08 Sep 10 most important Aged Care fees and costs explained
Transitioning into aged care is a big decision that requires preparation and planning. I’m often asked where to begin when contemplating aged care. More specifically, the fees and costs associated with aged care. As a starting point, I’ve put together the 10 most important aged care fees and costs explained.
- What are the fees and costs if I move into residential aged care?
When you move into residential care you will be asked to contribute towards the cost of your care. The government will pay a large part of the costs for most residents. The fees are divided into four categories and they all serve a different purpose
Accommodation Payment This fee pays for your room and amenities within the aged care service. It is paid as a refundable lump sum or a daily fee.
Basic Daily Fee This is a contribution towards your cost of living expenses. This includes meals, electricity, laundry, cleaning and nursing care.
Means Tested Daily Fee You could be required to contribute more than the basic fee. This is based on your income and assets and it goes towards your care. This reduces the amount the government pays on your behalf.
Additional Fees The service provider may offer you a package of additional services for an extra daily fee
The cost of your accommodation will vary depending on factors such as service provider and the selected room. Maximum prices are available to view on the service’s website or at the myagedcare website. The Government may subsidise the cost if you qualify as a low means resident. To qualify, you must have low levels of income and assets to pay a lower fee than advertised.
The amount you are asked to contribute towards your living and care costs will depend on your income and assets. All residents pay the basic daily fee which is set at an amount equal to 85% of the basic single rate of age pension1. You only pay more than this (as a means-tested fee) if you have income and assets over certain thresholds.
Any additional service fees are negotiated with the service provider. This is a set daily price.
- Do I have to sell my home when I move into aged care
When you move into care you will have two options to pay for your accommodation.
- A refundable lump sum or refundable accommodation deposit (RAD)
- A daily “rental” payment or daily accommodation payment (DAP)
Some residents may choose to sell their home to make these payments. Or residents may keep their home so that other family members can live there or so they can earn rental income.
The choice is up to you. You are not forced to sell your home.
This decision may impact how much you pay for your care as well as how much age pension you are eligible to receive. Paying for advice from a financial planner may help you make the best decision for you. It is important to consider cash flow (or available assets) to pay your fees and other expenses.
- What if I can’t afford the accommodation cost?
If you have low levels of income and assets you might qualify as a low-means resident. The amount you pay towards your accommodation is based on your income and assets. The government will also pay some of the cost.
As a general rule, you are likely to qualify if:
- You do not own your own home
- your spouse or other “protected” person will continue living in your home
- you have income and assets under certain thresholds
A protected person includes carers or close family members. They must qualify for income support from Centrelink or Veterans’ Affairs and have already lived in your home for at least two years as a carer or five years for a close family member.
If eligible, you must fill in the assessment form. When completed, send it to the Department of Human Services (DHS) or Veterans’ Affairs (DVA).
If you do qualify, ask your chosen service provider if a place is available for a low-means resident. Also ensure that you check the fees required for your accommodation.
- What is a refundable accommodation deposit (RAD)?
One option to pay for your accommodation is to pay the requested lump sum. This is a refundable accommodation deposit or a RAD for short.
You can check the service provider’s website to see the maximum RAD you will pay if you accept an offer of a place.
Paying the lump sum is only one choice. You can choose to pay the RAD in full or pay a daily accommodation payment (DAP) on any amount not paid. The DAP is like paying rent or interest on an outstanding loan. You could also choose to pay a part RAD and part DAP. Paying for advice from a qualified financial planner may help you to make this choice.
If you choose to pay a RAD, the service provider will hold this money on trust for you. The full amount is refunded when you leave or pass away
- If I pay a RAD how secure is my money?
The Federal Government guarantees the repayment of refundable accommodation deposits (RADs). The guarantee applies if an approved residential aged care service was used.
If the service provider goes into liquidation or faces bankruptcy and cannot afford to repay your RAD, the Government will pay you back the full amount owing. This makes your money very secure.
The service provider must be an approved service to be covered by the guarantee
- When is a RAD refunded and how much will I receive back
If you pay for your accommodation as a refundable accommodation deposit (RAD) you will receive this money back after you move out.
The RAD is repaid to your estate if you pass away. The service provider will generally ask to see a copy of probate for your estate. The full RAD should be refunded to your executor within 14 days of seeing probate.
The full amount that you paid as a RAD is refunded unless you have asked the service provider to deduct any other fees from the RAD or you have unpaid fees outstanding which the provider is able to deduct from the RAD. Your accommodation agreement will explain which outstanding fees can be deducted from the RAD
- Will I still receive an age pension after moving into aged care?
If you receive a payment from Centrelink or Veterans’ Affairs you need to update your records every time your circumstances change. This includes when you move into aged care.
The amount you receive after moving into care may change. It may increase or decrease. This will depend on your circumstances and any changes to your income and assets.
If you are a member of a couple you will still have combined income and assets assessed. However, you will both start to be paid at the higher single rate of pension.
If you keep your former home, you may continue to be assessed as a homeowner for up to two years. Your home will remain as an exempt asset for Centrelink and Veterans’ Affairs. If you entered care before 1 January 2017 and structure the arrangements carefully, you can rent your home without the income affecting your age pension. However, the assessment of rental income for aged care fee purposes will depend on when you entered permanent care.
If you sell your home, you will become a non-homeowner. The amount you pay to the service provider as a refundable accommodation deposit (RAD) is exempt for Centrelink and Veterans’ Affairs. This may help to maximise your age pension. This amount is still assessable however, when calculating your means-tested daily care fee.
To maximise your Centrelink or Veterans’ Affairs entitlements, it is important to seek advice from a qualified financial planner to ensure the arrangements are structured properly. They can determine whether it is more effective for you to sell or keep your home
- Does the choice of aged care service affect the fees and costs I will pay for care?
How much you pay for accommodation will depend on the residential service that you choose. This is like buying a house where you may pay more for a house that is bigger or in a better location or with better facilities.
You are now able to compare the cost of accommodation for all service providers on the government website myagedcare.
The basic daily care fee is the same for all residents in all services because it is a flat fee set at 85% of the basic rate of single age pension (indexed every six months).
The amount you will pay for the means-tested fee depends on your income and assets, not the service you choose to live in. Department of Human Services (DHS) or Veterans’ Affairs will calculate your assessable income and assets. A formula is used to work out the fee you will be asked to pay.
The fees for any extras you choose to access will vary and you can ask for a schedule of fees to decide if you wish to pay for them
- What happens if I use up my savings and can no longer afford to pay for care?
Most people find this does not become a problem.
Before accepting an offer of a place, you should check that you have enough assets to pay the refundable accommodation deposit (RAD) or ongoing income to pay the daily accommodation payment (DAP) or enough to make a combination payment (part RAD / part DAP). If you have lower means you may qualify as a low-means resident and pay lower fees. Financial advice can help you to structure your finances to ensure you can continue to meet your payments.
The amount you contribute towards your ongoing care is based on your income and assets. If your income or assets reduce, your fees may also reduce or vice versa. The government has also introduced caps on the means-tested fee to limit how much you will pay. There is a daily, annual and lifetime cap.
If circumstances beyond your control do place you in financial hardship and you can’t meet your ongoing fees you can apply to the government to have fees waived or reduced
- Where can I get help to make decisions about aged care fees and costs?
Navigating through the financial aspects of aged care can be complicated, especially as you should take into consideration:
- How your age pension is affected?
- How to pay for your accommodation?
- What you will pay for your ongoing care?
- Whether you need to pay any tax?
- Whether you have enough cashflow to pay for your care and living expenses?
- The impact on your net wealth and your estate?
Paying for advice from a qualified financial planner may help to make this easier and also reduce the stress for your family. It can also help to avoid making significant and expensive mistakes.
You can also access free information to help you understand the rules from Centrelink or www.myagedcare.gov.au but a financial planner can help to put this into a plan that works for you and your family
How to get help with your Residential Aged Care Questions
Before making any decisions, contact an accredited aged care adviser to talk through the care options available to you, the costs associated with them and the best way to restructure your finances to pay for the appropriate care.
Getting the right information and advice can help you to understand your options and the implications for your cash flow, Centrelink or other concession cards, aged care fees, taxation and estate planning. This will allow you to make the best choices for your future care, security and happiness
Visit our Contact page here, or Contact us today on (03) 8526 8961 to discuss your needs
General Advice Warning: This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs.
We Plan Pty Ltd (ABN 31 756 092 774) is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL and Australian Credit Licence No. 236523
Current as at 20 September 2017
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