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The aged care recommendations that will cost you more

In a significant development for Australia's aged care sector, the Aged Care Taskforce recently unveiled its Final Report, comprising 23 recommendations aimed at reshaping the fees and funding arrangements governing aged care. While there has been a lot of coverage of the official Recommendations, the devil is in the detail. In the Aged Care Taskforce report, there are a number of unofficial recommendations that could cost you substantially more for aged care. There is also a pivotal question that the report doesn’t answer.

Refundable Accommodation Deposits to rise

Among the recommendations that didn’t make it on to the official list of 23 is an immediate increase in the Refundable Accommodation Deposit (RAD) price threshold of $200,000 to $750,000 from its current level of $550,000. The report says:

“The Tune Review in 2017 recommended an immediate increase to $750,000 and indexation over time. While the Taskforce has not recommended a new maximum room price, it considers there is a need for an immediate increase in the rate and indexation over time to ensure it remains constant in real terms. The Taskforce considers implementing the prior recommendation from the Tune review is a prudent first step.”

Presently, aged care facilities must obtain approval for RADs exceeding $550,000, effectively setting the benchmark for most beds at this price point. This small but significant change could take effect as early as July 1st, with the anticipated introduction of the new Aged Care Act and could see the price of many beds increase by $200,000 as a lump sum or around $16,500 per year for those who elect to pay their accommodation cost by Daily Payment.

Adding to this, the official recommendation from the Taskforce of imposing a 3% per annum levy on Refundable Accommodation Deposits (RADs), capped at 15%, would see the cost of the levy go from $16,500 per year, culminating in a deduction of $82,500 over five years, to $22,500 per year or $112,500 over five years.

Presently, the government shoulders 94% of residential aged care costs ($13 billion), with residents contributing 6% ($800 million) through means-tested care fees. In contemplating strategies for individual contributions to aged care costs, the Taskforce considered that the government could assume all care-related expenses, with individuals only responsible for accommodation and living expenses.

Means-testing won't just impact the wealthy

While not explicitly recommending the removal of current caps on means-tested care fees, the Taskforce suggested that the government might consider such a measure if it opts against fully funding care. Currently the amount you can contribute towards your cost of care is capped at a daily amount of $415 with an annual cap of $32,700 and a lifetime limit (across home care and residential aged care) of $78,500. Removing the annual and lifetime caps could see someone paying more than $151,000 per year in means-tested care fees, almost five times more.

The initial response to the Aged Care Taskforce Final Report has, on the whole, been very positive – after all, how could the media or the public disagree with the very simple premise that “Wealthy Australians should pay more for their Aged Care”? But who are these “wealthy Australians”? Under the current means testing arrangements, in order to be considered wealthy you simply need to have assets above $197,735. This relatively low benchmark of wealth creates what I call “aged care no man’s land” for people with $200,000 or $300,000 needing to pay $550,000 for their aged care accommodation.

The Taskforce didn’t provide details on the means testing for aged care, rather it hinted at a tiered approach based on pension qualification (full pension, part pension, or self-funded) and homeownership for those moving into residential aged care. The Taskforce also raised the prospect of aligning aged care means testing with pension arrangements which could see significant implications for carers and close relatives of aged care recipients, who could lose the ability to exempt the home they live in. Currently the home is an exempt asset while a ‘protected person’ lives there and is included in your aged care assessable assets up to a capped value of $197,735 when it is assessed.

Who pays what?

Ultimately, the funding of aged care in Australia hinges on a binary equation: how much should the government bear the burden (through taxpayer funds) versus how much should individuals foot the bill. As the government deliberates over which recommendations to adopt, it appears inevitable that the cost of aged care will go up. Ensuring that the higher price equates to better care is crucial, so is ensuring that there is equitable access, and that aged care is affordable.

 

Rachel Lane is the Principal of Aged Care Gurus where she oversees a national network of advisers dedicated to providing quality advice on retirement living and aged care. She is also the co-author of a number of books with Noel Whittaker including best-seller 'Aged Care, Who Cares?' and 'Downsizing Made Simple'.

For further information see: The Final Report of the Aged Care Taskforce (2024), and the Aged Care Legislated Review (Tune Review, 2017).

 

27 Comments
Susan
March 24, 2024

Susan
March 23, 2024
There is an Elephant in the Aged Care Task Force Final Report. It would seem that not if, but when these recommendations come to pass, will those who require Aged Care expect that the conditions under which they exist are substantially improved? Note the lack of increased qualified staff to inmates, Nurses on site, 24/7, inadequate nutrition, neglect, abuse, verbal, physical and sexual, not to mention little or no care for mental, physical or social wellbeing that surfaced from the Aged Care Royal Commissions. So are we expected to pay more, substantially more for the same old level of care and service that the Royal Commissions exposed. Pay 6 Stars prices, get 2 star care.

lyn
March 25, 2024

Susan, and I know 2 occasions in 6mths of ambulance from 6* aged village with huge management fees where despite management having copy sent by solicitor of an enduring power of attorney for health and 2 listed next of kin for the person, not one phone call to advise person in hospital either occasion. Both occurred Mon-Fri when staff on duty, God forbid one is ill on a weekend as noone on duty to report even if ever acted in just a neighbourly way, let alone a professional way. No responsibility, it's laughable, cost for person to buy unit $1.4mill in 2016 & not in Sydney, I perceived what person is paying for was to be better than this. I consider it theft by stealth.

Brian
March 24, 2024

Great article. I am a self funded retired. I consider myself to be reasonably financial literate. I get very annoyed at articles telling potential retirees how much savings they will need to live a comfortable retirement. Most of these articles omit to mention that retirees will probably have run out of income from their non government income sources once they have passed their expected life expectancy.

The articles fail to mention how much savings are needed to pay for comfortable living in the last few years of life. This can easily be more than $100,000 per year and the government is now planning to greatly increase this cost. I agree that boomers should have to pay more for their age care costs for equity’s sake. I am tired of reading the family home should not be considered as part of a person’s wealth although allowing their partner to live there for the rest of their life seems reasonable.

What really irritates me is the government doesn’t have the guts to put out the facts about the aging population’s medium term effect on the economy and to canvas support for how to deal with it. A great start would be to propose a government backed insurance scheme for people who live beyond their predicted life expectancy. If such a scheme was in place retirees could spend their nest egg without age care worries,

Jon Kalkman
March 22, 2024

Once again the family home distorts decision making. Clearly the new means tested fees will depend on the definition of wealth, and the crudest measure is age pension eligibility. We end up with 3 categories: full pensioner, part-pensioner and self-funded.
A couple with a $1 million family home and $2 million in super is wealthy because they are self-funded and therefore can expect to the pay the full amount in new aged care fees.
A couple with a $2 million family home and $1 million in super is not wealthy because they receive a part age pension, ($37.30 per fortnight) and that is because the family home is an exempt asset under the pension assets test. And when the family home is considered in the aged care means test, only $197,735 is counted as an asset.
With this incentive, the government should expect many self-funded retirees to up-size their family home or spend wildly to ensure they at least become eligible for a part-age pension to lower their age care costs.

Dudley
March 22, 2024

"With this incentive, the government should expect many self-funded retirees to up-size their family home or spend wildly to ensure they at least become eligible for a part-age pension to lower their age care costs.":

The recalcitrant selfies could buy and own a mansion / compound suitable for accommodating swathes of family who would make beneficent filial gifts to the cash poor selfies straining to survive on the meagre Age Pension hand out.

Peter
March 22, 2024

I don't think it is unreasonable for taxes to cover the cost of dying. Everybody is going to die and everyone will will eventually benefit. Therefore it should not be seen as a burden on younger tax payers. It disturbs me that at the weakest point in your life you are forced to deal with bureaucracy (which can be frustrating at any time) to determine costs, sell assets to make payments, and then deal with the ATO is a form of torture. Further, expecting relatives to go through this difficult process in a short period of time is also unfair as they may be unaware of the finances of the dying person.. I think our departure from this world should be a simple and happy event which everybody should be entitled to..

Former Treasury policy maker
March 22, 2024

Sorry Peter but I have the opposite view. Because we all will die, the practicalities are something that each individual and their family/support network should plan for and pay for. Not taxpayers. A funeral is a private good, not a public one.

Peter
March 24, 2024

I am talking about dying. Not a funeral.!!

Billy
March 24, 2024

There seems to be an inconsistency with the way we pay for health care (I include aged care as part of health care)

A heart attack (for example) will be treated in hospital under medicare, with little or no contribution from the patient. ie the nation pays, so the patient (and eventually his estate) contributes little

A dementia (for example) patient goes into aged care, and is expected to contribute to the costs. ie user pays (or at least contributes) more than their food, laundry, etc costs (which they won't have to pay because they are fed and have their laundry done). So the patient pays, and their estate will be less.

Conceivably, the cost of both hospital care (high cost of high dependency of heart patients) and the chronic ongoing cost of dementia care is the same.

Why should one family receive less inheritance than the other just because of the illness that the old person suffers. They shouldn't. Both should contribute to the cost of providing care for them. Inheritances should not be dependent upon "luck" of the disease that inflicts a person.

Marc
March 24, 2024

The medical management of Alzheimer’s is subsidized by the government. Aricept (medication) is covered by the PBS. It isn’t very effective but in principle the government pays.
The difference you describe relates the disability caused by the conditions and that is dealt with by the aged care system.
I don’t see why the individual shouldn’t fund their own living expenses. You make a case for funding disease specific interventions which is reasonable.

Lanche
March 28, 2024

Taxpayers do fund the dying which is entirely fair.
What's not fair is the taxpayer funding elderlies living, especially those who have the means to fund it themselves.

Gail Newton
March 22, 2024

Gail H

John's remark "The NDIS is insurance not welfare. Hence no means test" just shows how flawed the system is. If NDIS is insurance who is paying the premiums? I have never managed to buy insurance without annual premiums and where did the principle of 'user pays' go? I believe the NDIS could end up bankrupting the government with all the 'inflated' costs from some suppliers, lack of oversight and visibility, and rampant abuse where many 'beneficiaries' are not qualified.

Jeff O
March 22, 2024

1. Yes - Aged care will cost (some) relatively wealthy residents more and the govt (in taxes paid mainly by younger tax payers)
2. Many aged care residents (as well as NDIS & home care and other welfare recipients ) are asset/income rich and can afford to make a bigger contribution to their aged care provided mainly by NFPs and funded mainly by govt
3 Wrt to residential care - some of these wealthy residents will make a (small) contribution for 2-3 years - before passing and still leave a large bequest.
4. It costs to stay at home....and imagine the costs of 24/7 medical care in the home?

Ask your self - is this reasonable and fair - especially to younger and middle aged Australians? Yes - so how and how much? Seems to me - not asking a lot of the average wealthy older Australian to pay a bit more

Peter
March 22, 2024

"taxes paid mainly by younger voters". This should not be an issue as we are all going to die and therefore we would all benefit if dying is covered by taxpayers.

"wealthy resident" to pay. I don't think there are many ultra wealthy persons amongst us. This argument tries to create unnecessary tensions between people over relatively small amounts of money.

Dying is part of life and should not be made an issue. Let's all be given the chance to leave this earth in peace without the bitter attitude of some.

Phil
March 27, 2024

The obvious question, Jeff, is the definition of wealthy.
My elderly mother is a self-funded retiree; however, I don't see her as a HNWI. She might be able to afford a $100K in annual fees for dementia care (she currently lives at her own rural home with the support of assisted carers) but if such fees jump to $151K per annum (as mentioned in the above article), she simply could not afford that.
My mother's annual earnings - which are subject to investment earnings and can be extremely volatile - are slightly above the average wage but are certainly not at a level considered, say, in the top 25% of income earners. She is comfortable but not rich. So, hence, my original question, what is the definition of wealthy??

James
March 27, 2024

"So, hence, my original question, what is the definition of wealthy??"

Simple, from the government's perspective: whatever threshold they choose, above which you pay!

Peter
March 21, 2024

I think other cheaper options need to be developed. These types of fees will cause enormous financial and emotional strain on an ageing and frail married couples. The issue becomes more complex when they may be forced to sell long term held assets and incur significant capital gains tax as welI. I can foresee the finances of these families being smashed and suicide might be a serious option. A whole range of new options need to be provided including voluntary assisted dying.

Paula Sargent
March 22, 2024

Totally agree - voluntary assisted dying would alleviate pain and suffering all around! I have a lewy body dementia partner in a nursing home in Brisbane, and I am aware he wouldn't want to live like this, (because we discussed it prior to his disease) if he had a choice - for me, when I leave the facility each time I cry my eyes out and it is effecting my life, health and well-being. It is a living hell of mourning for me, and makes it sometimes unbearable to continue those visits. We put down our loved family dogs when they serve their purpose, including bad health or no value left in their lives, a hard decision, but for the best, yet we make our loved family ones go through their miserable life, when inevitably they are terminal and will only get worse, just existing and inflicting terrible hardship on the beautiful people who are carers who relentlessly bathe, change their nappies and feed them, and all this costs many dollars for the community and Australia. I have been hit with reduced cash flow for myself to pay and meet the costs of care; it is very expensive and the total I pay per month is over and above the cash flow we received from our investments; we had a sizable liveable SMSF for our retirement, which we worked hard for, and because we could could afford to pay the daily fee, we went into our Superannuation to pay for the bed and the remaining funds/investments pay the daily care, and accommodation costs. It has been a nightmare dealing with Services Australia in Canberra; I owe it to myself and other older citizens to meet with our local MP and go through the huge list of ingressions that I have had to ensure concerning the system. It is foremost in my mind, that if I was not a healthy person, computer literate, with the huge patience of a Saint, I am sure I would be on the brink of heart failure for the stress they have put me through. I continually think of my less fortunate fellow older citizens who may be frail and unwell having to go through this and how they can ever come out the other side without added bad health issues, anxiety and being trautimised. It is disgraceful that the senior citizens of Australia have to endure such painful and unacceptable service. They should listen to the receivers of this service for once and make the system easier to navigate.

Roger
March 25, 2024

Touche!

Neil
March 21, 2024

Can the Taskforce members please do a similar user pays / means-test review into the NDIS?

Adam
March 21, 2024

Absolutely, I have multiple clients (financial advisor) on NDIS with millions in super....it is ridiculous it is not means tested.

John
March 22, 2024

The NDIS is insurance not welfare. Hence no means test

James
March 22, 2024

It should have been means tested like the pension, aged care and home care! It is a growing financial monster that will become an unaffordable, entitlement ridden burden on the tax payer. The precedent is set in our society; those that have the means contribute accordingly!

Further it is discriminatory. The cut off for the NDIS is 65 yo. I can get "insurance" beyond that age.

If it's insurance, then surely those that are insured should pay the "premiums" as they are able to!?

Paul
March 22, 2024

Just because the Government labelled the NDIS as “insurance” doesn’t make it so. It is welfare. Whether it is good or bad welfare is arguable. What is inarguable is unless tighter restrictions are placed on access to the NDIS or fewer benefits are paid (or both) then it is unaffordable over the medium to long term.

David Williams
March 21, 2024

Thanks Rachel. The usual good oil! Sadly, nowhere does the Report even consider that taking properly informed action to stay out of aged care for as long as possible should be an urgent community initiative. Although unlikely to make an immediate impact, this strategy is realistic but almost non-existent as far as governments are concerned.
Of course, it’s up to individuals to make the effort. Sadly, most people are poorly informed about the impact on their quality and length of life - from midlife - of their ongoing health and other lifestyle choices.
If we spent just a little of our time now on properly informed longevity planning to make the best of our time later, we also would frame our important money decisions much better. Raising longevity awareness through spending a fraction of that spent on financial literacy would yield a major longevity dividend, individually and for the community.
After all, time is the bottom line for all our financial decisions.

Peter Bayley
March 21, 2024

The Report points out that the increased funding of aged care packages in the past decade has led to more people staying at home and entering residential care desirably later; and consequently in poorer health status. Low care residential facilities have gradually closed as this ‘market’ is now living at home.
Entry into the aged care system requires a comprehensive assessment and determines where a person’s care be best met - at home with support or in residential care. What you are asking for is happening.

John S
March 21, 2024

You need to know politicians code words

Tax Reform means increase in taxation masked as a reduction

Aged Care reform means increase in the amount that the user pays for aged care masked as a reduction

 

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