Last month the Ministerial Advisory Group released its report, A place to grow old: Securing the future of aged care, proposing a significant reshaping of New Zealand’s aged care system.

The report contains 40 recommendations covering system design, funding, workforce, regulation and service delivery. They are recommendations only and are not Government policy. Much of the detail would still need to be worked through before any reforms could be implemented. However, the Ministers took a deliberately bipartisan approach when establishing the Advisory Group and terms of reference to support a shared commitment to change rather than a short-term programme tied to one Government.

For residential aged care providers, the proposals are important because they would affect not only how care is funded, but how services are commissioned and delivered, how new capacity is developed, and the regulatory settings providers operate under.

The report addresses many of the questions residential care providers have been asking for some time.  We look at what it has to say in response to six of the big ones and what its recommendations could mean for the sector if they ultimately become Government policy.

1. Why is fundamental reform being proposed?

The report begins with a number of uncomfortable truths that will be familiar to anyone working in aged care.

New Zealand’s population is ageing rapidly, more people are entering aged care with increasingly complex needs, workforce pressures remain significant, and funding has not kept pace with the real cost of providing services. The Advisory Group says the existing system is also too fragmented, difficult to navigate and inconsistent across different parts of the country.

The scale of future demand is significant. The report projects demand for residential care to increase by around 45% by 2037/38 and 87% by 2047/48.

The Advisory Group modelled three broad scenarios: continuing with the current system, increasing funding without changing the system, and undertaking structural reform. Its conclusion is that simply putting more money into the existing model would provide only temporary relief and become increasingly unaffordable.

Instead, it recommends a single, integrated aged care system built around people's changing needs, with stronger in-home care, more flexible service delivery, a new funding model and better integration between aged care and the wider health system.

In short, the report does not see the problem as one of funding alone. Its view is that the underlying structure of the aged care system also needs to change.

2. What does the expansion of in-home care mean for residential providers?

One of the report's central themes is supporting more older people to remain at home for longer.

The proposed model would allow in-home care providers to support people with higher and more complex needs than is generally possible today, backed by greater clinical capability, better coordination with primary care, improved technology and monitoring, and stronger respite and carer support.

At first glance, that might appear to mean less demand for residential care. The report reaches a different conclusion. It expressly says that residential care will remain a critical part of the aged care journey. The objective is not to prevent people entering residential care, but to ensure that they enter it at the right time and for the right reasons.

Public funding for in-home care would also not be unlimited. The report proposes capping public funding where the cost of supporting someone at home exceeds the cost of clinically appropriate residential care. A person could still choose to remain at home but would be expected to meet the additional cost themselves.

For residential providers, there are two important implications:

• People who do ultimately enter residential care may do so later and with increasingly complex needs. That reinforces the importance of appropriate funding, workforce capability and facilities designed to support higher acuity residents.
• The reforms could create opportunities for residential providers to operate beyond the traditional facility-based model. The proposed contracting framework would allow providers to work across different care settings, including in-home and residential care, and the report specifically envisages residential providers participating in services such as Early Supported Discharge, respite, rehabilitation and other community-based care.

The proposed changes to contracting frameworks and types of home-based services provided could enable providers to support older people through more of their care journey, from home-based services and short-term care through to long-term residential care. The current framework makes it difficult for residential care providers to provide public funded in-home care, including support to independent living residents in co-located retirement villages. The reforms proposed would address these challenges.

3. Will New Zealand still need more residential care beds and what is the plan for building them?

Yes. Despite the proposed expansion of in-home care, the report is clear that New Zealand will still need substantially more residential care capacity.

Population growth, particularly among those aged over 85, means that even if a greater proportion of older people can remain at home for longer, demand for residential care will continue to increase.

The problem identified by the Advisory Group is that the current funding model does not provide sufficient incentives to build the number of new care beds that will be required.

Its proposed solution is a differentiated accommodation funding model. Older and smaller “legacy” rooms would receive a lower funding rate, existing modern rooms a higher rate, and newly built rooms the highest rate, reflecting the greater capital investment required.

There is, however, an important condition attached. To receive the highest “new room” funding rate, providers would need to increase their supply of rooms without premium charges by at least 50% of the number of new rooms built. This means that a provider developing 20 new rooms would need to increase the number of standard beds offered by 10, which could be new or existing rooms.

The report also recommends targeted capital support where there is a particular investment barrier, for example for smaller rural or remote providers or culturally specific providers. That support could take the form of loans, underwrites or equity investment.

For providers considering new developments, the proposed model therefore presents both an opportunity and a trade-off: significantly increased funding for new capacity, but with an expectation that increased capacity will also increase the availability of standard rooms. The proposed model could have unintended consequences however as it tends to favour existing facilities with the capacity and demand for future expansion, over new facilities and older facilities servicing smaller communities where there may not be the demand or space for expansion but where capital is required to upgrade existing facilities.

Of course, for the highest "new room" rate to remain an incentive it will also need to at least match the premium rooms charges that could otherwise be charged on the new rooms. If the incentive to develop new standard beds is insufficient we will likely see continued inequity in access to care.

4. How will residential care funding change and who is going to pay?

Perhaps the most significant recommendations for residential providers relate to the way care would be funded.

The report proposes that residential care funding be unbundled into three components:

• care costs, including clinical and personal care;
• daily living costs; and
• accommodation costs.

Pricing would then be linked more closely to the cost of providing each component. Care funding would ultimately be informed by a national casemix framework, daily living costs would have a standard national price, and accommodation funding would use the differentiated approach described above.

The report also recommends establishing an independent Aged Care Pricing Authority, or an equivalent pricing function, to collect and analyse provider cost data and advise Government on sustainable and evidence-based pricing.

There are proposed nearer-term funding increases as well. For residential care, the Advisory Group models an average price uplift in 2027/28 of 7.1% above inflation, followed from 2028/29 by differentiated funding based on room characteristics. Its modelling contemplates a 13.8% real uplift for new-built rooms, 3.8% for existing modern rooms and inflation-only adjustment for legacy rooms.

These figures are not promised funding increases. The report expressly describes them as modelled outputs which require further work and should not be relied upon for individual business decisions.

The other side of the funding equation is who pays.

The Advisory Group's position is that clinical care should remain primarily publicly funded, but Government cannot sustainably meet all the additional costs associated with an ageing population. It therefore proposes that people with the means to do so make a greater contribution towards personal care, daily living and accommodation costs.

For residential care, the asset threshold at which residents would begin making greater contributions would reduce to $100,000, followed by graduated contribution bands. The maximum contribution would apply once assets reached $350,000, although Government would continue to make a contribution recognising the clinical care component for all residents.

The report also proposes limiting the extent to which the family home can be excluded from asset testing and reviewing existing exemptions and rules.

Protections would remain, including no contribution for certain short-term care or where someone enters residential care specifically for end-of-life care, together with a lifetime cap equivalent to five years of contributions towards the care component.

Increasing resident contributions is unlikely to be politically straightforward. But it is fundamental to the Advisory Group's proposed model and ensuring that aged care remains sustainable and accessible for generations to come.

5. What regulatory changes are proposed?

Proposed reform of aged care goes beyond how care will be funded. A number of recommendations would also affect providers' day-to-day regulatory obligations.

The overall direction is towards greater flexibility and a more risk -based approach, rather than relying on fixed rules where the Advisory Group considers they add cost without materially improving safety.

The recommendations include:

• extending certification periods for residential care providers to a maximum of five years;
• removing fixed dementia unit size restrictions and replacing them with requirements based on staffing, environment and clinical oversight;
• moving routine GP and medication reviews away from fixed minimum frequencies towards clinician-determined, needs-based intervals;
• allowing providers to access Health New Zealand's procurement catalogue; and
• reconsidering consenting arrangements to make it easier to develop new residential care capacity.

On the other hand, the report proposes more regulation of in-home care providers to align with residential care.  

The report also proposes a cross-sector aged care workforce strategy addressing remuneration and employment conditions, training and career pathways, expanded scopes of practice and delegation for support workers and healthcare assistants, possible regulation of those workforces, and immigration settings.

For providers, the general direction is therefore towards less prescription in some areas, but not less accountability. Surveillance and issues-based auditing would remain, and greater flexibility would continue to sit alongside obligations to maintain quality and safety.

6. What does the timeline look like?

The Advisory Group says reform should begin immediately, but it recognises that a programme of this scale cannot be implemented at once.

It proposes three broad horizons.

2026–2028: system foundations

The first phase would focus on legislative and system foundations. This would include work on the new pricing function, developing the casemix framework, implementing targeted funding uplifts and preparing the system for wider reform.

Critically the first phase would also include significant funding uplifts to stabilise the sector in the short-term and prevent further closure of existing care beds.

2028–2032: structural reform

The second phase would see the major structural changes implemented, including new pricing methodologies, casemix funding, assessment reform and changes to resident contributions.

2032 onwards: longer-term system change

The final phase would increasingly focus on innovation, technology, consumer choice and more flexible approaches to service delivery.

These dates are the Advisory Group's proposed implementation pathway, not a Government timetable. Government must first decide which recommendations it accepts, and considerable policy, legislative and design work would be required before many of the reforms could take effect.

Even so, the report provides a useful indication of the direction in which aged care policy may move over the next decade and provides support for many of the reforms the sector has already been requesting.

For residential care providers considering new developments, service expansion, or their longer-term operating models, the key message is that residential care remains central to the future system envisaged by the Advisory Group — but the way it is funded, delivered and connected with other forms of aged care could change substantially.

What should providers do now?

For now, these recommendations should be treated as an indication of the direction of travel rather than a basis for investment or development decisions. As yet, no major political parties have committed to implementing any of the report's recommendations. The detail, including future funding rates, eligibility requirements and implementation timing remains subject to Government decisions and further policy work.

Providers should therefore continue to raise awareness of the pressures facing aged care and engage with politicians across the political spectrum. It will be important to keep the pressure on politicians in the lead up to the election to ensure that aged care reform is a priority for the next Government and that providers have a meaningful opportunity to contribute as the recommendations are refined and translated into policy.

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