Cost of Care
Rodney Horin, aged-care specialist and managing director of Clarity Aged Care Advisors, answers some of the most commonly asked questions about the intricate and often confusing world of aged care.
As people live longer, more and more will end up in residential aged care. The number of people in permanent aged care in Australia is expected to triple over the next 35 years, from 225,000 today to 700,000 in 2050.
The aged-care industry is very complex and many decisions, often involving large sums of money, must be made when families are least prepared for it.
Some of the most common questions we hear are:
HOW EXPENSIVE IS AGED CARE?
Typical fees include accommodation deposits ranging from $250,000 up to $2,000,000, as well as daily care fees, extra services fees and
means-tested fees potentially costing $80,000 per year.
IS THE ACCOMMODATION DEPOSIT NEGOTIABLE?
Yes. In many cases these refundable accommodation deposits (RADs) are negotiable and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply – in a particular aged-care facility. These RADs have a government guarantee.
WHAT ALTERNATIVES ARE THERE FOR PAYING THE DEPOSIT?
Many facilities prefer the RAD be paid as a lump sum upfront. However, you may choose to pay interest payments only or with a combination of lump sum and interest payments.
WHY ARE RESIDENTS CHARGED DIFFERENT DAILY CARE FEES?
The basic care fee for a resident in an aged-care facility ($48.44 per day) is set at 85 per cent of the full age pension. All residents must pay this fee. It covers the daily living costs such as meals, cleaning, laundry, and heating and cooling.
WHAT IS THE EXTRA SERVICES FEE AND SHOULD I PAY IT?
The extra services fee, which can be as much as $120 per day, provides for additional services such as a choice of meals, alcohol with meals, expanded activities program, cable TV, etc. This fee is agreed at the time of negotiating the contract. If the facility charges an extra services fee, you should ensure that the services are being delivered and assess whether or not you are receiving value for money.
WHAT IS THE MEANS-TESTED CARE FEE?
The cost of a resident’s care is agreed between the government and the facility. The government then asks residents, who have sufficient means, to contribute to that cost of care according to a means test, while it pays the balance of the agreed amount. The fee can range from nothing to a maximum of $248 per day. It is based on the income and assets of the resident, so it increases as the resident’s assessable assets and income increase. There are options to help reduce the means-tested fee.
WILL I NEED TO SELL THE FAMILY HOME TO PAY THE RAD?
Not necessarily. Four key questions are: Do you need to sell the home? Can you afford to keep it? What happens if you rent it out?
Will your decision have an impact on any age pension or aged-care fees? The family home is often a couple’s most valuable asset and many advisers wrongly assume that it needs to be sold to provide funds for RADs. The key driver is to make sure that, like any valuable asset, the home generates a financial return. This return takes the form of rental income and capital growth (which RADs certainly don’t provide). The home is treated on a concessional basis for the age pension and aged care fees.
THE FEDERAL BUDGET INTRODUCED CHANGES TO THE AGE PENSION. HOW WILL THEY AFFECT MY AGE PENSION?
Two major changes take effect from January 1, 2017. These changes will have a major negative impact on many aged-care residents who rely on a part age pension to fund their aged care fees.
The first change was to the assets test thresholds and the rate at which the part pension is reduced. While around 170,000 pensioners are expected to receive a boost to their fortnightly pension, more than 320,000 will have either a reduced pension or lose it completely. However, those whose age pension is assessed under the income test will not be affected.
The second change relates specifically to pensioners going into residential aged care after January 1, 2017. The rules are changing for the former family home. It will now only have an asset test exemption for two years (previously indefinite), after which the net market value of the home will be fully assessable. Any rental income, previously exempt, will be assessable under the income test. It is not clear how many people this will affect.
Note: Figures are accurate as of the publication date