Aged care: your most common questions answered

A better understanding of the cost of aged care can’t come soon enough.

Senior man having fun with his aged carer

As people live longer, more will end up in aged care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050.

The aged-care industry is very complicated and many decisions must be made, often involving large sums of money. Aged care consultants, John Rawling and Rod Horin answer the 11 most common questions they receive. 

1. Why is aged care so expensive?
Aged care is very labour intensive, and land and buildings are expensive to buy and maintain. The owners of such facilities expect to make a return on their investment. From a client’s point of view, typical fees include accommodation deposits and charges, daily fees, extra services fees and means-tested fees.

2. Is the accommodation deposit negotiable?
Yes. Accommodation deposits (known as Refundable Accommodation Deposits (RADs)) can be as high as $2 million to secure a bed in an aged-care facility. In many cases these 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 of beds – in a particular aged-care facility.

3. What alternatives are there for paying the RAD?
Many aged-care facilities prefer the RAD to be paid as a lump sum upfront. However, it is possible to choose to pay interest payments only or pay with a combination of lump sum and interest payments. A bank guarantee is not an alternative.

4. Will the family get all of the RAD back?
In a government-accredited aged-care facility, the accommodation deposit is fully government guaranteed. Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged-care facility. Since July 2014, any lump sum paid as an RAD is now generally repaid in full at the end of the care period.

5. Why does the Government charge different daily care fees to residents?
The standard daily care fee for a resident in an aged-care facility ($48.25 per day) is set at 85 per cent of the full Age Pension. All residents must pay this fee. However, it does not cover the full care costs of the resident. The Government may ask the resident to pay an additional amount as a means-tested fee and then pays a subsidy for each resident’s care needs to make up any shortfall.

6. What is the means-tested fee?
The means-tested fee is set by the Government and collected by the aged-care facility based on an individual assessment for each resident. It is an attempt by the Government to ask residents with the financial capacity to contribute to the cost of care. This fee can range from nothing, up to a maximum $241.92 per day.

7. Why is the means-tested fee so high and how do I reduce it?
The means-tested fee is based upon the income and assets of the aged-care resident, so it increases as the resident’s assessable assets and income increase. For example, a resident on a part Age Pension with assets totalling $200,000, and deemed to be earning $27,713 per year, will pay $2.19 per day ($799 per year) in aged care, while a resident with assets totalling $1.2 million, and deemed to be earning $38,271 per year will pay $68.29 per day ($24,926 per year). One option to reduce the means-tested fee is to buy an aged-care annuity, if appropriate – advice is important.

8. What is the extra services fee and should I pay it?
The extra services fee, which can be as much as $120 per day, is supposed to give the resident extra services, including more attention and access to service providers, such as podiatrists, hairdressers, etc. If your aged-care facility is charging an extra services fee, you should ask which services are being delivered and assess whether or not you are receiving value for money.

9. Paying daily fees will impact on my cash flow. What strategies are there for dealing with this?
It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on your cashflow. This means of course that less of the RAD will be returned at the end of the care period.

10. What implications are there for my social security or Age Pension?
The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for an RAD, it can result in a new or increased Age Pension entitlement. More often, a family home is sold to fund the RAD. In this case, while the home is excluded, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in an Age Pension being reduced or lost entirely. However, there are ways to maintain, or even increase, one’s current entitlements.

11. 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? and Will your decision have an impact on any 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, as with 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. For Age Pension purposes if you move into care before 1 January 2017 the former home’s value may be excluded from the Age Pension assets test and income may also be exempt (depending on circumstances). The value of the home is capped at $157,987 for aged care means testing and rental income is assessable if you moved into care from 1 January 2016.

John Rawling and Rod Horin are aged-care consultants at Joseph Palmer & Sons (Vic), investment managers and aged-care specialists.

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    COMMENTS

    To make a comment, please register or login
    tams
    21st Jul 2016
    10:21am
    Re Selling the Family Home to pay a RAD.

    It is possible to borrow against the family home (or other residential security) to pay a RAD, DAP or combination. Renting the security would provide additional income with the rent only included in the means tested care fee and not the pension.

    To discuss an aged care borrowing scenario, the resident or Enduring Power of Attorney would have to speak to a Credit Adviser at Aged Care Finance Solutions
    Pinky
    21st Jul 2016
    1:27pm
    I have never been able to find out whether, as a Kiwi living in Australia, that I would be eligable to go into a rest home here. Does anyone know? I just presume that as I have a Medicare card that I would be accepted for whatever happens to me in my old age.
    Tom Tank
    21st Jul 2016
    4:20pm
    There is no mention here of the reduction in Government funding for aged care.
    FM
    21st Jul 2016
    4:41pm
    FM
    21st Jul 2016
    4:40pm
    remove
    reply
    This is very valuable information. The care fee is extremely steep. $241.00 per day regardless of what assets and income a person has is excessive, along with the other fees paid. In most cases home help would be less expensive unless a person is quite disabled and in need of a lot of care.
    Rae
    22nd Jul 2016
    9:05am
    A good point FM.

    At these prices I'm surprised there are not smaller aged care hostels all over the place. There must be some government policy to stop that sort of competition I expect.

    Good thing we don't have to pay that sort of bond to our kid's schools, the supermarket etc. They are labour intensive businesses with buildings to maintain too.
    Rae
    22nd Jul 2016
    9:13am
    That excuse of it being an expensive business doesn't cut it I"m afraid. Was this a policy to force the sale of houses in desirable locations?

    There has to be more to it. Private hospitals don't demand this sort of fee and they employ doctors and nurses rather than minimum wage earning staff.
    Muggins
    21st Jul 2016
    9:51pm
    My partner has just entered an Aged Care facility, there was no negotiation with the requested RAD, the 'negotiation' was how much we would pay as a lump sum and the balance between what we paid and the RAD is charged to us fortnightly at a set interest rate. This part of the RAD will not be refundable only the lump sum. To pay the RAD we dipped into the superannuation and savings which means we have lost most of our income, so now we are on pensions which is below the income we were receiving. We will have payments of approx. $1100.00 per fortnight plus extras such as medication, outings, etc. I am now very worried about our financial position, as we now have a large fortnightly debt to meet with less income.
    tams
    21st Jul 2016
    10:35pm
    Dear Muggins Another option was to borrow through an Aged Care Loan and retain your superannuation

    22nd Jul 2016
    7:00am
    The claims about aged care being costly to provide and fees needing to be high is suspect in my view. The aged care facility in our town, built and privately owned by an elderly lady, operated profitably and provided excellent care for over a decade with a RAD of less than $200,000. Sale to a major global corporation that has a chain of care homes across the country saw the RAD double overnight and care standards fall drastically - to the point where I would do myself in before having to go there. Now please don't tell me that price rise was necessary or justified. And how come doubling the price REDUCES the standard of care? Because of GREED, that's why! Aged ''care'' has become yet another business in which the greedy can rip of the needy and the nation. The charges are NOT justified. They are extortionate, unfair, and an insult to a society that SHOULD be caring for its aged without bankrupting them.
    My partner and I did the sums on buying land and building a care facility. We are seriously considering creating a syndicate to do either that, or build a child care facility, because both provide government-guaranteed income that would make a good operator filthy rich very quickly. Our only problem is that we are too ethical to join in the GREAT AUSTRALIAN RIP-OFF GAME.
    By the way, the RAD isn't the only issue. Chemist bills are monstrous, and there's no way of verifying that what is charged for is actually supplied. Doctors prescribe some more and more and more garbage and change prescriptions and dosages weekly, resulting in vast supplies of medicine apparently being thrown in the garbage and the resident charged extortionate rates for another lot. There's no proper accounting for resident cash so if a resident is not 100% alert and diligent there are claims that they drew cash for spending or bought something from the trolley when in fact it never happened. The rip-offs just go on and on and on!
    Pinky
    22nd Jul 2016
    8:17am
    This certainly scary stuff. Something needs to be done.
    Tom Tank
    22nd Jul 2016
    8:33am
    The reduction in Aged Care Funding is $1.6 billion as from 1st July.
    How can proper care be provided with that shortfall?