Navigating the Complexities of Aged Care Costs

When considering the complexities of aged care costs for many families it can seem overwhelming. The best advice is for families to seek help from an aged care financial planner who has a sound understanding of residential aged care costing.

We have summarised some of the key financials cwhen considering aged home care or residential aged care.

Home Care
If a person accesses a home care package that first commences on or after 1 July 2014 the fees they pay for the package (per person) may include:
Basic fee – up to 17.5% of the single basic rate of age pension PLUS
Income-tested care fee – this is based on the client’s assessable income. If the client is a member of a couple the combined income is calculated and each person is allocated half of the total income. There is a threshold below which the Income tested care fee is not applied and usually includes seniors on a full aged pension.

Residential Aged Care

A person’s room price in an aged care facility. Is called an accommodation payment. It can be paid in full by the federal Government or a negotiated price paid by the client. There are a number of different ways of paying the accommodation payment.

Refundable Accommodation Deposit (RAD) – a lump sum payment for the negotiated fee. The RAD is refunded when the client leaves the accommodation. It can also be paid as a combination of a smaller RAD with a Daily Accommodation Payment.

Daily Accommodation Payment (DAP) – the daily payment for accommodation. The aged care facility will work out the DAP based on a legislated formula that converts the RAD price to a DAP price using an interest rate called the Maximum Permissible Interest Rate (MPIR). The resident makes this payment on a regular basis, up to a month in advance, similar to paying rent. This payment is non refundable.

An accommodation contribution – This is a person’s contribution to their room cost, as a low-means resident. Some people will have their accommodation costs paid in full or in part by the Australian Government, and is set as a daily rate.

Refundable Accommodation Contribution (RAC) – also a lump sum payment for accommodation in an aged care home, just like a RAD. The difference between a RAC and a RAD is that a RAC is the term used when a person who is receiving Australian Government assistance with their accommodation costs makes a ‘contribution’ towards their accommodation costs (with the Australian Government also making a contribution on their behalf). This is refundable. It can also be paid as a combination of a smaller RAC with a Daily Accommodation Contribution.

Daily Accommodation Contribution (DAC) – the daily contribution for accommodation is for a person receiving Australian Government assistance with accommodation costs. Residents make this contribution on a regular basis, up to a month in advance, similar to contributing to rent. This payment is non refundable.

How to pay for the cost of care in a residential aged care facility?
Fees cover the cost of a resident’s living expenses in care, which includes meals, cleaning, laundry, electricity and water services and perhaps other services.

The basic daily care fee – paid by all people who receive residential care. For some people, this is the only fee they may need to pay. It is set at 85% of the single basic age pension (excludes the pension supplement) and is indexed every six months (March and September).

A means tested care fee – where a resident has assets and/or income over certain thresholds, they don’t just pay the Daily Care Fee, they pay more. It is an extra contribution towards the cost of care that residents may need to pay. The amount payable is ‘front loaded’ for those with significant means and may only need to be paid for part of a year until they reach their annual and lifetime caps.
What are the caps?

The government has set annual caps and lifetime caps on the means tested care fee. Once a resident reaches the annual cap they will no longer pay the fee for that year, the government will pay the fee for them. Once they reach the lifetime cap they will no longer pay the fee at all.

Additional Service Fees
A provider may offer a higher standard of accommodation or extra services such as hairdressing, wine with meals, choice of meals or daily newspaper for example.
This can be offered as a package with the room cost or as an extra fee.

Accommodation Supplement
Providers receive an accommodation supplement from the Government for residents who are deemed low means. There are several thresholds for means testing assets. The lowest threshold means the Government pays the maximum accommodation supplement to the provider. The next level threshold means the Government pays the accommodation supplement less what the resident contributes. The higher threshold means the resident pays the full fee and does not receive the Government supplement.
Interestingly, the amount a low means resident will pay as a contribution will depend on the the facility’s significant refurbishment status and their percentage of low means residents. A provider gets the highest rate of supplement when they are a significantly refurbished home with more than 40% supported residents. It is common for facilities to dip above and below the 40% threshold at varying times.

Income Assessments
Assessable income includes income assessed under the Centrelink income test plus assessable Centrelink payments. My Aged Care Website have an online calculator. (link)
Residents can opt not to disclose their income and assets but if they do they will pay the RAD and DAP with no Government assistance until they reach their annual gap or lifetime gap. Those that own no property and are already on a Centrelink pension are automatically assessed at the lower threshold and receive full Government assistance.

Financial complexity can make aged care seem unaffordable – Why?

The $550,000 (for example) room price tag
Disbelief that the Family home is an asset
A matter of Inheritance
Fees don’t make sense

Things that need to be considered when choosing what to do with the family home:

Age Pension
Means Tested Fees
Capital Growth
Daily Accom Payments
Choice of Room
Estate Planning

With careful planning, residential aged care can be affordable. It is complex, there are big financial decisions to navigate. We recommend obtaining advice from a qualified aged care financial planner to best manage each family’s individual situation.