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Face up to aged care changes now or face higher costs

In March 2013, I wrote an article for Cuffelinks called ‘Facing the daunting prospect of residential aged care’ in which I summarised the complex fees and charges involved in moving to aged care accommodation.

It is timely to revisit this topic as major reforms to the aged care system are set to kick in on 1 July 2014. The financing arrangements have been revised, and will affect those who enter residential aged care on or after this date. Those who enter before that date will continue under their existing arrangements.

There is no point reproducing the new rules here - that would make for a very complex and tedious read. Instead, I will list the key points to give you enough to decide whether it’s time to get advice if a family member is close to requiring residential aged care.

  • There will no longer be ‘low level care’ or ‘high level care’, there will only be one type of approval for residential aged care with all post 1 July 2014 residents subject to the same fee structure.

  • The basic daily care fee remains unchanged from the current rules.

  • The Accommodation Bond and Accommodation Charge will be replaced by an ’Accommodation Payment’ which will be determined by a resident’s assessable income AND assets. The Accommodation Payment will be able to be paid as a refundable accommodation deposit (RAD), a daily accommodation payment (DAP) or a combination of both.

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  • Facilities will be required to publish accommodation prices. Currently, the accommodation bond is, in theory, negotiated with the facility. In practice, there isn't a lot of room for negotiation, as most facilities have a set bond that they charge. They just don’t have to publish it.

  • The ‘Income-Tested Fee’ will be replaced by the ‘Means-Tested Care Fee’ which will be determined by a resident’s assessable income and assets.

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  • Those on the full rate age pension will not pay a means-tested care fee.

  • The means-tested care fee will have an annual indexed cap of $25,000 and a lifetime indexed cap of $60,000 and cannot exceed the resident’s cost of care.

  • Both a resident’s assets AND income will be used to determine their ‘means-tested amount’. This is calculated by working out an asset-tested amount and an income-tested amount and adding them together.

  • The income-tested amount will be calculated in a similar way to the current income-tested fee.

  • The asset-tested amount will be calculated as a percentage of assessable assets at increasing thresholds:

    - 17.5% of assets between $40,500 and 144,500

    - 1% of assets between $144,501 and $353,500

    - 2% of assets above $353,500 

  • In calculating the asset-tested amount’, the former home up to a cap of $144,500 will be assessed as an asset if unoccupied by a spouse (or relative in some circumstances).

    - if a person’s only asset is their unoccupied house, their asset-tested amount would be 17.5% x ($144,500 – $40,500) = $18,200.

    - divide that by 364 and you get $50.

  • Whilst accommodation deposit amounts are published by the facility, if the means-tested amount comes to less than $50, the accommodation payment is subject to a maximum. If the means-tested amount comes to $50 or more, the accommodation payment is the published amount.This is a confusing but important point. The outcome is that those entering care from 1 July 2014 could be hit with higher accommodation costs than if they entered under the current rules.

  • The means-tested amount will determine how much a resident pays for both their accommodation payment and their means-tested care fee.

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If you followed any of that, you are doing well. As I said in the beginning, I’m reluctant to go into any more details as it requires a lot of numbers and will be a tough read.

The upshot from all this is:

  1. If a family member needs to go to residential aged care this year, it is worthwhile getting advice to determine if they will be better off (financially) going in under the current rules prior to 1 July 2014. Of course, this isn't just a financial decision, but in many cases in-going residents will pay higher costs under the new rules.
  2. The decision whether to keep the family home or sell it has always been a difficult one. In terms of the new means-tested care fee, the scales are tilted towards keeping it. This is because only a portion of it is assessed ($144,500) as an asset as opposed to all of the proceeds if it is sold.
  3. I haven’t decided if these rules are more complex than the current ones. They seem to be, but that could just be because I’m not familiar with them yet. What I do know is that costs will be higher for those with ‘greater means’.
  4. Getting advice will make a real difference to the outcome. An adviser experienced in aged care matters can determine investment strategies that give the best outcome in terms of fees, structuring the accommodation payment to optimise Centrelink and DVA benefits, and investment of funds.
  5. Give yourself plenty of time if you want to make the move prior to 1 July 2014. Now is the time to act as it can take time to get assessed, find a place, sell your home, get advice and move in.

 

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on any information posted, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.

Alex Denham was Head of Technical Services at Challenger Financial Services and is now Senior Adviser at Dartnall Advisers.

15 Comments
David
October 06, 2014

I see the comment by Son In Law above and suggest considering Home Care Package medical expense eligibility as a another issue for Aged Care consumers. I am trying to ascertain the ATO view on this currently but without much luck. However a taxpayer can self assess if they get it right.

I see the definition of medical expenses (ATO Website: T6 Total net medical expenses) includes amongst other items, payments:
- to a carer who looks after a person who is blind or permanently confined to a bed or wheelchair or
- residential aged care expenses

There are explanations of the residential care entitlement with examples there and elsewhere of inclusions/exclusions. The inclusions appear to cover similar services as provided under the ACAT Assessed Home Care package system but are not covered there as the explanations only relate to the residential aged care inclusion in medical expenses.

I also understand that whilst the medical expense offset has been significantly curtailed, it does continue for;
1) those who had an approved claim in 2012-2013 (not relevant here) OR
2) If you did not receive this offset in your 2012–13 income tax assessment you can only claim net medical expenses relating to disability aids, attendant care or aged care.
That web page goes on to explain:
- Attendant care expenses relate to services and care provided to a person with a disability to assist with every day living, such as the provision of personal assistance, home nursing, home maintenance, and domestic services.
- Aged care expenses relate to services and accommodation provided by an approved aged care provider to a person who is a care recipient or continuing care recipient within the meaning of the Aged Care Act 1997.
For the Aged care expenses the legislation actually says "relates to care provided by an approved provider (within the meaning of the Aged Care Act 1997 ) of a person who: (i) is approved as a care recipient under that Act; or (ii) is a continuing care recipient within the meaning of that 19 Act."

Home Care packages come under that ACT. It is the cost of the Home Care Package which is in question as unrelated medical expenses are no longer eligible except if a claim was approved in 2012-2013. The Home Care Package costs would seem often to fall under both items as for the care of disabled option the consumer effectively has to have some form of disability anyway to get the Home Care Package and it is the cost of care under that package which is being considered for eligibility.

Robyn
June 21, 2014

Alex,
After 1 July, will it still be beneficial for a family member to move into the home and pay a small rent? My mother is a self funded retiree.

Alex Denham
June 02, 2014

Hi Audrey,
Challenger has some information here: http://www.challenger.com.au/retire/reform.asp

This article has more detail and includes the formulas: http://www.moneymanagement.com.au/professional-development/capability/financial-planning/guide-to-the-government-s-aged-care-reform-package

The Government has put in place a website to assist: http://www.myagedcare.gov.au/aged-care-home-costs-1-july-2014/aged-care-home-means-tested-care-fee-1-july-2014

And there is a phone number you can call to get an estimate of the fees payable: 1800 200 422. I haven't actually used this service before, but I think it's worth a go.

Audrey
May 29, 2014

I have not been able to find the new rules anywhere - where can I find them?

I would like to calculate my mother's potential fees.

Audrey

Son in law
February 26, 2014

This was several years ago - he died in 2008, and went to the hostel in about 2002 before moving to a nursing home in 2005 or thereabouts.

Definitely not in a retirement village.

Still it sounds like the rules are changing.

Incidentally, he was financially better off when he sold his home and moved to the hostel than he'd ever been in his life. We are glad we sold the home and invested in a diversified portfolio. Instead of an illiquid asset that would only earn income if we employed an agent and hoped that tenants wouldn't trash the place, we had a good portfolio that delivered interest and dividend income far above the pension, and for him far above what he'd earned (in real terms) when he was working. When he died the estate was easy to liquidate and split among the beneficiaries.

I'm all for selling the family home once the "aged P" moves on.

Alex Denham
February 26, 2014

I tend to agree - most if not all our clients have sold their home and been in a better position. That is because they got advice on the investment of the proceeds, and how to optimise their Age Pension (if applicable) and income tested fees.

Unfortunately, many don't get advice - they just sell their home, put the money in the bank, lose their pension and pay big income tested fees not realising how much better off they could be.

Keeping the house comes with a myriad of problems - renovations often needed to get it up to scratch to rent, managing the property when adult kids are busy with their own lives, tax and Centrelink consequences etc. One of the few times it works is when an adult child moves into it and pays a small rent, keeping it exempt from the Assets Test for mum or dad.

Son in law
February 25, 2014

Alex, is there still a difference between hostel accommodation and nursing home?

When my late father-in-law was living in a hostel, he had a modest income tax bill on the investment income he was earning on the proceeds of the sale of his home.

When he moved from hostel to nursing home, most of his accommodation costs became medical expenses and the tax deduction meant that he kept all his income tax free.

Is this being extinguished by the removal of a distinction between 'low level' and 'high level' care? If so, then that seems harsh and unreasonable because there is a huge quality of life difference between living in a hostel where you have some independence and freedom of movement, and being in a nursing home when your health has deteriorated to the point where you need that on-going attention.

Alex Denham
February 25, 2014

That's interesting - my understanding was that hostel expenses count towards the net medical expenses tax offset (NMETO) as they do for nursing home accommodation. Perhaps he was in a retirement village?

Last year the Gillard Government announced it would be phasing out the NMETO and the current Govt has announced it would proceed with this measure.

Aged Care expenses come under a transitional arrangement which means from the 2013-14 income year until the end of the 2018-19 income year taxpayers can only claim the NMETO for medical expenses that both meet the current definition and eligibility requirements and relate to disability aids, attendant care or aged care. The legislation enacting this measure is yet to be introduced.

Rob Coyte
February 25, 2014

The government needs to look at solutions including access to "value" in the family home upon death. It is not the taxpayers obligation to "subsidise" beneficiaries of an estate.

Eric Walters
February 25, 2014

A great article: the biggest challenge we have in this area is overcoming the emotional barrier confronted by those having to consider leaving the long-term family/ marital home, with the decision as to when to go and how to fund going, left to the last minute - in spite of all the prompting from ourselves and the financial media generally.

Kevin
February 24, 2014

I'm glad to see others find this area complex!

In your article Alex you mention the lifetime cap of $60,000 yet you still conclude the new rules will be more expensive for those with ‘greater means’. The current rules don’t seem to have any lifetime caps that I can find, so I was left unsure as to why you felt the new rules would be costlier for independent retirees with significant assets and income.

Alex Denham
February 25, 2014

Hi Kevin, yes I can see that wasn't made clear in the article. The means tested care fee is subject to the cap, and the $25,000 per annum ($68 per day) is close to what the maximum income tested fee is now. However, that maximum applies to those with very high income. For everyone else, the formulas to determine the Income Tested fee (entry pre 1 July) and the Means Tested Care Fee (entry post 30 June) come up with very different results.

Borrowing an example from Challenger, Fred is single with a home worth $500,000 and $300,000 in the bank. He's paid an accommodation deposit of $300,000. His income tested fee for entry prior to 1 July 2014 would be $1.97 a day, and his means tested care fee for entry after 30 June 2014 would be $29.59 per day - a rather significant difference!

Also under the current rules, the maximum accommodation bond a resident can be asked to pay is their assets less $44,000. Under the new rules, if the published accommodation deposit is more than assets plus $44,000, the remainder is charged as a Daily Accommodation Payment.

Wayne Slager
February 23, 2014

Obviously, we'd all prefer our older citizens to live in their own home for as long as practical and, even after moving to some type of aged care facility, there may be benefit in keeping the family home as the article highlights under the new rules. However, at some stage a need/ want to sell the home/ property assets often eventuates.

The article underscores the overall link between aged care planning decisions and property. It's encouraging to see an increasing specialisation in aged care advice services across all aspects of this complex space. It's obviously required but there's one notable exception - independent and professionally aligned advice and support with the sale of property assets.

Alex Denham
February 25, 2014

That's a good point Wayne. In almost all of the cases I've dealt with, the home is sold. An elderly person at this stage in their life isn't up to managing a rental property, and the kids generally don't want to do it.

Tim
February 21, 2014

Congratulations government, in making it increasingly mind-numbingly complex for all parties concerned. A simple concept involving what fee someone should pay for aged care, ends up amounting to pages and pages of complex calculations and formulas. Its no wonder companies are drowning in red tape and increasingly basing themselves offshore.

 

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