Why retirement village operators will be winners with Plan B

Fifteen years ago, New Zealand village operators transformed their economic model.

At that time, they had a penetration of 6% of all people aged 70 and over living in the villages. It is now 14% nationally and in some areas over 20%.

How did they get there?

The answer is simple:

“They told the public that if you want a government funded aged care room and residential aged care experience, that’s your choice and let the government pay for it.

“But if you want a ‘premium’ senior residential care experience, we’ll create it for you, but you’ll have to contribute to the cost of it.”

And aging New Zealanders have and are doing it.

The supply – and the demand – has been so successful that hardly any elderly care beds have been built outside of a retirement village in the last 10 years.

Earl Gasparich at the LEADERS SUMMIT

Metlifecare CEO Earl Gasparich explained this story and the business model at LEADERS SUMMIT public.

Villages offer a continuum of care, from independent living to serviced apartments to residential care for the elderly. And a villager has priority over beds when they become vacant.

The government pays $145 a day for basic care services in the residential care model and about $240 for high-level care, or “hospital care,” as they call it.

This covers all care and accommodation when it comes to a ‘standard’ room – which in most cases is multi-bed rooms and shared toilets in self-catering care homes.

If the customer wants a single room with bathroom and additional services, he must pay and the operators have the freedom to set competitive prices as they wish in the local market.

This is where the villages excel, as their offer is not just for the two years in a nursing home for the elderly, but for the last 10 years throughout the aging journey. And this is now understood in New Zealand as a great value proposition, especially for couples who want certain outcomes for both.

New Zealand Resource Test and Plan B

Funding for elderly care is means-tested in New Zealand, including in the family home. The threshold is wealth at $238,000. Beyond that, you must contribute to the cost of care.

Most New Zealanders are therefore obliged to contribute.

Specifically, unless your wealth is less than $238,000, you must contribute the basic $145 per day and you must pay all your accommodation costs – the operator’s price for the “premium room” per day.

Those of reasonable wealth will pay the full $145 plus the $60 per day for the premium room, making a total of $205 per day or $75,000 per year.

The government still pays the hospital care component of $230 less the $145 or $85 per day. That’s another $85 a day the operator receives.

In total, that would total $290 per day or $105,850 per year.

Across Australia, the average yield per bed is $71,000 per year, in most cases for a ‘premium’ en-suite room.

Additional services can cost up to $70,000, but a relatively small percentage of carriers collect these fees.

Plan B, our strategy to achieve policy change that normalizes co-contribution to the cost of home and residential care for the elderly, will open this new funding channel.

The co-contribution as principal serves to adequately fund care for the elderly to provide quality.

This also goes to fairness; young Australians should not be asked to finance wealthy seniors for their housing and living expenses. (Funding the care of older Australians without the financial means is acceptable as it is a universal health obligation for the community).

And competition leads to a variety of service models and choices for customers and their families.

We’ll be discussing Plan B in more detail over the next few weeks.

By the way, all New Zealanders over the age of 64 receive NZ Super, a payment of $87 per day. The Australian Single pension is $64 per day and is means tested.

Village Value Proposition, Bed Licensing and Funding Control

In his discussion of the LEADERS SUMMIT, Earl again emphasized that the value proposition of the village is the continuum of care, from independent living to high-level care, on one campus.

In July 2024, bed licensing is deregulated, meaning village operators can build aged care beds (with the qualification that they are licensed as an operator), and the government gives control financing to the customer – i.e. he has complete control of the choice.

The final element the Australian sector needs to match New Zealand is Plan B, where customers recognize that if they want quality aged care, they will have to co-contribute.

With a successful Plan B, operators will then have the confidence to commit the capital to build a continuum of care and charge fair and competitive prices.

Watch this place.

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