Rest home-level care is increasingly unaffordable for ageing NZers, yet with the numbers in need set to soar, the sums don’t add up for providing more beds.
The swarm of unfunded liabilities that afflicts New Zealand’s future includes one that strikes close to many a home. That is the need to pay for Nanna in her sunset years, when the money isn’t available.
We don’t pay her a big enough pension to live on, nor can the state really afford pensions at their current level. We can’t provide enough homes and nursing care when she becomes really infirm, and many of the operators of those care homes are failing to break even with current funding models.
For Nanna, read most of us – Baby Boomers now retired but still living in their own home, Gen Xers still working but nearing retirement, and Millennials and Gen Zers who will likely face the costs of caring for their infirm parents while dealing with their own financial futures. An ever-growing proportion of the population will need some form of residential care in the future – but the current model of caring for the frail elderly in this country is accepted as broken.
A Sapere Research report for Te Whatu Ora found high-needs dementia and psychogeriatric patients are waiting nearly six months on average to get into a residential care home. The supply of residential care beds is in decline despite surging demand; many operators say it is not financially viable for them to build more. Apart from the economics, shortages of skilled staff are adding to the headaches in both residential and community-based care.
The government is setting out to address the multiple problems facing the sector: a select committee inquiry, a Te Whatu Ora review of funding and service models and a review of the Retirement Villages Act are all under way. But there’s no clarity or political consensus on where the solutions lie – and the reality is that the cost burden of providing managed care will shift either more towards individuals and their families – which may mean only the wealthy can access beds – or more towards the taxpayer.
A snake with bulges
When older people require state-subsidised residential care under the current system, their assets, including their home, are siphoned off to help meet the cost. This can, of course, deprive offspring of inheritances they were counting on, which makes any attempts to rein in the costs to the state politically fraught.
In 2022-23, the government, via Te Whatu Ora, paid $1.4 billion to subsidise aged residential care for 32,000 New Zealanders. At the same time, residents paid $1 billion via means testing, including superannuation deductions.
Yet all this cash still leaves the bucket half empty, so more money has to be found for the average residential care bill of $72,800 a year per person. Like a snake digesting one meal and then another, demographic trends – including the post-war Baby Boom and people living longer – have created a recurring “ageing bulge” in New Zealand. The upshot is too few young people caring for and paying for too many old people, a problem compounded by successive governments putting off (or reversing) reforms such as compulsory superannuation and a later retirement age.
The population aged 85+ is projected to triple in the next 30 years, from 88,000 in 2020 to 280,000-340,000 in the 2050s. Figures supplied by Aged Care Commissioner Carolyn Cooper show life expectancy rising for women from 84 to almost 90 by 2073 and for men from 81 to 87.
The Aged Care Association, which represents residential care providers, says there will be 100,000 people aged 85+ as soon as next year, and two-thirds of them will need aged residential care at some stage in their lives.
The crisis has arrived. The funding model is broken and needs to be replaced.
With people living longer, there is more pressure on hospitals – patients with medical issues and physical injuries from falls – and for specialist care for mental health issues including dementia and Parkinson’s disease (see “Pyjama paralysis”, below).
A period in hospital is often the prelude to a move into residential care. But the number of care beds coming on stream is falling well short of anticipated demand. With 1000 extra beds needed each year for the next decade, major retirement villages are scaling back on providing residential care beds due to poor returns, a Berl research survey for the association found. A third of providers were not planning to add additional rooms, the 2023 survey found. Asked about the barriers to extending their care facilities, they cited insufficient income to justify the investment, difficulties in finding and retaining staff and uncertainty over occupancy due to needs assessment policies.
An independent report by Australia-based aged care sector specialists Ansell Strategic found more than half of respondents’ facilities made a net loss in 2022-23, factoring in depreciation, amortisation and interest. “This equates to a loss of $4.24 per operating bed per day.”
The result is a stagnant supply of beds and even bed closures as facilities struggle along. An association survey last year found 81% of respondents felt their facility would benefit from an upgrade, 64% said they needed renovations but could not currently upgrade, with 43.5% saying the additional income would be insufficient to justify the cost of upgrading.
The real costs of running aged care facilities are rarely appreciated by the public. According to the association, providers get a payment of $177 per day on average for reasonably competent residents and $317 a day for people with high-level problems. The weighted average is $235 per day, but more money is needed for inflation and to give an adequate return on capital to fund future development.
The current funding arrangements are not keeping pace with the growing demand and more complex needs of advanced care residents, says association chief executive Tracey Martin. She cites Te Whatu Ora’s latest 3.2% rise in annual funding for care providers. “We provided evidence that the sector required an 11% uplift to just break even, but there was no negotiation. Te Whatu Ora simply said 3.2%, that’s it.”
One consequence of that limited increase, says Martin, is top-up payments being imposed on more recipients of aged residential care. “It leaves the operators in the position of losing money. So they scramble around, so that even when a senior has been asset- and income-tested and their superannuation has been taken to pay for their care, our members are still having to charge a premium to just break even, and that premium can range from $10 all the way to $115 a day.”
Martin says the number of people with dementia will rise from the current 70,000 to 100,000 in six years and 170,000 in 25 years. This is already bringing challenges: the association cites cases such as a resident with dementia whose condition advanced to acute psychogeriatric illness but there was no available bed for them; a Covid outbreak in a dementia unit but a shortage of staff because they were isolating; and the issue of what to do, and who pays, for a homeless dementia patient with no family and no one to represent them.
Not adding up
All this economic pressure sometimes ends up on the desks of big, listed retirement companies like Summerset or Arvida, which have enough financial muscle to deal with some of it at least. But two-thirds of the aged care providers are small operators, or church groups and community trusts, with limited funds. One organisation that is stretched to the limit is the non-profit CHT Care Homes. Founded in 1962 as the Christian Hospital Trust Board, it has 1480 beds across 21 care homes. It has had to write down the values of three successive projects because the income from Te Whatu Ora fell short of the price of construction.
“It costs $21 million to build a 60-bed care home,” CHT wrote in a submission to the select committee of inquiry into aged care. “Based on estimated future cashflows, on the day it opens, a care home would be valued at around $12 million. Even a not-for-profit cannot sustainably manage that level of write-off.
“We don’t have retirement villages and we simply cannot build the new care homes and be financially responsible.”
There will be 100,000 people aged 85+ as soon as next year, and two-thirds of them will need aged residential care at some stage in their lives.
CHT’s chief executive, Carriann Hall says aged care is not like a normal business. “The amount we can charge is set by the government … it is not a normal market situation where you can say it is costing so much and people will just have to pay more,” she says.
“You speak to any aged care provider and they will tell you that we won’t compromise on care, so if you don’t compromise on care, and your cost base is higher than your revenue, you have got a whole sliding scale of issues … There are institutions with ageing facilities which do not have the capital to invest in them.
“Today, we have hit a new high in our occupancy rate – 98% – so we are almost full. If we can’t build new care centres without huge write-offs, then we can’t expand without basically running out of money and we can’t take on more older people.
“It will come to a point, and it could be quite soon, that a needy older person will turn up and we will have to say, sorry, there is no room.”
Another select committee submission came from Foxton’s Lonsdale Total Care Centre, which provides 24-hour nursing cover. “The healthcare system is not set up for the provision of quality care at any level,” Lonsdale said.
“There have been repeated reports since 2010 that have warned that the sector is underfunded and that a crisis is approaching … The crisis has arrived. The funding model is broken and needs to be replaced.
“Premium priced beds continue to be built for people that have the financial means to pay. Where people rely on government funding, facilities are shrinking and will ultimately close. Therefore, care will be provided for those who have the means to pay. It is a political decision whether this is acceptable.”
The whole problem is worsened by bureaucratic confusion, according to a March 2024 report by Aged Care Commissioner Carolyn Cooper. “There is no co-ordinated strategy focused on our ageing and increasingly diverse population, including rising numbers of people with chronic conditions and high health needs,” she wrote. Her report, Amplifying the Voices of Older People Across Aotearoa New Zealand, calls for a proper strategy, including better systems of discharging people from hospitals and more use of workers to assess their progress.
Redesign coming
None of these problems are being ignored. If anything, they have been over-analysed, with the same mournful conclusions coming up in report after report. Te Whatu Ora has completed stage one of its review of funding and service models for the sector, which warned the country could be short of 12,000 aged residential care beds by 2032 if current supply trends continue. It is working on a redesign that aims to “improve the sustainability of services and ensure equity of access” for older people.
Facing up to the problems is important, says Age Concern’s chief executive, Karen Billings-Jensen. “This is the can that has been kicked down the road, so talking about it, getting it on the table, and having the will to make the policy changes that will support this is important,” she says. “There is no alternative; it does need to be dealt with.”
One issue the Te Whatu Ora review is considering is also being examined by the select committee inquiry: the split between the state and the individual over who pays for residential care. At present, applicants for state-subsidised residential care go through a needs assessment process that includes asset and income testing. The government covers a portion of the care costs directly to the care home and you pay the balance, with the amount of subsidy ultimately set by Work and Income.
Premium priced beds continue to be built for people that have the financial means to pay. Where people rely on government funding, facilities are shrinking and will ultimately close.
Given the projected increases in demand and therefore the cost of the subsidy, the current reviews are bound to consider lowering asset and income thresholds to shift costs from the state to individuals. But the possible impact on families’ inheritance is bound to produce a repeat of the furore that arose in the 1990s, when the government last determined the basis for setting thresholds.
However, there might be a way of reducing asset-testing thresholds in a transparent way and reducing the acrimony, suggests the Aged Care Association. Under its proposal, asset testing would apply to the costs of accommodation alone. Healthcare costs would be kept separate, and met from the public purse. “It will be very interesting to see if the select committee comes back and recommends the threshold is lowered to reduce the cost to the crown and shift that cost on to residents,” says Tracey Martin. “The select committee will have to make a recommendation, but whether it is picked up and implemented by the government is a whole other story.”
A related inquiry into the Retirement Villages Act, which began under the last government, is due to be released by Associate Housing Minister Tama Potaka by the end of the year. Although it is mainly concerned with fully able people living in retirement villages, it will also address their transition to aged care within or between retirement villages as they become infirm.
A bipartisan approach?
Associate Health Minister and Minister for Seniors Casey Costello told the Listener she won’t pre-empt the Te Whatu Ora review or the select committee inquiry. Nor is she saying anything about asset-testing thresholds or split-funding arrangements.
But she says there needs to be “a major shift in thinking and approach” from what we have now. “I don’t shy away from the fact we’ve had a problem developing effective responses for some time,” Costello said in a statement. “The current model … isn’t set up for future demand and constrains delivery now.” Her statement goes on to deplore regional variations, and calls for a bipartisan solution.
The Labour Party thinks the sector itself carries some of the blame for its problems. “There are challenges in assessing the funding that the residential aged care sector receives when we can’t see inside their books,” says Labour associate health spokesperson Tracey McLellan. “But we are in the process of looking at a range of funding options … to achieve a sustainable system of aged care that older New Zealanders can rely on in their future.”
McLellan accuses the government of cutting health spending and takes a dig at her political rivals. “If the National government wants to asset-test the healthcare of older New Zealanders rather than invest government funding, we think they need to be very open with the public about their intentions.”
The Green Party refuses to support lowering asset thresholds, citing the “impact this can have on partners who are not in care and the high living costs they face”. It says it would consider the association’s split-funding proposal, but focuses mainly on finances and an “unsustainable” system right now. “We would support increased funding, particularly for non-profit providers … the current funding model has created a frustrating cycle of ongoing staff shortages, poor pay for care workers and inconsistent standards of care.”
Pyjama Paralysis
A shortage of care options for older patients is adding to hospital backlogs.
In Te Whatu Ora’s 2024 Nationwide Service and Campus Planning Report, along with eye-watering capital costs for building future hospitals is the unsurprising statement that the average 85-year-old requires 10 times the hospital time of an average 45-year-old. More dramatic is the forecast that nine out of 10 hospital beds will be filled by someone 65 years or older by 2043.
The downward spiral of ill health that afflicts many older people – including falls at home – often leads to hospital, meaning longer waits for younger patients. Elderly people are supposed to be fixed up and moved either back home to be cared for by Home and Community Support Services (HCSS) or to aged residential care.
But alongside the shortage of available residential care beds is a shortage of community-based nurses: a report by Aged Care Commissioner Carolyn Cooper notes a steady drain of nurses away from both sectors. “Older people face prolonged and unnecessary hospital stays because they cannot access either HCSS or [an aged care] home to safely exit hospital,” the report says. “They face ‘pyjama paralysis’.”
Aged Care Association chief executive Tracey Martin says New Zealand must face up to the issues, and costs, of caring for growing numbers of elderly people. “If we do not, we are going to have large numbers of New Zealanders aged 80-plus trying to manage at home without proper support, hurting themselves from falls and other incidents.”
Economic consultancy Sapere, in a report for Te Whatu Ora’s review of funding for the aged care sector, agrees. “Financial instability within the aged residential care sector can reverberate throughout the broader health system. This may manifest as an increase in hospitalisations and associated costs, as well as the phenomenon of bed blocking [the inability to discharge elderly patients, which flows on to others awaiting hospital admission].
“Considering the existing shortage of clinical staff, these challenges could impose a substantial economic burden.”