Why the cost of aged care is set to increase by $200,000

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Article by 

Rachel Lane

The Aged Care Taskforce Final Report was released last Tuesday. It gave 23 recommendations relating to the fees and funding arrangements for aged care.

So what does mean for the average Australian, and their hip pocket?

The report says there is a need for an immediate increase to the Refundable Accommodation Deposit (RAD) price threshold to $750,000.

Currently aged care homes need to seek approval for prices above $550,000, as a result most aged care beds are set at this price.

This change could be one of many that take effect as early as July 1 when the new Aged Care Act is set to begin.

Levy on refundable accommodation deposits

Among the other recommendations of the taskforce is a 3 per cent per annum levy on Refundable Accommodation Deposits (RADs), capped after you have lived in aged care for five years.

The levy would mean a RAD of $550,000 would have $16,500 per year deducted from it. If you live in the home for five years the amount deducted would be $82,500. Of course if the price is higher then so is the levy; on $750,000 the annual deduction would be $22,500 which amounts to $112,500 if you stay five years.

In the longer term, beyond 2035, the taskforce recommends phasing out RADs with residents paying a rental model. Residents currently have the choice of paying a rental model in lieu of a lump sum RAD, or paying a combination of the two.

The rental model works on a government set interest rate, currently 8.38 per cent per annum, meaning a $550,000 RAD price can be converted to an accommodation payment of $126 per day ($46,090 per year). On $750,000 the accommodation payment is $172 per day ($62,850 per year).

Not giving residents the choice to pay by lump sum could see the cost of aged care accommodation increase by tens of thousands of dollars a year. It could also have an adverse effect on pension entitlements as the Refundable Accommodation Deposit is currently exempt from asset testing when calculating your Age Pension.

Other increases

The Basic Daily Fee, which is paid by all residents and set at 85 per cent of the Age Pension – currently $61 per day – could also increase.

The taskforce has recommended residents, other than “full pensioners with no other assets or income” should pay more.

The government currently provides an $11 per day supplement to this fee, however, the price of Basic Daily Fees could increase by significantly more than that.

The taskforce have recommended flexible pricing to enable “residents and their representatives to negotiate a higher Basic Daily Fee”.

The taskforce believe this price flexibility will enable residents to be provided with a higher level of services or amenities and could be safeguarded through requiring homes to publish their prices and services and give residents a cooling off period and regular reviews to ensure that they want the services and can still use them.

We need means-testing specifics

The taskforce didn’t provide specifics on how aged care would be means-tested beyond saying it should be tiered based on whether you are a full pensioner, part pensioner or self-funded retiree and in residential aged care homeowner status would need to be considered.

However, it did talk about “simpler and fairer” arrangements and aligning aged care and pension means testing arrangements. This could have significant implications for carers and close relatives of people moving into aged care.

You see, the pension asset test exempts your home while you or your partner live there and for two years from when the last one leaves, but the exemption for aged care is broader. Under the asset test for aged care your home is exempt if a “protected person” lives there, this includes your partner or dependent child and can also include a carer who has been living in the home for at least two years or a close relative who has been living in the home for at least five years.

As far as limiting what people could pay as a contribution the taskforce contemplated that the government could meet all of the costs associated with care, meaning people would only contribute towards their accommodation and living expenses.

At the moment the government funds 94 per cent of residential aged care ($13 billion) with residents paying 6 per cent ($800 million) towards their care costs through means-tested care fees.

So who will pay?

Means-tested care fees are currently capped at $32,700 per year with a lifetime limit across home and residential aged care of $78,500.

While not a specific recommendation, the taskforce said if the government chooses not to fully fund care it may wish to remove the current caps.

Ultimately there are only two parties that pay for aged care – the government (through taxpayers’ funds) or the person receiving care. The Aged Care Taskforce ruled out imposing a levy or tax and instead have decided to increase the fees people pay.

The government is yet to say which of the report’s recommendations it will seek to implement but it seems inevitable the cost of aged care is going to go up.

This article was written by Australian Carers Guide contributor Rachel Lane and originally published in The Canberra Times.

Rachel Lane has been specialising in retirement living and aged care for 20 years. She writes regular columns for The Sydney Morning Herald, The Age and the Brisbane times as well as The Australian Carer Guide.

Register for Rachel’s webinar on 26 March

The Aged Care Taskforce provided the government with 23 recommendations about changes to the fees and funding arrangements for both home care and residential aged care. The recommendations would substantially change the financial landscape of aged care costs.

Click the banner below to register to hear from our resident Guru, Rachel Lane, about what the proposed changes are, what they would mean for the cost of your aged care, who will be the winners and losers and what you should do now.

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Comments
  1. This is a most confusing piece of writing. It jumps from total government costs to individual costs. The article needs to be separated into two sections. One from total costs to Government and one identifying what cost it will be to a pending or current resident in home care. There is nothing identifying the proposed Aging in place costs to government or client.
    Also reading it as an aging in place client aged 80 years old living in my own home, it makes me think that the only sensible plan would be to stay living at home and then to choose to end my life as going into a residential home would possibly be unattainable on my current financial position.
    Before you write such an article again maybe you should research the older people who committed suicide due to similar press back in the 1970’s.
    Scaremongering is not helpful to anyone. You could have informed the readers of all the facts that you have mentioned in a much more accurate factual way and not make suggestions sound like facts.

    1. Hi Margaret,
      Thank you for your feedback, the article addresses what people receiving aged care can expect to pay if the Aged Care Taskforce recommendations are implemented, not what it costs the Government. I’m sorry if you found it confusing, obviously that is not the intention.
      Just as it is not intended to confuse, it is not intended to scare people nor lead to any sort of conclusion that VAD is the answer. Unfortunately, the taskforce did not provide the details on how any new means testing arrangements would apply, so the “suggestions” are the best guesstimate I can give on what the changes could mean.
      The lack of clarity from the taskforce is my greatest concern, they have done a great job of selling this package on a very simple message of “wealthy Australian’s should pay more”, but without knowing who will and won’t be considered “wealthy” most people could easily be fooled into agreeing only to find out that it is unaffordable. Under the current system you only need to have $200,000 in assets to be considered “wealthy”, which causes a raft of issues for people of limited means.

    2. Hi All

      I am 57, my partner 78. I have been caring for him the last 3 years full time, currently receiving the pension. I am looking to do whatever us necessary to keep him at home with nursing care. He will receive an aged care package, I have a unit which we don’t live in as it’s unsuitable with his disabilities thus will be counted as an asset and I will need to dig into my super to pay any difference. U will probably use all my super, and never regain that at my age, ad well as if and when he passes away be put back on the dole. Where is the fairness here all partner rules are based on assumption of solar aged relationships, nothing to assist me with my losses in the future

      1. Hi Luke,
        You should definitely seek advice about your circumstances. It is possible to have your home excluded from the pension asset test if you need to leave to access care (that care is not restricted to only aged care homes). When it comes to your partner’s home care package know that you can negotiate the Basic Daily Fee with the provider (many will waive the fee if it is going to cause financial stress). You can also apply for financial hardship from the government. There is a network of specialist advisers on our website or feel free to email me and I can direct you to someone.

    3. Margaret, I’m confused by your comment. This isn’t about Home Care, it’s about Residential Care. There is no mention of “government costs” in this article – right from the start, it is explaining what a person who has more than the deemed threshold of assets will need to pay when moving into a Residential Aged Care Facility.
      I’m a Finance Manager in an Aged Care facility and would like to put your mind at ease however, because everyone can afford aged care. All the costs are means-tested, therefore, a person only pays what they can afford.
      If you have nothing, you don’t pay any more than the basic daily care fee – which amounts to 85% of the pension.
      If you have assets and income above the deemed thresholds, that is when you end up paying more. It works on a sliding scale and people have access to their money at all times, including being able to drawdown on lump sum payments in order to pay DAPs.

      Furthermore, from the middle of 2024 bed licensing is changing, meaning funding will be attached to a person, rather than a “bed”. Meaning the model of care is likely to change soon too. Given that many people would prefer to stay in their own home for as long as possible, Aged Care is going to need to look at different ways to provide care to people in much less traditional ways.

      1. Hi Kristy Lee,
        I have to respectfully disagree that “everyone can afford aged care” and that because “the costs are means tested a person only pays what they can afford” This is probably one of the biggest misunderstandings about aged care. The amount you can pay is subject to an asset and an income test and they add the two together, many people are charged more than they can afford. A simple and common example is a low means resident with $150,000 in assets and the full age pension. They are charged 17.5% of assets above $59,500 – which is $15,838 a year ($43.39 a day) for their accommodation. Add to that the basic daily fee of $62 and they are paying more than they can afford and that doesn’t include their personal expenses like medications, clothing etc or any additional services the aged care home charge. Sadly, means tested doesn’t equal affordable when it comes to aged care. If you want more information about these anomalies our submission to the Aged Care Royal Commision is on our website.

    4. Margaret, I’m confused by your comment. This isn’t about Home Care, it’s about Residential Care. There is no mention of “government costs” in this article – right from the start, it is explaining what a person who has more than the deemed threshold of assets will need to pay when moving into a Residential Aged Care Facility.
      I’m a Finance Manager in an Aged Care facility and would like to put your mind at ease however, because everyone can afford aged care. All the costs are means-tested, therefore, a person only pays what they can afford.
      If you have nothing, you don’t pay any more than the basic daily care fee – which amounts to 85% of the pension.
      If you have assets and income above the deemed thresholds, that is when you end up paying more. It works on a sliding scale and people have access to their money at all times, including being able to drawdown on lump sum payments in order to pay DAPs.

      Furthermore, from the middle of 2024 bed licensing is changing, meaning funding will be attached to a person, rather than a “bed”. Meaning the model of care is likely to change soon too. Given that many people would prefer to stay in their own home for as long as possible, Aged Care is going to need to look at different ways to provide care to people in much less traditional ways.

  2. My parents are self funded retirees who earn less than the proposed daily fees for the accomodations bond. It is too confusing as to what happens to the remaining partner in the family home, when the first one goes into Aged Care.
    How about the Government fund the slow deaths of our aged properly instead of wasting money? Frankly I feel like chucking my work now, to become a pensioner now, despite the chronic shortage of labour with my specialized skill set. My parents assets were not earned quickly, they are generations of family and frugal family life. If you wish to break the backbone of the Australian work ethic, go right ahead and treat our frail family members like an ATM, and try a nation full of quick wealth, quick death and quick commitment to everything.

    1. I agree with you Anne-Marie, there is a lot of important detail that is missing. Like you I also fear a quick commitment to a raft of changes when we don’t really know what we are saying “yes” to. They have done a great job of selling a simple message that “wealthy Australian’s should pay more” but we need a definition of wealthy, under the current system you are “wealthy” if you have more than $200,000 in assets.

  3. Rachel,generally this new report is disgusting, abuse of aged people, misleading in much of it .
    One point I make is the family home IS included in the means test but only a figure of about $169.000.00
    The formula is a secret as I have asked many times and been denied.
    Couples separated by illness who are self funded retirees are treated dreadfully.
    Govt or agedcare homes just don’t get it.
    Centrelink are a basket case and can’t handle what they have now rather than enforce what is contained in this bit of economic prose.
    This cohort of people headed for homes have not had ndis.
    Why not funded this cohort bearing that in mind.
    Without opening their books the agedcare homes don’t have sympathy from people.

    1. Hi John,
      Under the Aged Care Act the lower asset threshold ($59,500) is calculated at 2.25 times the basic age pension. The first asset threshold ($201,231) and second asset threshold $484,694 are set by the Minister by legislative instrument. From memory when these thresholds were introduced in 2014 these figures were also linked to age pension but may now be out of kilter due to indexing.
      Couples in general (whether you are a pensioner or self funded retiree) struggle with meeting aged care costs when one person needs to move into aged care, this is largely because it is means tested based on assets and income with the outcome of the two tests being added together (that’s a complicated way of saying it is often unaffordable). The sad result is the person living at home struggles to meet their costs because the aged care costs absorb more than half the income. It is definitely worth seeking advice to see if there are strategies you can use to make it more affordable.

  4. How about complete transparency of exactly how much the facility gets from the govt znd then how much they g r t from residents and a complete public financial breakdown of where this money is spent and on what. What is the facility profit snd breakdown of management levels and nupmbers. Yes residents pay pay pay and get what. Frozen party pies for dinner frozen foods old vegetables and shit cooks. Self funded retires generally have worked hard to live comfortably in retirement yet the really rich manage to no t pay taxes hide in trust funds and self retires get hit at every turn. The govt needs to cut spending on other useless things and fund it accordingly. If you have been on welfare all your life then you have not contributed like self funded people so they can’t expect to have luxury

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