Paying for that inheritance

Looking after New Zealand’s rapidly aging population is enormously costly for the health system.   In 2009 public sector spending on long-term residential care (excluding home care) accounted for 6.2% of total health expenditure.   But this figure could have been higher, had it not been for a fall in the proportion of elderly living in residential care over recent years.  Auckland University research shows that in Auckland over the twenty years to 2008, the proportion of over 65s in residential care facilities dropped from one in thirteen to one in eighteen.   This fall in the usage of care facilities was not only due to generally better health among the elderly, but also as aresult of greater public provision of home-based care services.  While discussing the provision of home-based care would be an interesting article in itself, I will leave this for another day, and instead focus on the issue of paying for long-term residential care.

There is no question of a doubt that a dignified level of care must be provided to the elderly, whatever the cost, however it is unreasonable that the public sector should bear the cost for those that can afford to do so themselves.   At present single people and couples with both partners in care can keep $210,000 in assets before their assets are used to contribute to the cost of the care (this threshold is increased by $10,000 each year).   With district health boards contributing up to a maximum of $879.68 per week for residential care, it is ridiculous to think that someone can retain so much personal wealth and still be eligible for this assistance.

But it wasn’t always this way.  Until June 2005, single people in care could only retain $15,000 in assets, and couples $30,000 before their assets were used to contribute to the cost of their care.   However, from July 2005 the Labour party began progressively easing asset exemption thresholds.  This policy has been a significant burden on public finances.   In the year following the policy’s implementation, real per capita costs of long-term residential care increased by 8.1%.

Labour argued that lifting asset exemption thresholds was reducing an abuse of human rights because elderly in residential care were required touse up their assets to contribute to the cost of their care, while younger people were not.   The cynic would argue that lifting the exemption thresholds was simply a vote winning exercise, at a time when the government was flush with cash, as the perceived inequality could have also been removed by invoking stricter asset testing on the young.

With the proportion of the population aged 65 and over expected to climb from 13% to 17% over the next decade, demand pressure for long-term care will build.   To meet this demand and maintain a high-standard of care for the elderly, without unnecessarily increasing the younger generation’s taxation burden, stricter asset exemption thresholds should be reintroduced.

Once committed to long-term care the elderly have few big expenses, apart from the eventual cost of their funeral.   Given this, an asset exemption threshold of $10,000 would be a reasonable figure.   The extra $200,000 of freed up wealth would be enough to fund over four years of residential care at current maximum contribution rates before the state was forced to begin picking up the tab.

It could be argued that if asset exemption thresholds were reduced, people would give away money prior to moving into care.   However, bear in mind that this incentive already exists, it would just be stronger.   Current regulations account for this incentive when calculating assets by including allgifts of more than $6,000 per year in the five years before moving into care, as well as reserving the right to include gifts of more than $27,000 per year before the five year gifting period.   While legal chemists will find loopholes around these types of regulations, it will be mostly the wealthy exploring these strategies, and their investments probably yield more than enough income to cover the costs of care anyway.

Before you conclude that this was a round of elderly bashing, hear me out.   Forcing the elderly to use a greater proportion of theirown assets to contribute to the costs of their care would not affect the standard of care available, it simply shifts who pays.   The real loser in this equation would be the family of the person in care, as their inheritance would be slowly eaten up.   But frankly, is this really a concern?   An inheritance is a nice bonus at an individual level, but doesn’t benefit broader society in away that justifies legislative protection.   Besides, removing this protection may give individuals the motivation to support elderly relatives who wish to remain in the comfort of their own home for as long as possible.

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