Financial relief for those seeking residential care

There are lots of myths when it comes to aged care, one of the most common ones is “If I don’t have any money, I won’t get in”. It simply isn’t true. The Australian aged care system is designed to ensure that people with limited financial relief can access aged care.

In Australia, most aged care facilities are required to have beds for residents with lower financial means. These individuals are often referred to as “low means residents.” The government mandates that a certain percentage of residents in aged care facilities fall into this category.

Let’s start with how the cost of aged care is calculated and then look at an example of what that means for someone with low levels of assets and income.

There are five components to the cost of living in aged care. The first is the cost of accommodation, then there’s the basic daily fee which covers day to day costs such as facility management. Next up is meals and laundry, then comes the means tested care fee which is used to offset the government funding for your care. Finally, it’s the cost of extra or additional services which cover things like entertainment or a glass of wine and your own personal expenses such as medications, birthday presents and clothing.

Regardless of means, everyone can pay the basic daily fee, which is set at 85% of the Age Pension, currently $59/day.

The amount you can pay towards your accommodation and means tested care fee are calculated based on a formula that combines an asset tested amount and an income tested amount. For a single person with assets below $57,000 and income below $31,504/year the accommodation contribution would be zero and there would be no means tested care fee.

The income threshold is based on the income of a full age pensioner so assuming you are a full pensioner your income tested amount would be zero. Once your income exceeds the threshold your ability to contribute is assessed at 50c per dollar.

If your assets exceed the $57,000 threshold but are not greater than $193,219 then you can still be classified as a low means resident. Your ability to contribute is based on your assets between the two thresholds calculated at 17.5%.

Determining if you qualify is based on the combined total of your asset and income tested amounts. Therefore, if it is less than $65.49 per day you are classified as a Low Means Resident.

The amount calculated under the means test is your Daily Accommodation Contribution (DAC). You can pay less than your calculated amount where the government funding for accommodation in the facility is less. You can also choose how you pay for your accommodation, you can choose to paythe Daily Accommodation Contribution (DAC) or pay aLump Sum, known as Refundable Accommodation Contribution (RAC) or pay a combination of the two.

Your Daily Accommodation Contribution (DAC) is converted to a lump sum equivalent using a government set interest rate, currently 7.90%p.a. For example, if your DAC was $20 the equivalent lump sum would be $92,405.

Let’s look at an example.

Shirley

Shirley is a full pensioner. She has a home worth $800,000 that her daughter Judy lives in. Judy has been Shirley’s carer for the last 8 years and qualifies as a protected person, exempting Shirley’s home from her aged care assessable assets. Outside her home Shirley has $100,000 in investments and $5,000 in personal assets. The aged care home Shirley is moving to charge $10 per day additional service fee to have a choice of meals, activities, a resident café, and daily newspapers.

Here’s how Shirley’s cost of aged care would be calculated:

Under the income test Shirley is a full age pensioner so her income tested amount is zero.

Under the assets test Shirley’s assets are $105,000 (investments + personal assets)

The assets above $57,000 are assessed at 17.5%, which is $23.08 per day.

Shirley’s Cost of Aged Care
Daily Accommodation Contribution (DAC) OR Refundable Accommodation Contribution (RAC)	$23.08 $106,635
Basic Daily Fee	$58.98
Means Tested Care Fee	$0
Additional Service Fee	$10
Personal Expenses	$10
If Shirley pays by DAC	$102.06 per day/$37,252 a year
If Shirley pays by RAC	$78.98 per day/$28,828 a year

You may think that $33,600/year is not enough for an aged care home to provide all your accommodation, care and services, and you would be right!

The government provide funding for your accommodation and care directly to the provider. The funding for accommodation and financial relief depends on the standard of the buildings and the number of low means residents, the maximum funding is $65/day ($23,904/year).

Funding for your care will be provided to your aged care home through what is known as the AnACC (Australian National Aged Care Classification) which will determine your cost of care needs based on your individual care needs, the shared expenses across all residents based on location and provider and a one-off entry payment which could be $130,670/year.

You should feel reassured that you can access quality aged care and while you may not be paying for all of it the cost is being covered.

What if you don’t qualify as low means but can’t afford to pay?

If you don’t qualify as a low means resident but you are unable to pay for your cost of aged care, you may qualify for financial relief in the form of financial hardship assistance.

You can apply for financial relief with the basic daily fee, means-tested care fee and/or accommodation contribution/payment. Financial hardship does not apply to extra or additional service fees.

To work out if you are eligible for financial hardship assistance the government will look at your assets, your income, and your essential expenses.

You can apply for financial hardship if you:

Haven’t gifted more than $10,000 in the last 12 months or $30,000 in the last 5 years.
Have assets are less than $41,496 (unless they are unrealisable or unreasonable to sell or borrow against) and;
You have submitted a means test assessment for aged care to Services Australia (Centrelink) or the Department of Veterans’ Affairs (DVA).

Assets that may be considered unrealisable include:

a house that has been on the market for 6 months or more
a house that has been occupied by a near relative for at least 10 years or occupied by a child with a disability.
a jointly owned property and the other owner does not want to sell
a farming property/ies

a retirement village property
a compensation payment paid to a spouse/partner
a misappropriation of funds by a power of attorney
a frozen asset.

In addition to your assets, you will need to provide details of your income and essential expenses, in assessing the application the department will examine if you have 15% of the Age Pension after meeting essential expenses.

Essential expenses include:

Residential aged care expenses, excluding extra or additional services
Rent or mortgage expenses where a protected person occupies the former home
Medical and pharmaceutical expenses, including private health, ambulance cover, mobility aids and dental care.

If you are assessed as qualifying for financial relief there will normally be a timeframe placed on your application for review, typically 12 months. You also need to advise the department within 14 days of any change to your circumstances. If your financial relief ends, then your aged care costs will be re-calculated.

It’s important that you get the care you need when it comes to financial relief. If you find that the cost of your aged care is placing you under financial stress don’t compromise your care, and speak to someone about whether you can qualify as a low means resident or for financial hardship support.

* figures in this article are current as at 1 July 2023.