KPMG Modelling of LLLB Accommodation Payment Reforms

Retirement Living

DoHA has released the KPMG modelling commissioned by the Aged Care Financing Authority (ACFA) into the potential impacts of the key elements of the Living Longer Living Better (LLLB) accommodation payment reforms on residential aged care providers at the aggregate level.

KPMG were commissioned by ACFA due to uncertainty in the sector about the future pool of refundable accommodation deposits (RAD) and the implications of a significant shift from RADs to daily accommodation payments on future infrastructure development.

ACSWA is seeking further independent comment of the KPMG Scenario analysis of selected LLLB financial arrangements.

A key matter that needs to be considered in the KPMG report is the Modelling Methodology ( Page 11 of the Report). The Report is based on theoretical assessments that they qualify because they are uncertain:

Page 11 Note 5 As discussed in Section 0, factors other than maximising expected wealth will also impact the decision to choose between alternative accommodation payment types, such as an emotional attachment to the family home or alternative priorities within estate planning. Due to limited information they have not been included in the model.

The objective of the KPMG report was to provide more certainty for providers about the impact of LLB on bonds and related income. To arrive at their conclusion, they have had to use a series of assumptions that they qualify because they are inherently uncertain.   Because of the inter-related nature of the assumptions, the overall conclusions don’t provide a lot more certainty regarding likely bond or income shifts.

Key assumptions that are uncertain are:

1.     Choice of RADs or DAPs are based on wealth maximisation. In practice, emotional factors and estate planning (including family issues) are major influences and these are likely to become more critical to the DAP/RAD decision making process. This is made more uncertain with the introduction of the 28 day cooling off period;

2.     The impact of bond levels because of increased transparency on bond pricing – the nature of competitive influences in a supply regulated environment make it inherently difficult to estimate the impact of the publication of bond prices on aggregate RAD levels achieved across the industry;

3.     Impact of price capping in reducing aggregate bonds could not be incorporated in the modelling because the basis for RAD restrictions had not been released by Government at the time of the report.

Bentley’s  has released a summary outlining the implications of the KPMG Report please click here to view the Bentley Summary.

To view the full KPMG Interim report click here.