For families who face the daunting prospect of moving a loved one into residential aged care, the evaluation process is about to become much more complex with the formal introduction of the Aged Care Reform Act, due to commence on the 1st of July 2014.
We have seen clients go through this process so many times. Unless you have been through the process before, you’ll have a lot of questions like: Which facility is the best for the amount we can afford or should we keep caring for them at home? What will we do with the house, the furniture, the dog?
And then there’s the financial side of this dilemma. Anyone who has tried to research the fees and charges themselves know how complex it is. So for the purposes of this article, I have attempted to summarise the current Residential Age Care Cost structure, and then reviewed the changes to occur as a result of the Aged Care Reform Act.
Current cost structure
Residential Aged Care has two classification levels, as determined by an Aged Care Assessment Team (ACAT’s) member.
They are:
- Low Level Care – formerly known as a hostel. An Accommodation Bond is payable plus a ¹Basic Daily Care Fee, currently set at $46.50 per day. The level of bond paid is set by the facility and is often dependant on the level of the resident’s assets. In theory, the facility must leave the resident with at least $45,000 in assets, after paying the bond. The facility can retain a portion of the Bond ($3,972 pa) for a maximum of 5 years (so a maximum retention amount of $19,860)
- High Level Care – formerly known as a nursing home. Again, the ¹Basic Daily Care Fee of $46.50 per day will be payable. In addition, whilst an Accommodation Bond is not payable, an ²Accommodation Charge is applicable. If a resident’s assets exceed $116,136, the maximum Accommodation Charge, currently at $34.20 per day, will apply.
It is important to note that you pay either an accommodation bond, or an accommodation charge, not both.
In both the hostel (low care) and nursing home (high care) facilities, an additional ³Income-TestedFee also applies, which currently is a maximum of $73.86 per day. The actual calculation of the income tested fee is difficult to explain, but it basically works out to be 5/12 of the total (Centrelink) assessable income in excess of the maximum income of a full pensioner ie. $951.20 per fortnight single and $933.20 per fortnight each for couples. Up until now, most of our clients have been able to avoid this fee as we have taken advantage of Centrelink assessment rules, but this is set to become harder.
Costs after the 1st of July 2014
Under the Aged Care Reform Act, the Basic Daily Care Fee will continue to apply and the following changes will be applied:
First, the government will remove the distinction between a Low Care and a High Care resident, meaning that all Aged Care residents will be required to pay an Accommodation Bond in the future. These will be called Refundable Accommodation Deposits (RADs) and it will be up to the resident to decide how they will pay for their RAD – upfront or through periodical payment referred to as Daily Accommodation Payments (DAPs). Facilities will be required to publish their full fee schedules.
Second, there will no longer be a ‘Retention Amount’ formerly $3,972 pa for a maximum of 5 years.
Third, instead of the Income Tested Fee, the government will introduce a means tested fee, which will also include an Asset Test component.
There will be no maximum Daily Means Tested Care Fee, however a maximum annual daily means tested care fee of $25,000 will apply, up to a Lifetime Cap of $60,000.
Finally, as from the 1st of January 2015, superannuation pensions will fall under the deeming rules – ie. an assumed % return will be applied regardless of the actual investment return or pension received. The deeming rule already applies to bank savings & shares, but superannuation pensions have enjoyed concessional treatment based on an annual ‘return of capital’ assumption called the deductible amount. The new rule will likely cause significantly higher Means Tested Fee outcomes for many residents.
Therefore from the 1st of January 2015, retirees with a reasonable level of assets could be required to pay in excess of $40,000 per annum per member for aged care accommodation, and this excludes any Refundable Accommodation Deposit requirements.
This of course leads to the same plaguing question:
“Will we need to sell the family home to ensure our parents have a comfortable lifestyle in their later years?” Unfortunately, the answer is “it depends”.
Future Planners intend to conduct an in-house seminar on this subject in the near future. It will include case studies and calculations to illustrate how aged care providers will determine their fee structures in the future. If this is of interest to you, or any of your family members or friends, please let us know to include you on the invitation list.