Finally, ACFA advises against providers being able to opt-out from a scheme and provide their own guarantees, as it is likely to impair the sustainability of a scheme by necessitating a higher levy from fewer participants. It would also be complex to administer and manage. The prudential review ACFA’s review of the existing Scheme and alternatives is taking place in parallel to two other significant reviews. Government consideration of the Scheme should take into account the perspectives of all three related reviews. The Department is reviewing the role and effectiveness of the Prudential Standards, as well as current reporting and compliance processes through a project undertaken by an external consultant. This project will evaluate the adequacy of existing arrangements, including prudential standards in the context of protecting the interests of all stakeholders, including care recipients and the Government, by ensuring prudent management of lump sums held by providers. ACFA draws particular attention to this review, as it is widely acknowledged that prudential standards and monitoring are critical protections for aged care consumers, while the Guarantee Scheme is the safety net that protects consumers’ investments when other measures have not. The second review currently underway is the Aged Care Legislated Review, which is required by the Living Longer Living Better Act 2013, and which will consider the effectiveness of the Guarantee Scheme. This ACFA report and the report of the review of prudential standards are expected to be considered by the Government in the context of the Aged Care Legislated Review, which is scheduled to report by 1 August 2017.
identification of providers at risk of getting into financial difficulty, allowing it to provide support and advice. The significance of this for risk rating is that there is more evidence and analysis available than the number of actual defaults would suggest. In addition, whilst understanding risk factors is ‘core business’ for insurers and regulators, they would need to potentially draw on the Department’s work to date, mandatory financial and prudential reporting by providers and industry analysis, to undertake risk rating. This is currently an integral part of the Prudential team’s accountability. Risk rating may present a around administrative costs. A levy that is the same per dollar of lump sum held by each provider may be easier and cheaper to administer than one that risk rates providers. Risk rating in theory should be more economically efficient, as it produces a price signal that reflects the riskiness of the provider being covered. It may be unclear whether the gains from the efficiency and equity of risk rating would be sufficient to offset the greater administrative cost and complexity. This greater complexity would include the necessity of establishing review and appeal mechanisms that allowed a provider’s risk rating to be reconsidered. Detailed consultation with aged care providers and the Department would be essential in the event that the government decides to implement a scheme that includes risk rating. APPENDIX 3: LIST OF SUBMISSIONS RECEIVED Table 19: Stakeholders that provided a submission to ACFA Organisation Advantaged Care Aged Care Aged Care Industry Association Aged Care Services Australia (ACSA) Alzheimer’s Australia Association of Age Service Professionals Australian Projections P/L