner is in care, and their house and car.

Assets tested include the house, holiday home, car, shares, bonds and savings.

2. What does the new decision mean?

The government has decided to progressively remove asset testing by gradually increasing the exemption thresholds for assets. From 1 July 2005, the thresholds will increase: from $15,000 to $150,000 for a single or widowed person in care; and from $30,000 to $150,000 for couples with both partners in care from $45,000 to $55,000 for couples with one partner in care (plus their house and car).

The exemption thresholds for all groups will then increase by $10,000 a year, so that asset testing is progressively removed.

3. What assets will be eligible for exemption?

All assets will be eligible for exemption, including the house, holiday home, car, shares, bonds and savings. This supports the government’s objectives for encouraging retirement savings.

4. Why is the government removing asset testing?

The government is keeping its 1999 election promise to introduce legislation to remove asset testing from all forms of long-term care for older people.

This promise was made because asset testing is unfair. People aged 65 and over are required to use up their assets to contribute to the cost of their care, whereas younger people are not. This inequity raises issues of compliance with the Human Rights Act.

By removing asset testing progressively, the new policy balances human rights considerations against the substantial costs involved in removing asset testing.

5. How much will the progressive removal of asset testing cost?

The changes to asset testing are expected to cost $103 million in the first year (2005/2006), rising to $163 million in 2010/11, and $345 million in 2020/21. The increase in cost over time reflects the $10,000 annual increase in the exemption threshold and the growing number of older people in the population.

6. How much would it cost to remove asset testing completely?

It would cost $252 million to remove asset testing completely in the first year (2005/2006), rising to $322 million in 2010/11 and $507 million in 2020/21.

7. Why was the exemption threshold set at $150,000?

The threshold was set at $150,000 to balance human rights considerations against the substantial cost involved in removing asset testing. The new $150,000 threshold substantially increases the assets that people can keep before their assets are used to contribute to the cost of their care - single and widowed people will be $135,000 better off than at present, and married couples who are both in care will be $120,000 better off. These amounts will increase annually by $10,000.

For many people, their house will be immediately exempt. People who have sold their houses will be able to keep a significantly increased level of savings.

8. Who will the new policy apply to?

Around 31,000 older people are currently in long-term residential care, 7 per cent of older New Zealanders.

The new policy will apply to: people already in care who are not currently eligible for a residential care subsidy; and all new people who are assessed as needing long-term residential care from 1 July 2005. All these people will benefit from the substantial increase in the thresholds.

People who currently receive a residential care subsidy will continue to receive the subsidy. From 1 July 2005, an additional 5,600 people are estimated to receive the subsidy, taking to 70 per cent the people in care who receive the subsidy.

9. Will the new policy be retrospective?

No, the new policy will apply only from 1 July 2005. No refunds will be given.

10. How do people apply for a residential care subsidy?

People must first have a clinical needs assessment which shows they need long-term residential care indefinitely.

Work and Income NZ then carries out a financial means assessment on behalf of the Ministry of Health. If their assets are under the exemption thresholds, people qualify for a subsidy. They are then income tested. The level of subsidy paid depends on their income. 11. What happens if a person’s assets are worth more than $150,000?

If a person’s assets exceed $150,000, they will have to contribute towards the cost of their care until their total assets reduce to $150,000.

12. If a person’s assets are worth more than $150,000, how much will they have to contribute weekly to the cost of their care?

Currently, people have to contribute a maximum of $636 a week towards the cost of their care if they have assets above the exemption thresholds. In future, this amount will be adjusted in line with inflation.

In many cases, this contribution does not cover the full cost of care. For example, national average prices are $712 a week for dementia care and $1010 a week for hospital-level residential care.

13. If a person’s house is worth more than $150,000, will they have to sell it to pay for their care?

No one will have to sell their house to pay for their care. A residential loan scheme is available whereby the Crown can fund care costs as an advance. This will accumulate as an interest-free loan secured by a caveat over a person’s house. When the house is sold or their estate is wound up, the loan will be repaid to the Crown.

14. What if a person’s assets are worth less than $150,000?

If a person’s total assets, including their house, are worth less than $150,000, they will not have to use their assets to contribute towards the cost of their care.

15. How will a person’s house be valued?

Houses will be valued according to rateable valuations, issued by local authorities when they advise people of their annual rates. In most areas, these valuations are done at three-yearly intervals.

16. Is the government going to remove income testing?

No, the government does not intend removing income testing. If older people are receiving income from investments, rent, superannuation etc, it is fair to expect that they will contribute to the costs of care they would expect to pay if living in their own home.

17. What will happen to the new policy if there is a change of government?

If there is a change in government, the policy is likely to be overturned. During the lead-up to the 2002 election, National leader Bill English stated that his party had no plans to change the current asset testing regime.

The opposition parties’ track record on asset testing is one of broken promises. In 1996, New Zealand First campaigned to remove asset testing. The Coalition Agreement that New Zealand First signed with National promised to “remove income and asset testing for long-stay geriatric public hospital care services and asset testing for long-stay geriatric private hospital care”. However, two years later, Mr English, then Minister of Health, announced that his government was abandoning the bill that would have abolished asset testing of older people in private and public hospital long-term care.

The 1996 Coalition Agreement also promised to exempt $100,000 on the family home from rest home care for single people and couples where both were in care. It never happened. Asset testing remained.

18. Will any other group benefit from the new policy?

Yes. From 1 July 2005, asset testing will be fully removed for people aged 50-65 years whose health support needs (eg dementia) are assessed as being ‘close in interest’ to an older person. Currently, single people aged 50-65 without dependents are subject to the same asset testing as people aged 65 and over.

19. When will legislation to remove asset testing be introduced?

Legislation to progressively remove asset testing will be introduced later this year. Public submissions will be called for at that time.

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