Aged Care Finance Solutions
Aged Care Changes
From 1st July 2014 the funding of residential aged care changed. In-going residents have been asked to make a greater contribution towards the cost of their accommodation.
What are the major changes which will affect today’s seniors and their families, and the future commitments and requirements of our “Baby Boomer” population?
Entry into permanent residential care or respite must be pre-empted by an assessment by Aged Care Assessment Services/Team.
Accommodation costs are applied to all new residents with the means to contribute to their accommodation and care.
Does it apply to everyone?
Of all the beds in residential care, about 32% of all entrants do not have the means to contribute to their accommodation and will be fully supported by the Federal Government. Unless there is proven financial hardship, these residents will pay the Daily Bed Fee of 85% of their basic aged pension (this changes when the government adjusts the pension).
For all other in-going residents, they will pay the Daily Bed Fee, plus their accommodation cost.
What are the Accommodation costs?
Residents have a choice to pay a lump sum known as a Refundable Accommodation Deposit (RAD), or a periodical payment known as a Daily Accommodation Payment (DAP), or a combination of both. The DAP is calculated by charging interest on any amount of unpaid RAD. The interest rate charged is set by the government.
Each facility will be required to advertise their room costs on the Government website (My Aged Care) in both RAD and DAP format, plus their own website and other advertising means. The amounts advertised are the maximum allowed and can be negotiated downwards if applicable. If a facility wishes to charge a RAD in excess of $550,000 , they must seek approval from the Aged Care Pricing Commissioner for such a fee.
What other fees may be applied?
Currently residents may be asked to pay an income tested fee (up to $26,400 per annum), or an extra service fee for an upgraded accommodation or services. The income tested fee will be replaced by a means tested fee (see below). Facilities with a current “Extra Services” licence will continue to charge accordingly. For other facilities, they will be allowed to charge a “menu” for additional services which a resident may request and include such services as a glass of wine, daily newspaper or Foxtel to the room.
When do residents/families have to decide?
Residents have up to 28 days from entry to advise how they will pay for their accommodation. At present residents and their families are required to advise their payment decisions at the time of signing the Residential agreement. Whilst providers have shown resistance to the idea of not knowing the resident’s payment commitment, there is some compulsion for the decision period, as 60% residents entering care are discharged from hospital and many only have 4-7 days to make their accommodation selection.
How are fees calculated
The current income tested fee will be replaced by a means tested fee. Assets will include any lump sum payment (RAD) made to the facility. Currently a lump sum is a non-assessable asset and this policy was designed by the past Government to avoid higher payments to facilities, arranged so as to increase pension benefits.
The means tested fee will be a 12 step calculation, including both income and assets.
Is there a maximum Means Test
A life time cap will apply to any means tested payments and a yearly cap will also apply. These caps are adjusted by the government to reflect costs of living increases.
The Retention Bond
Accommodation Bond lump sum's paid before 1 July 2014 can have a monthly amount deducted by an aged care provider for up to 5 years. From 1st July 2014, the Retention Bond can no longer be deducted from a RAD.
Keeping the Family Home
For the first time the family home will be means tested, albeit at an amount of approximately $156,000 (Adjusted by the government so the exact amount is changing over time). With the advent of means testing, families will look more towards keeping the family home, rather than selling it, and excluding all the proceeds (including the RAD)in the means tested calculations.
When their parents have aged pension entitlements, families may decide to keep the family home and rent it out. When RADs are correctly structured, the rental income and the house may be exempt from the income test and asset test for aged pension entitlements. This can vary and so needs to be checked carefully. We work with specialist Aged Care Financial Planners to make sure the appropriate structure for each family is in place.
New Credit Products
In acknowledgment of the change in aged care and the greater user co-contribution requirements, several banks and finance companies have launched credit products through specially accredited Aged Care Credit Advisers in each of the States. The Products allow borrowers to use the equity in their home to assist with aged care payments.
In conjunction with an overall cash flow analysis, these products can contribute to the overall funding required for aged care costs.
The financiers have also released a Credit product which allows older Australians still living independently at home, to access equity for any general purpose.