We spoke with leading aged care financial specialist Louise Biti, an industry expert with more than 20 years' experience across banking and financial strategy and the founder of Aged Care Steps, a specialist advisory group educating professionals who help clients navigate aged care funding.
In this investigation, we take a look at:
Qualifying as a full pensioner
If you're over 65 with a low income and few or no assets, you are most likely eligible for a full age pension. If you qualify as a full pensioner, the government will cover most of your daily aged care costs, but you may need to cover accommodation, depending on your assets. To qualify for a full pension, you must satisfy the means tests. You can estimate your pension on the Centrelink rate estimator page.
To qualify for a full pension, you must not own assets greater than the government's asset limits (set out below) and also pass an income test. Currently, the principal family home is exempt from the age pension assets test. Some of the rules and limits around the assets test are due to change on 1 January 2017.
To receive full pension, you must not have assets greater than:
- Single: $354,500
- Couple combined: $440,500
- Illness-separated couple combined: $440,500
- Single, homeowner: $205,500
- Couple combined, homeowners: $291,500
- Illness-separated couple combined, homeowners: $291,500
At the time of publication, according to the Department of Human Services, a full pension for a single person (including the maximum pension supplement and energy supplement) is set at $867 per fortnight. For a couple, the combined payment is set at $1307 per fortnight.
Actual costs: funding aged care on a full pension
The two main options are:
- Independent living at home using community support services such as domestic help, personal care, nursing and other Allied Health Services all delivered via the Commonwealth Home Support Programme (or, for more specific services, using the Home Care Package which has levels 1–4 depending on need).
- Residential aged care in an aged care facility.
To understand costs associated with each of the care options above for low income individuals, we can use the example of Robert, a single full pensioner with an annual income (pension) of less than $25,000. Robert does not own a home and has assets of less than $40,000.
Option 1: Home care
Robert has an ACAT assessment that allows him services via the Home Care Package. In addition to Robert's usual living costs which include housing, essential services, food and personal spending, Robert could be asked to pay two fees to cover his Home Care Package: a basic daily fee and an income tested fee.
- Robert's basic daily fee would be set at: $137.90 per fortnight
- Robert's income tested fee would be set at: Nil (Robert is classified as a low income earner and the government will pay any additional fees).
Source: Home Care Fee Estimator
Option 2: Full time residential care
If Robert has the appropriate ACAT assessment and wishes to move into a permanent aged care home, he could be asked to pay the following fees:
- The basic daily fee This fee is payable by all residents, even full pensioners, whether in respite or permanent care. This rate indexes on 20 March and 20 September every year in line with age pension changes. It is set at 85% of the basic single rate of the Age Pension (i.e. the single pension before supplements are added) which is currently $47.86 per day.
- Accommodation payment This fee can vary from service to service and is set by the provider. Some people will have their accommodation costs met in full or in part by the government. The Department of Human Services will advise if this applies to you based on an assessment of your income and assets.
- The means-tested care fee (MTF) This is an additional contribution towards the cost of care. The Department of Human Services will decide if you are required to pay this fee based on the assessment of your income and assets. If you are a member of a couple, half of your combined income and assets are considered in determining your means-tested care fee, regardless of which partner earns the income or owns the asset.
There are annual and lifetime caps that apply to the means-tested care fee. The annual cap is currently set at $25,731.05 (indexed) and a lifetime cap set at $61,754.55 (indexed). Once these caps are reached, you cannot be asked to pay any more means-tested care fees for the relevant period. Any income-tested care fees you have paid in a Home Care Package prior to moving into an aged care home will also count towards your annual and lifetime caps.
- Other services: fee set by facility (may be optional) You may encounter optional extra fees for things like meal choice, pay TV and delivery of the papers – but Biti urges caution. "We are starting to see evidence of a range of additional non-optional fees being charged by service providers. Check all fees carefully and review the Resident Agreement before signing."
Because Robert is assessed as low-means, his actual costs would be:
Basic daily fee: $670.04 per fortnight or $17,468.90 per year.
Accommodation payment: Nil
Means tested care fee: Nil
Fee estimator for aged care
You can use the Residential Care Fee Estimator to help estimate what costs your aged care home may ask you to pay. The Fees for Home Care Packages and Residential Aged Care for People Entering Care from 1 July 2014 information booklet provides more details on aged care home costs.
What is a RAD and who pays it for low-means applicants?
If you are required to pay for your aged care accommodation, a RAD (refundable accommodation deposit) can be paid by the resident to the residential service provider. It works like an interest-free loan to an aged care home and is refundable when you leave, less any deductions.
Repayment is guaranteed by the government provided it is paid to an approved provider. RADs range from about $100,000 to $2.5 million. If you don't have sufficient assets, the following options may be available to you:
- Apply for low-means status to determine if concessions apply. If you qualify as low-means this will reduce the amount payable (based on your financial capacity) and the government may subsidise part or all of the accommodation cost.
- Borrow from children or family (although you will need to consider the full implications for aged care fees and any Centrelink payments). Also, you will need to consider the estate planning implications as the remainder of the RAD paid is returned to the estate.
- If you own a home, borrow using a reverse mortgage or aged care loan to take equity out of the home before you consider selling it.
- Instead of paying for your accommodation as a lump sum you can choose to pay as a periodic daily accommodation payment (DAP) that is based on a daily rate. However, unless you have paid in advance, they are not refundable if you leave the aged care home. Use the DAP from RAD strategy – this involves paying part of the accommodation payment as a RAD and the rest is converted to an "interest amount" which is paid as a DAP. But instead of having to find money to pay the DAP you ask the service provider to deduct the DAP each month from the RAD paid.
This does mean you are spending into the RAD and will reduce how much is refundable when you leave. You may also need to top up the RAD or pay a higher DAP as the funds are reduced. However, this method can help you to afford an accommodation payment that is higher than the assets you have available and that might mean you're better able to access your desired care option.
Is one care option financially better than another?
Putting emotional aspects aside to compare the two care options from a purely financial perspective, Biti says residential care can be a cheaper option.
"Once accommodation costs have been dealt with, living expenses may be cheaper for a person in residential care rather than in their own home.
"For example, a full pensioner living at home may find it difficult to make ends meet, but if they are living in residential care they will only pay $17,468 per year for their living expenses. They will have $100 a week left over from the pension to pay for personal incidentals. This certainly makes budgeting easier."
Can low-means clients choose aged care providers?
To ensure low-means clients do not miss out on residential care, accredited residential aged care homes must reserve a percentage of places for low-means applicants.
"The quotas for low-means places are 16–40% of all residents and vary depending on the socio-economic demographics of an area. In rural areas where house values and incomes are lower, the ratios for supported residents are often higher than in city areas," Biti says.
For those who have been assessed as a low-means resident, applications may still be made to any service provider. Aged care homes cannot refuse you a place based on how you want to pay for your accommodation. If there is not a current place available, the applicant's name will be added to a waiting list. However, Biti says that when a place becomes available the provider will assess who they want to offer the place to.
"If you have low means and you want to go to your chosen service it is best to contact the service provider and speak to the admissions officer about their admissions process, waiting list, and expectations for low-means places to determine your opportunities. You could also contact an aged care placement service and work with them to find you a suitable place," advises Biti.
For low-means applicants, are shared bed rooms more likely to be offered?
According to Biti, this will depend on the service provider's policy, including:
- waiting list length
- commercial objectives
- structure of available rooms
- admissions policy.
"If a facility takes a low-means client they may be earning less for the room (even with the government subsidies) than if they accepted a person paying the full published rate. To help meet costs they may need to put two to four people in a share room. Sometimes with high care needs it is more effective to have shared rooms to ensure staff can look after residents more effectively."
Navigating aged care options and finances can be extremely difficult, especially for those without family members to assist.
"If you're having trouble finding a place as low-means applicant, talk to an aged care placement service for help. They can help you identify suitable places with vacancies and give you advice on forms and applications," says Biti. "And, if you are in care and it becomes difficult to pay your obligations you might be able to look at applying for financial hardship for further fee reductions."