There are 4 charges that an entrant to permanent residential aged care may face. They are:-
1. The Accommodation Charge
This is the charge levied by the Aged Care Facility to secure the rights to live in the chosen accommodation. Officially this charge is called the Refundable Accommodation Deposit (RAD) and is notionally capped at $550,000 unless a higher amount has been authorised by the Department of Human Services.
Unless deductions have been authorised by a resident or their holder of a financial power of attorney this RAD is returned to the estate of the resident upon their exit from their facility. The nett value is guaranteed by the Commonwealth government. The RAD does not earn a resident any interest nor does it grow in value.
2. The Basic Care Fee
This charge is set at 85% of the current Single Aged Pension and is adjusted in line with changes to Centrelink/DVA pension rates.
It is currently $53.56 per day and everyone must pay this fee even those not on a social security type pension.
3. The Means Tested Fee
The Means Tested Fee (MTF) is determined by a special formula that combines an entrant’s assets and income which then determines what level of contribution is appropriate for the resident to pay towards the cost of their care.
People with very low means may not have to contribute at all while those with substantial wealth may have to pay up to a capped maximum daily amount of $259.26 Annual ($28,792.36) and lifetime ($69,101.75) caps also apply to MTF contributions.
4. Additional Services Fees
These fees fall into 2 categories, pre-bundled fixed service packages and opt-in extras packages. Many aged care facilities have pre-bundled packages that apply to a particular class of accommodation or room type. Others offer a range of extra benefits that can be selected by a resident as required. Some facilities have neither instead relying on a standard quality service covered by the RAD.
It is important to remember that fees for additional services are an expense item, no money spent in this regard is returned at the time of leaving a facility.
Payment of the RAD
The regulations give a resident 28 days from their date of permanent entry to an Aged Care Facility the right to determine how they want to meet the commitment to pay the RAD.
It can be paid in full or if a resident is not able/willing to pay it in full then the resident must pay a fixed interest on the amount not paid upfront. This interest payment is referred to as the Daily Accommodation Payment (DAP) and where this is payable the resident will be charged interest at a fixed rate set at the time they entered permanent aged care.
That rate is then referred to as their Maximum Permissible Interest Rate (MPIR) and this rate stays with the entrant for the full term of their residency on any outstanding accommodation payment. At the current date the rate is4.04% for new entrants.
The DAP is charged on a daily basis and can be paid on account or it may be deducted by agreement from any RAD that has been paid upfront where cashflow management is an important issue. (See also the section on Strategic Advice).
It is important to know that money paid into the RAD is not regarded as an asset for Centrelink/DVA purposes.
The Family Home
There is a great deal of ‘urban myths’ about the family home when it comes to aged care funding.
Common mythology says that “you’ll have to sell your house to pay the RAD” and we say nonsense!
There are three basic facts to consider:-
If your spouse/partner or a protected person continues to live in the home then the house has no asset value at the time a person enters permanent aged care. It might get a value later on but that is another discussion. So retaining the house can make a lot of sense especially to those who need to continue to live there and further as it does not boost asset values when the MTF is calculated.
Where there is no ongoing special person living in the home the house has a deemed value (for all entrants, wealthy or not) of $175,239.20 for the time as an aged care resident, after 2 years of residency for Centrelink or DVA purposes it is measured at its market value and a resident’s pension might then be adjusted.
Renting out the home or even leaving it empty can be useful strategies in some cases where there is no-one special continuing to live there. Once a home is sold the full value is counted as a financial asset and this can have ramifications on the MTF and Centrelink/DVA pensions.
What if you do not own a home?
The aged care system is based on principles that cater for people at all levels of financial resources and people that do not own a home are assessed on the assets that they do own just like anyone else. If a non-home owner has assets under $175,239 they may be classed as a low-means client and the cost of entry is set on an adjusted scale via a formula that re-calculates the RAD of a chosen facility to a lower figure relative to the entrant’s actual personal assets/income.
The re-calculated figure is called a RAC to distinguish it from the full cost RAD that applies to people with higher financial resources. The maximum DAC that can be charged a low means client is $59.49 per day. If a persons assessable assets are less than $56,599 then the RAC and DAC will be nil.
A Low Means Client will need to find accommodation that is designated for low-means situations.
We are able to calculate the RAD or RAC as required and corresponding DAP or DAC.