More than 1.2 million Australians receive some form of aged care. Of these, about 23% of people are using residential aged care. If you think through these numbers, and remember that residential aged care typically comes after a period of receiving support services in your own home, you can see that many if not most are likely to spend some time in residential aged care during our lifetime. This makes residential aged care something all of us should expect – and anything that we can expect can be planned for.
Effective planning can make a substantial difference to people’s experiences. Effective planning can either (i) significantly reduce the cost of care; and/or (ii) greatly increase the quality of care that we receive. In this article, we take a brief look at the two main types of cost that generally apply to all people in the residential aged care system. Please note that individual facilities may provide additional services and charge individual fees for those services: this article focusses on the main payments that apply to virtually everyone.
Put simply, a person in residential aged care pays for two basic things: their accommodation and their care. How these two things are paid for depends on the income and/or asset level of the resident. Income and assets are assessed using a means test, similar in concept to the means tests used for things like Centrelink benefits. Means tests are always fiddly, not the least because the thresholds for the tests tend to change each March and September as indexing is applied to them. They also vary depending on whether a person is a member of a couple or not, whether and how they might own their own home, etc.
In very general terms, the main threshold for income is approximately $26,000 per person (again, things vary depending on whether the person has a partner). Once income rises above this, a person is expected to start making their own contributions to the cost of their care and/or accommodation.
The assets test is more complicated. Much depends on whether the aged care residents’ former home counts towards the test. Generally, it will, unless the home is still being lived in by someone with a particular relationship to the aged care resident (such as a husband or wife or financially dependent member of their family).
Anything that is means tested can be affected by the way in which a person receives their income and/or holds their assets. Therefore, good financial planning can lead to good outcomes here. That said, the best planning happens well in advance. That is, effective planning often takes place many years prior to the person needing to go into care. Things can still be managed once the need for care has arisen (it is never too late for good decision making). But the earlier the planning starts, the better.
At least one and potentially two types of care fee may be payable by an aged care resident.
Basic Daily Care Fee
Virtually everyone using residential aged care is asked to pay the basic daily care fee. The fee is set at 85% of the full aged pension rate. Currently, this is $52.25 per day (although pension rates will be reviewed later in March as part of the semi-annual indexing process). This fee is paid by the resident directly to the aged care facility and it is used to pay for things like meals, cleaning, laundry, etc.
Means-tested Care Fee
In addition to the basic daily care fee paid by everyone, there is a means-tested care fee that may be payable as well. Being means tested, the amount of this fee varies from person to person. Some people do not have to pay a means tested fee. The maximum fee payable is currently $256.44 per day.
The means-tested care fee is also subject to two caps: one for any given 12-month period and another for a person’s lifetime. These caps are currently $28,087 per year, or $67,409 in a lifetime. (Again, these caps are also indexed each March and September, so they can be expected to change a little later this month).
People will usually be asked to pay one of two types of accommodation fee. The first is an accommodation payment. The second is an accommodation contribution. Which (if either) of these two is payable is decided by the means test.
The absolute size of the accommodation cost depends on the specific facility that you use. Once they are set, accommodation costs can either be paid upfront or paid as you go. The choice here adds some complications, so in this article we will simply discuss who has to pay the accommodation cost.
Essentially, the means test divides people into one of three categories: low, moderate or high means. Low means residents have income less than (approximately) $26,000 and assets below $48,000. High means residents have income above (approximately) $67,000 or assets above (approx.) $165,000. Moderate means people are between these two bands.
People in the low means category do not make any accommodation payment: the Commonwealth Government pays this cost for them. People in the high means category make the full accommodation payment: the Commonwealth Government does not pay any of the accommodation costs for them. People in the moderate category receive some Government assistance for accommodation and make their own contribution towards the cost of accommodation. How much the Government contributes depends on the specific level of income and assets.
Moving into residential aged care can be a complicated procedure. In particular, the quality of aged care and how much you need to pay for that care depends on how you are managing your finances. If you or someone you know needs to make some decisions about current or future aged care, please get in touch. This is one area where we really love helping people get the best possible outcomes.