The fees for residential aged care changed on July 1 2014. Knowing about these changes is vital for working carers.

For existing residents in a residential aged care facility, nothing will change. Service providers will not be able to charge more.

Please note however that advice in this article is correct only to the best of our knowledge and is general in nature. It should not be taken as personal financial advice. All readers must confirm the advice with their solicitor and/or the Australian Government Department of Human Services to see what rules apply in their individual situation.

The changed rules will however affect ALL working carers who are caring for an older person nearing the time when residential aged care is being considered, or has become a necessity.

The changes are supposed to simplify the rules for aged care costs and yes, they are certainly simpler than pre-July rules. But the pre-July rules were incomprehensible to virtually everyone except experts in the field, so the government can’t really pat itself on the back too much for bringing in clearer guidelines and a fairer fee structure. It should have been done years ago.

That said, the new rules are still very hard for the average person to understand. It is not until you are fully involved in the process, and committed to moving someone into a residential aged care facility, that you can really get a better understanding of the costs involved.

With staff currently going through that process themselves, we have a slightly clearer understanding which we hope can shed some light on the matter for others.

The first thing to say is that more needs to be done to support people with the process and to help people considering aged care for a loved one to get adequate information about all the options BEFORE they make a commitment to moving them into aged care.

The financial costs are considerable and the consequences of a wrong decision lasting. Aged care fees are still extraordinarily complex.

The new fee structure means that the pre-July distinction (for the purpose of fees) of the two types of residential aged care: low care and high care, is now GONE. All existing high and low levels of permanent residential care places became general residential care places on 1 July 2014.

It USED to be that if a resident went into LOW CARE they were asked to pay 85 per cent of their pension as a basic daily fee.

If their means allowed it, they were also asked to pay an ACCOMMODATION BOND (a large sum for many) for their accommodation costs.

There was no cap on bonds other than that the resident must have been left with at least $45,000 in assets after having paid the bond.

If the resident had income over and above the full-rate pension, they could also be asked to pay extra daily fees, up to a total of $73.86 per day.

If a resident went into HIGH CARE, the basic daily fee and care fees as mentioned above applied in the same way, but they DID NOT have to pay a bond. Rather, the high-care resident could be asked to pay a maximum of $34 per day in an accommodation charge, if they had assets over $116,136.

From 1 July 2014, much of that has changed.

The distinction between low and high care has disappeared. All residential care residents will now be treated the same in terms of fees.

A comprehensive means test will apply to everyone. A resident’s income and assets will be used to determine how much they can contribute towards the cost of their ACCOMMODATION PAYMENT and CARE FEE per day.

Assets can include the family home, vacant land, shares, boats, cars, caravans, personal effects of all kinds, artwork, coin and stamp collections – everything. Income includes everything that comes in – the pension, share dividends, rent from investment properties, payments from Super funds, income from part-time work, foreign investment income, income from trusts, and so on.

The daily care fees for both HIGH and LOW care will now be determined as follows:

ALL residents will pay 85 per cent of the aged pension as a basic daily care fee. The means test will then be applied. Some residents will need to pay a higher daily care fee, which could be above their pension; those with no income or assets may not need to pay more.

The means test will consider the following:

Income:
   - 50 per cent of income over the maximum single pension threshold
. The income free area is $24,731.20 per annum.

Assets:
   - 17.5 per cent of assets between $45,000 and $154,179 (so the first $45,000 is not included)
   - 1 per cent of assets between $154,179 and $372,537
   - 2 per cent of assets over $372,537
   - Divide the result by 364 to get the daily extra amount that will be charged for both high and low care accommodation.

The family home will be excluded from the assets assessment ONLY IF a spouse, or carer, resides in the home. If it is empty, after 1 July, its value will be capped at $154,179 (this capped value is likely to increase annually).

So, what does this mean?

Let’s use an example of Mary, and determine how much she will be paying from 1 July for residential aged care.       

Mary receives the full-rate Age Pension, and her only asset is her home, which is valued at $500,000. Mary is the only person living in her home.

Mary’s income test would be $0, because she has no income other than the pension. She would still pay 85 percent of her pension, though, to the aged care provider.

The value of Mary’s home is capped at $154,179 under the means test rules. You then need to calculate how much extra per day she can be charged. Calculate 17.5 per cent of her home’s value ($154,179 less the allowable asset level of $45,000, divided by 364 = $300). Now calculate 17.5 of $300 = $52.50. Mary is therefore assessed as being able to pay a FURTHER $52.50 per day towards the cost of her daily care. Her care fees of 85 per cent of the pension plus the extra $52.50 per day exceed her total pension by over $100 per week.

Although the family home’s value is capped at $154,179, many (like Mary) will find that they will need to tap into its equity somehow to fund their care fees (by taking out a reverse mortgage with the bank, for example, or renting or selling or getting family to pay the difference.)

Unless Mary RENTS out her home – which she is allowed to do and which could be an excellent strategy for many reasons – Mary most probably would have to sell it to help pay her daily care fees.

But, here is the dilemma: once she sells it, her assets will rise because the $154,179 cap on the home will disappear. Her assets will grow by the amount she sells her home for. That, in turn, will increase her care fees.

Her care fees will also rise if she rents out her home, because the extra income being received will increase her assessable income.

Mary’s DAILY CARE FEES are entirely separate to the ACCOMMODATION PAYMENT that she may be asked to pay.

That is a whole different article and also very very complex. In summary, Mary can choose to pay an upfront accommodation payment to the aged care provider (this can be many hundreds of thousands), but she will still have to pay the daily care fees on top of that.

Mary will be able to negotiate with the aged care provider as to how she pays her accommodation payment. The accommodation payment (less fees and charges) is refunded when Mary leaves the residential care facility or dies.

Mary can negotiate how she pays the accommodation payment. She might pay it all in one lump sum (say after selling her house); choose to pay a smaller upfront lump sum accommodation payment plus a higher daily fee; or, she can pay the highest daily fee and not pay any lump sum at all. If your head is spinning by now, join the club.  

The key message for people needing residential aged care is that you MUST get really good independent financial advice from a good accountant, who can run the figures every which way and hopefully see which outcome is best for your situation – rent, sell, keep the place empty, take out a reverse mortgage, or fund an accommodation bond in some way while still being able to afford the daily fees.

Please do not rely on advice from well-meaning friends and family members, or anything you read in an article such as this. These decisions are complex and require advanced financial knowledge.

Another point to note is that since 1 July, nursing homes must set their price for accommodation so that accommodation bonds are no longer tied to a resident’s assets, but reflect the quality of the accommodation. All homes now have to publish how much they charge for accommodation. Caps on accommodation pricing have been lifted.

Given that these kinds of legal transactions and decisions take a high level of financial planning literacy, it is vital that these decisions are made at a time when the older person still has the mental capacity to do so and that an Enduring Power of Attorney is immediately set up through a solicitor to ensure that should the older person suddenly lose capacity, a mechanism is in place for these decisions to be made. There is no point keeping your head in the sand and waiting for that catastrophic stroke – it will be too late to set up the Enduring Power of Attorney and these critical financial decisions will be made all the more complicated.

Please note: This article draws heavily on figures provided by the Combined Pensioners & Superannuants Association of NSW Inc. here:

http://www.cpsa.org.au/aged-care/1039-will-aged-care-be-cheaper-or-more-expensive-after-1-july-2014

For more comprehensive information, please download the government’s Information Booklet on Fees for Home Care Packages and Residential Aged Care for People Entering Care here:

http://www.dss.gov.au/our-responsibilities/ageing-and-aged-care/aged-care-reform/reforms-by-topic/information-booklet-on-fees-for-home-care-packages-and-residential-aged-care-for-people-entering-care