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The decision to move into residential aged care is never easy. Elderly people may fear a loss of independence or the aged care facilities themselves.
Sometimes the decision can be out of our control. This is often the case after a major health event, or simply when a person’s care needs are too great to manage in their own home either on their own or with the support of family and friends.
Whatever your misgivings about residential aged care, the seemingly high costs should not be a reason to avoid seeking the help you may need.
One of the first things many people come across when they start to research aged care is the cost of a room. Not surprisingly, a figure in excess of $1 million for a room is enough to make anyone panic and dig their heels in.
However, government funded residential aged care is heavily subsidised with annual and lifetime caps and people can choose how they pay.
What will I be asked to pay?
Australia’s government-funded residential aged care is a user pays system, where those assessed as being able to afford their care are asked to make a contribution.
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The main types of costs are:
- An accommodation cost is a contribution towards the cost of accommodation.
- Daily resident fees are a contribution towards ongoing living and care costs and may be a combination of:
- A basic daily fee that is 85% of the basic single age pension
- A means tested care fee
- An extra service fee for a higher level of services that are attached to the room
- An opt-in additional services fee.
How much a resident can afford to pay towards these costs is based on a formula called the means tested amount. This calculates an affordability figure based on a combined income and assets test.
If you are assessed as having low financial means (assessable assets below the current $173,075.20 threshold and subject to income), the government may step in to set a lower price and pay some of the costs on your behalf. For information on the treatment of the family home, see the section ‘Do I have to sell my home?’ below.
The cost of accommodation: flexible payment options
Depending on your financial situation you may be required to make an accommodation payment, which pays for your right to move in and live in the care service.
You can choose to buy or rent this right.
RADs vs DAPs
For those who are not low means you can choose to pay a lump sum Refundable Accommodation Deposit (RAD) or Daily Accommodation Payments (DAP) or a combination of the two.
If you don’t have access to enough liquid funds to pay the full cost – it may be tied up in property, superannuation or a share portfolio – it may still be affordable.
The RAD is the market price for a room in residential aged care. It is set by the facility itself based on a number of factors including the age and location of the facility and the size and aspect of the room.
As the name suggests, the Refundable Accommodation Deposit (RAD) is fully refunded to you or your estate once you leave a facility.
Only if you allowed the care provider to deduct other fees from this money instead of paying those fees from your bank account, will the amount refunded to you be lower, as you are essentially spending some along the way.
Is my Refundable Accommodation Payment secure?
A lot of people worry about what happens if the provider goes bust.
If you paid the RAD to an approved provider, the federal government will guarantee the repayment of your money. This takes away the risk that your money could be lost. The facility can only use the money for certain things like offsetting debt or investing in bonds.
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Not everyone has half a million (or whatever they are asking) sitting ready in the bank to pay a facility.
You have a choice to pay the lump sum in full or in part or a combination of both.
Whatever you don’t pay towards the RAD will be charged as a daily interest rate, known as a Daily Accommodation Payment.
You can elect to pay nothing upfront and essentially rent the room and pay the Daily Accommodation Payment.
Under the Aged Care Act, you have 28 days after moving into care to tell the provider how you would like to cover the fees.
If you choose to start with a daily fee you can change your mind at any time and pay all or some of the RAD. If you choose to pay the RAD, you need to stick with this option but the provider needs to give you at least six months to organise your finances to make the payment.
Do I have to sell my home?
One of the biggest questions people have around paying for residential aged care is whether they have to sell the family home.
The answer is: it depends.
In the case of a couple, if only one person is going into care and the other intends to keep living in the house then the house is exempt from the income and assets assessment. It is also exempt if there is a protected person living in the home – such as a dependent child, a carer or a relative who is also eligible to receive income support.
If there is no protected person then the house is included in the income and assets assessment, although only up to the current capped value of $173,075.20.
If this person has the assets to pay for their accommodation without selling, the home may not have to be sold. However, two years after moving into care the market value of the house will be counted towards the income and assets assessment.
If a house is sold and the proceeds are paid towards the RAD, the RAD is an exempt asset for the calculation of Age Pension eligibility.
The cost of care and fee caps
There are care costs in addition to the accommodation cost.
There is a basic daily care fee paid by everyone that is set by the government and based on 85% of the full Age Pension. The current rate is $52.71 per day.
The means tested care fee is a formula based on your income and assets.
Broadly, a resident on a part pension or a self-funded retiree should expect to pay a means tested fee – with a few exceptions.
Residents may be exempt from paying a means tested fee if they have income and assets below relevant thresholds, are ex-prisoners of war or are residents with dependent children.
To determine the means tested fee, you are asked to complete one of two income and assets assessment forms (the SA485 or the SA457).
The most a resident can be asked to pay as a means tested care fee is capped. The current annual cap is $28,087.31.
There is also a lifetime means tested fee cap (which also includes any income tested fees paid towards a Home Care Package). This cap is currently $68,012.98.
Added together these care costs are $47,577.86 a year. Based on current thresholds, this is the most a person can be asked to pay for their care.
Extra service and additional service fees
Extra service fees and additional service fees may also be charged by a facility. These fees have nothing to do with extra care but cover a range of goods and services a facility may deliver.
Facilities with an extra service fee may have rooms that have this fee attached to it, which makes it a compulsory fee. The rooms may all be in a different part of the facility that has generally nicer furnishings and televisions or bar fridges. Extra services may include a glass of wine with meals, a choice of meals daily, additional outings, newspaper delivery and a monthly haircut.
Additional service fees are similar but they may be able to be negotiated with the facility, particularly where a resident is unable to use any of the offerings.
Extra service and additional service fees can range from $10 to $100 a day depending on the facility.
Retirement villages versus residential care
When care is needed, many people compare the option of a retirement village against residential aged care. While both provide supportive environments for older people, they are not complete substitutes. The funding and care implications are quite different.
Whether it is downsizing to a smaller house or unit, buying into a retirement village or moving into residential care, the comparison is much more than a property transaction based on price and size.
In a retirement village you may have access to a whole unit or villa, while for a similar price in a residential aged care service, you have a single room only. But it is important to think about how much support you need each day.
Retirement villages offer the opportunity to live in a community of older people. The village operator will maintain the external building and community garden areas, but it is still independent living.
For an additional cost, you may be able to access support inside your home but services vary from one retirement village to the next and, unless provided through a Home Care Package, costs are not subsidised by the Government.
By comparison, residential aged care bundles fully supported living and care together with accommodation. This care is provided 24/7 and the costs are heavily subsidised by the government.