The Hon Mark Butler MP Minister for Mental Health and Ageing Minister for Social Inclusion Minister Assisting the Prime Minister on Mental Health Reform Minister for Housing and Homelessness Parliament CANBERRA ACT 2600 Dear Minister ACCOMMODATION PAYMENTS Methodology to convert Daily –Equivalence Accommodation Payments (DAPs) to Refundable Accommodation Payments (RADs) At the Aged Care Financing Authority’s (the Authority) meeting of 5 March 2013 you asked the Authority to provide additional advice on the issue of the methodology for ensuring equivalence between a daily accommodation payment (DAP) and refundable accommodation deposit (RAD) in the context of industry concerns over the potential impact of the announced methodology on funding flows. The Authority has considered this issue at both its March and April meetings this year and I am pleased to provide you with the Authority’s advice. Overview of concerns Industry’s concerns represent a complex number of interrelated issues. For the most part, these reflect the lack of certainty as to the impact of the proposed framework for accommodation payments on the pool of bonds that currently represent 44% ($12B) of the aggregated industry’s total assets of $27B, and the corresponding disquiet as to the funding impact of a potential contraction of this pool. The specific issue articulated surrounds the use of the Maximum Permissible Interest Rate (MPIR) to convert Daily Accommodation Payments (DAPs) to Refundable Accommodation Deposits (RADs). However, this reflects two separate issues: Anchoring the accommodation payment in the DAPs rather than the current on bonds/RADs; Application of MPIR as the factor”. “conversion Summary of the Authority’s consideration and position The Authority notes that the announced accommodation pricing framework represents a significant change from current industry practice of setting an accommodation bond price based
The Hon Mark Butler MP Minister for Mental Health and Ageing Minister for Social Inclusion Minister Assisting the Prime Minister on Mental Health Reform Minister for Housing and Homelessness Parliament CANBERRA ACT 2600 Dear Minister ACCOMMODATION PAYMENTS –Equivalence Methodology to convert Daily Accommodation Payments (DAPs) to Refundable Accommodation Payments (RADs) At the Aged Care Financing Authority’s (the Authority) meeting of 5 March 2013 you asked the Authority to provide additional advice on the issue of the methodology for ensuring equivalence between a daily accommodation payment (DAP) and refundable accommodation deposit (RAD) in the context of industry concerns over the potential impact of the announced methodology on funding flows. The Authority has considered this issue at both its March and April meetings this year and I am pleased to provide you with the Authority’s advice. Overview of concerns Industry’s concerns represent a complex number of interrelated issues. For the most part, these reflect the lack of certainty as to the impact of the proposed framework for accommodation payments on the pool of bonds that currently represent 44% ($12B) of the aggregated industry’s total assets of $27B, and the corresponding disquiet as to the funding impact of a potential contraction of this pool. The specific issue articulated surrounds the use of the Maximum Permissible Interest Rate (MPIR) to convert Daily Accommodation Payments (DAPs) to Refundable Accommodation Deposits (RADs). However, this reflects two separate issues: Anchoring the accommodation payment in the DAPs rather than the current on bonds/RADs; Application of MPIR as the “conversion factor”. Summary of the Authority’s consideration and position The Authority notes that the announced accommodation pricing framework represents a significant change from current industry practice of setting an accommodation bond price based
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