When it comes time to investigate residential aged care for yourself, your partner, a parent or parents, or a relative, the search for a facility and how to pay for it can be quite daunting. The aged care system is complex, and decisions are often made in the midst of a health crisis.
Factors such as proximity to family and friends, the reputation and the general appeal of the aged care facility are just as important as the financial considerations.
When comparing and appraising the various financial options you need to have regard to four different matters;
- Your cash flow
- The aged care cost
- Social security and aged pension entitlements, and
- Taxation
It should be noted that improving one of the above categories can be to the detriment of one of the other categories. For example, if you sold your home to move into an aged care facility it may improve your cash flow position but maybe to the detriment of your social security and aged pension entitlements.
For the purpose of this paper, we are only going to discuss the various categories of aged care costs.
Accommodation charges
The first thing to be aware of when researching your residential aged care options is that there are separate costs for the accommodation and the care provided by the facility.
The accommodation payment essentially covers your right to occupy a room. You can pay this accommodation fee as a lump sum called the Refundable Accommodation Deposit (RAD), or a daily rate similar to rent, or a combination of both.
The daily rate is known as the Daily Accommodation Payment or DAP and is effectively a daily interest rate set by the government. The current daily rate is 4.04 per cent. If the RAD is $550,000 then the equivalent DAP is $60.87 a day ($550,000 x 4.04%, divided by 365 days).
A resident can pay as much or as little towards the RAD as they choose, but any outstanding amount is charged as a DAP.
The RAD is fully refundable to the estate unless it is used to pay any of the aged care costs such as the DAP.
Daily fees
As well as an accommodation cost there are daily resident fees that cover living and care costs. There is a basic daily fee which everyone pays and is set at 85 per cent of the basic single Age Pension. The current rate is $52.71 a day and covers the essentials such as food, laundry, utilities and basic care.
Then there is a means-tested care fee which is determined by Services Australia or Veteran’s Affairs. This figure can range from $0 to about $256 a day depending on a person’s income and assets. The figure has an indexed annual and lifetime cap – currently set at $28,339 a year or $68,013 over a lifetime.
Some facilities offer extra services, where a compulsory extra services fee is paid. It has nothing to do with care but may include extras like special outings, a choice of meals, wine with meals and daily newspaper delivery. It can range from $20-$100 a day.
A means assessment determines if you need to pay the means-tested care fee and if the government will contribute to your accommodation costs. Everyone who moves into an aged care home is quoted a room price before moving in. The means assessment then determines if you will have to pay the agreed room price, or RAD, or contribute towards it.
How means testing works
A means-tested amount above a certain threshold is used to determine whether you pay the quoted RAD and how much the government will contribute towards the means-tested care fee.
A person on the full Age Pension and with property and assets below about $37,155 would have all their costs met by the government, except the $52.71 a day basic daily fee.
A person on the full Age Pension with a home and a protected person, such as their spouse, living in it and assets between $37,155 and $173,075 may be asked to contribute towards their accommodation and care.
To be classified as a low means resident there would be assessable assets below $173,075.20 (indexed). It is also subject to an income test.
A low means resident may pay a Daily Accommodation Contribution (DAC) instead of a DAP which can then be converted to a Refundable Accommodation Contribution (RAC). They may also pay a small means-tested care fee.
Payment strategies
The fees you may pay for residential care and how you pay them requires careful consideration. For example, selling assets such as the former home to pay for your residential care can affect your aged care fees and Age Pension entitlements.
Needless to say, this is a very complicated and emotionally draining decision-making process. Should you require further information on Aged Care please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
All costs quoted in this article are available on https://www.myagedcare.gov.au/aged-care-home-costs-and-fees
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.