Aged care is set to experience the biggest reform in over a decade.
Aged care is set to undergo the biggest reform since the introduction of the Aged Care Act in 1997, but the question is whether the changes will be good news or bad news for anyone who needs to move to aged care.
Initial responses from industry and retiree groups have been positive, but it is hard to make a judgement call until more of the details are revealed. To date, only broad policy has been announced.
The Federal Government wants reform to contain its expenditure, residents and families are concerned about affordability and how to pay the fees while aged care providers wish to focus on how to run efficient services without making a loss. In essence, everyone is concerned about how much aged care will cost and who has to pay.
This article considers the proposed changes to the fees for residents and what this may mean for the user and their family.
The current cost of aged care
Aged care facilities are mostly run by private operators, charitable organisations and church groups. Residents pay a share of the cost but a large part of the cost is paid by the Federal Government which sets the rules for how much residents pay, based on assessable assets and income.
The cost of living in an aged care facility can be divided into three broad categories as shown in the diagram below (with rates current to 1 July 2012).
The accommodation fee buys you a place in an aged care facility. This is paid as either a lump sum bond (in low-care or high-care extra-service) or a daily charge up to $32.58 (in standard high-care).
While the reforms change a number of aspects in relation to aged care, there are three main areas of proposed reforms which relate to resident fees, where the aim of reform is to:
- Create more transparency on bond levels
- Remove the distinction between low and high care
- Cap the cost of care over a lifetime.
More transparent bonds
In low-care and high-care extra-service facilities a lump sum bond is payable to secure a place. Across Australia the average bond is around $230,000 but in capital cities it is common to pay bonds of $300,000–$400,000 or higher.
There is no upper limit on the bond that can be negotiated except you must be left with at least $40,500 (for entry in 2011/12) in assessable assets after paying the bond. The bonds are individually negotiated with the facility and how much you pay may depend on the quality and location of the accommodation as well as how much money you have.
In many cases, residents have been able to negotiate a higher bond in exchange for lower daily fees. This may benefit both the resident and the facility with the government paying more of the costs and the ability to retain a higher Age Pension entitlement.
Under the proposals, the facility will need to set a standard bond (or bond range) which is published on their website. This will limit the ability to negotiate individually with residents.
This greater transparency may be welcomed by residents and families who are nervous about costs and how the bonds are set but it may also lead to higher average bonds. But potential residents and their families should be careful not to shop on price alone. As is the case when buying a home, there may be a reason for the lower price.
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