Keith Hain is 85 years old and lives in a nursing home due to physical issues. “I’m good from the shoulders up,” he says. He wants to know how nursing home costs are calculated and why he has such a small amount of money left each week despite government increases.
Q. Keith Hain: What government subsidies do the nursing homes get and how do they assess costs at 85 per cent of pension payments to individuals? I find them exorbitant with not much left out of our pensions to have a life, to buy clothes or even a paper to read. I made inquiries with management here, but I was told they didn’t do the costing. I sent a query to their head office and was told it was a state government issue. I had a conversation with the state member for my electorate and was told it was a federal issue. Can you explain?
A. Louise Biti, director, Aged Care Steps: This is an important question, as the costs of Aged Care are a concern for many and it is difficult to get clear information on what the fees are and what they pay for. Hopefully, I can make it clearer.
Residential Aged Care is generally not a government-provided service, but rather one provided by organisations such as charities, church groups and private businesses. However, the costs are very heavily subsidised by the Federal Government, with government paying on average 65 per cent of residents’ care costs. Residents are asked to contribute to the cost with this amount set and calculated by the Federal Government (not the service provider).
In residential Aged Care (nursing homes), the costs can be divided into:
1. The cost for a room and use of the facilities (accommodation costs)
2. The cost of living expenses and care
3. Additional services that you may wish to access and pay for.
The cost of the room is charged as a lump sum or a daily fee (rent). The cost depends on the fees set by the care provider, with the average fee across Australia being almost $400,000. But for people with lower levels of assets and income, the government sets the price (at up to $55.44 per day) and the Federal Government may subsidise all or part of this cost to help make it affordable.
Living expenses and care
The cost of living expenses and care in a residential care facility can be up to $107,675 per year ($295 per day). But thankfully, the Federal Government pays a large part of this cost to help make it affordable. Residents will be asked to pay between $18,038 and $44,604 per year. How much each person is asked to pay depends on an assessment of his or her assets and income.
At a minimum, each person in Aged Care is asked to pay $18,038 per year for his/her living expenses and care. This is $49.42 per day and is set at 85 per cent of the basic rate of the single Age Pension. If you add on the supplements that are paid with the Age Pension, it is really only 73 per cent of the maximum single Age Pension.
For this $49.42 per day, the care provider will provide you with:
- all meals (three meals a day)
- electricity for heating, cooling, lights and other power needs
- cleaning of your room
- laundry services for clothes, towels and bed linen
- basic nursing support and help with medications
- staff to provide supervision, care services, cook meals, and so on
- assistance with showering, dressing, feeding or other activities, as required
- basic furnishings in your room
- some entertainment activities.
This cost may seem high, and it leaves residents with only $15 per day ($5475 per year) from their Age Pension for other living expenses. However, it replaces the cost of food, electricity and so on that you would pay if you were living in your own home, and it also covers the cost of care services. For some people, this may be cheaper than it is to live in their own home.
It costs the care providers a lot more than $49.42 per day to provide all these services. This is why people with income and/or assets may be asked to pay up to an additional $72.78 per day (on average, or $26,566 per year) towards the costs. The government calculates this fee. The remaining the cost of care is paid by the Federal Government on your behalf. On average, the government pays around $67,000 per year for every person in residential care (more for some people and less for others). How much the government might be paying for you depends on your care needs and how much you are contributing.
In addition to these legislated costs, you will need to pay for other personal expenses such as medicines, clothes, newspapers, etc. Some service providers may package up additional services and provide them for an extra daily fee. These fees are set by the service provider and depend on the services provided.
Louise Biti is the director of Aged Care Steps which provides professional financial planners, accountants and lawyers with information and advice on aged care issues.