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Home / Personal Finance / Budgeting

Nov 8 2014 at 2:48 AM | Updated Nov 8 2014 at 6:02 AM

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How to navigate the aged care maze

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The average cost of aged care accommodation is estimated at about $300,000 to $400,000, payable as a
refundable accommodation deposit. Illustration: Sam Bennett

by Bina Brown

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Clever ways to finance the move

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Deirdre Border knew it was time to talk to her 84-year-old mother, Margaret,
about stepping up her care needs when she arrived to find the water to her
home had been cut off. What Deirdre hadnt realised was that Margaret had
unpaid utility bills going back several months. The once busy accounts
director was now living the life of a virtual hermit in one room of her
substantial home in Melbournes eastern suburbs.
Deirdres concern prompted a conversation about the need to increase the
level of home care and the possibility of going into residential care.
Margaret was initially appalled at the idea of going into a home but, after she
was assessed and there was an independent voice presenting the scenarios,
she resigned herself to at least look at her options. When she fell and injured

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AFR AFR

Within days, the family had to find a bed in a facility they were happy with
and a vacancy they could afford.
There were dozens of phone calls to Centrelink, potential homes and
advisers. On the advice of Equity Trustees, which Deirdre engaged to help
advise on finances, it was decided to keep the family home and use other
assets (Margarets deceased husbands superannuation) to pay for her move
to the aged-care facility.

AGED CARE CAN BE A DIFFICULT SUBJECT

Like Deirdres situation, finding and funding the right level of home and
residential care for older relatives is an increasingly pressing issue for
Australian households.
Even with recent reforms and a focus on assisting the countrys ageing
population, the aged care system is a minefield where the help of younger
family members and professionals is highly sought.
An emotional and stressful situation can be made easier with some prior
planning starting with a conversation about care when a parent or relative
is fully cognisant," says Denise Tomaras, of aged care placement specialist
Tender Living Care.
It is a hard conversation to have at any time but if residential care is
something that is inevitable, it is better to have the discussion when someone
in."
The average cost of aged care accommodation is estimated at about

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fully understands. If they get to the stage of dementia, then paranoia sets

The average cost of aged care accommodation is estimated at about

$300,000 to $400,000, payable as a refundable accommodation deposit
(replacing the old bond), a daily accommodation payment or a combination
of both.
About 5 per cent of facilities charge $550,000-plus under special government
approval. Someone without the means to pay for accommodation will get
government assistance.
One big improvement since the introduction of the Living Longer, Living
Better reforms is that all aged-care facilities are required to publish the cost
of the accommodation on the Governments My Aged Care website
(myagedcare.gov.au), as well as whether they offer supported" beds (that
is, paid for by government).
A residential care fee estimator on www.myagedcare.gov.au can help work
out potential care costs. But this is just the start of what can be a very
stressful and emotional process for individuals and their families.
Equity Trustees aged care advice senior manager Anna Lawton says a shift in
attitude to aged care means more people are starting to factor it into their
plans earlier.
Earlier generations saw it as dont you dare move me. But the next
generation has a growing awareness and acceptance that there is the
potential for a move into care. So from a planning point of view, people need
to be thinking about saving for that," she adds.
Lawton says the move to a user pays" system from July 1 this year means
that people may have more choice as to where they go, but if they want to
be near family and have all the bells and whistles, planning is needed. The
best way to do this is much like saving for an overseas trip is to have
capital saved for entry into aged care. Plan B is to discuss it with family
members and consider all the options, including whether to sell the family
home before it becomes a decision made under pressure in a short time
frame.

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frame.

MEANS-TESTED CARE
Where someone does own their own home, it is counted as an asset by the
government in its calculation of the means-tested daily care fee but only up
to the value of $155,823. Where a spouse remains in the home, it is not
assessed.
As of July 1 this year, all refundable accommodation deposits (RADs) are
published on www.myagedcare.gov.au, and on the facilitys website.
As the name suggests, this is a deposit and any balance is refunded when a
person leaves the facility less any amounts that have been agreed will be
deducted. (The reduced amount could be because of daily payments or extra
care fees.)
The deposit can also be paid in periodic payments called the daily
accommodation payment (DAP), calculated by converting the refundable
accommodation deposit into a daily charge using the maximum permissible
interest rate at the time someone goes into care. The current rate is
6.63 per cent.
As well as the accommodation charge (which covers the cost of a bed only),
there is also a basic daily fee (for costs such as meals, cleaning, laundry,
heating and cooling), as well as a means-tested fee as an additional
contribution towards the cost of care.
Everyone entering an aged-care facility can be asked to pay the basic daily
fee, which for new residents is 85 per cent of the single person rate of the
basic age pension (current rates put this at $47.15 a day).
The means-tested fee is calculated by the government based on your
income and assets. A member of a couple being assessed would have half of
the combined income and assets considered in determining the meanstested care fee, regardless of which partner earns the income or owns the
asset.
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asset.

STILL MUCH CONFUSION

Annual and lifetime caps apply to the means-tested care fee of $25,349 and
$60,838 respectively. Some facilities offer extra services such as
hairdressing or a as a glass of wine with meals, for which they will charge an
additional fee.
This can vary between $20 and $100 a day.
Just as the services may vary, so will the charges. But from July 1 this year,
aged-care facilities with dedicated extra service" places are required to
publish their extra service fees on the My Aged Care website, their own
website and in other relevant materials provided to prospective residents.
Ipac Financial Care adviser Paul Intagliata says six months into the reforms,
there is still much confusion. Part of this stems from the requirement that
everyone looking to enter aged care is presented with a Centrelink assets
and income form, irrespective of whether they are on an age pension or selffunded. This assessment will tell the facility just how much the resident will
need to contribute to the cost of care (with the government paying the rest).
For residents of limited means this test may also help determine any
government support.
Where someone doesnt complete the form and the facility accepts them,
the resident is liable for the full amount of the cost of care and
accommodation (subject to the caps mentioned previously)
Later Life Advice founder Brendan Ryan says ignoring the governments
means testing will result in the resident paying the full cost of care, with daily
amounts reaching up to $240 a day.
The daily limit is the extent of the payments the government pays the
provider, and it can be substantial," Ryan says. For example, if a resident
has high-level requirements for care, the governments payment to the
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aged-care facility for providing the care could be $208 per day. At this rate,
the $25,349 cap would be reached in four months, requiring high payments
in the early months and nothing later," he says.
Ryan says based on the governments assessment, a resident would need to
have assets of $2.5 million (including the home) to be paying for the cost of
care at this rate.

FRONT-LOADING OF COSTS
If the resident had financial assets less than $2.5 million, the government
would assess they should not have to contribute the full $208 in care fees per
day and the overall cost of care would be more evenly spread over the whole
year."
Based on calculations using the government residential care fee estimator,
Ryan says a resident with $1.2 million in cash would be limited to paying $74
a day.
The way the system is set up leads to a front-loading" of costs, as fees can
be charged at a high rate until the cap.
Where it was taking Centrelink 12 weeks to process the income and assets
forms, its down to about three weeks, Intagliata says .
Where some facilities wont accept a person without the necessary
Centrelink form, others have been letting people in an on agreed-cost basis
and charging an agreed means-tested care fee until they are able to get the
full picture," Intagliata says.
While this arrangement will work better for some, he says, It makes the
process longer which was not the intention.
The accommodation costs are more transparent because facilities are
required to advertise their costs which means people can plan on how they
may pay for it.

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may pay for it.

REFORMS TO GIVE FAMILIES MORE CONTROL

But someone can be ready to go in and the facility wont take them because
the forms arent complete," Intagliata says.
One aim of the reform was to give greater control to the individual or
families than the facilities over the payment of the accommodation charges.
Since July 1, 2014, a resident has 28 days [after moving in] to inform the
facility how they intend to pay the accommodation charge whether it is by
refundable accommodation deposit or daily accommodation payment,"
Intagliata says.
If after 28 days the resident hasnt informed the facility, it defaults to a daily
accommodation payment. The payment by deposit [RAD] or daily payments
[DAP] may be optional in theory but the practical side is different, especially
when it comes to the residents liquidity," says aged care specialist adviser
Jeremy Gillman-Wells, authorised representative of AMP Financial Planning.
Its important to find out the minimum RAD the facility charges. This will
help the family and/or adviser work out the best funding strategy to achieve
the quickest placement," he adds.
Financial considerations will include whether to pay a full or part deposit, or a
combination of deposit and daily fees, as well as whether the daily fee should
be deducted from your cash flow or drawn down from the partial deposit.

ADVICE ON MINIMISING COSTS

The [daily accommodation payment] can be deducted from the lump
sum[partial deposit], which is a huge benefit, especially where the care
contribution fee makes cash flow difficult to manage until you hit the $25,000
annual maximum," Gillman-Wells says.
He says the timing of entry into aged care for members of a couple, and the

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He says the timing of entry into aged care for members of a couple, and the
timing of completing the income and assets assessment, can have a huge
impact on the accommodation payment, means-tested fees and government
entitlements.
Other key considerations are whether the family home is kept and rented out
or sold. Gillman-Wells says an experienced adviser will help people maximise
their Centrelink or Department of Veterans Affairs entitlements and give
advice on how to minimise aged-care costs, maximise cash flow and
preserve maximum value for the estate.
In one instance, after negotiation with a facility and restructuring of assets,
we were able to save a resident over $50,000 a year in care and extra
services fees," he says.
*Not her real name
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