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It isn’t just the rich who will pay more for aged care

Last week, the Government introduced the new Aged Care Act into Parliament and provided its response to the Aged Care Taskforce. Combined they represent the biggest changes to aged care in almost 30 years. The changes, which Prime Minister Anthony Albanese described as “once in a generation”, will redefine aged care and who pays for it.

At its heart, the reform package will see the Government pay for all of your care, regardless of your means, with care recipients needing to pay more towards their other services based on their assets and income. The million-dollar question is “What is care?”. While the reform package will invest $5.6 billion into aged care services, the net impact of the changes is a $930 million spend over four years and a $12.6 billion saving over the next 11 years.

Quiet cleverly, the government have decided to define care as clinical care services, such as nursing, occupational therapy and physiotherapy. This means the list of non-care services is extensive and will include things many people think of as care – such as help with medications, having a shower and getting dressed. As well as services that people cannot do due to their care needs such as help with shopping, preparing meals and gardening.

How much you will contribute towards your non-care services will depend on whether you receive your care in your own home or in an aged care home.

Home care

Demand for Home Care has tripled over the last five years with current wait times for some home care packages exceeding 12 months. With more people wanting to age at home, the lion’s share ($4.3 billion of out of $5.6 billion) of funds in the reform package are aimed at the new “Support at Home” programme.

Support At Home will bring the current home care package and short-term restorative care programmes together and add two new programmes: the Assistive Technology and Home Modifications Scheme and the End of Life Pathway.

The Assistive Technology and Home Modifications Scheme will give people access to home modifications and assistive technologies up to a value of $15,000 without the need to wait for funds to accumulate in their package. The End of Life Pathway will provide up to $25,000 for funding palliative care in the home in the last three months of life.

The current four levels of Home Care Package will be increased to eight, with the maximum funding increasing from around $61,400 per year to $78,000 per year and the services within your Support at Home package designated as either clinical care, independence or everyday living.

The government will pay for all of your clinical care, and you will pay towards your independence and everyday living services based on your assets and income.

Case studies – Support at home (based on a Level 5 package) (provided by Government)

Bill, a full pensioner with $10,000 of assets will pay $2,467 per year for his Support at Home Package. The Government will pay $37,107 per year.

Marco, a part pensioner with $65,000 p.a of income and $200,000 of assets, will pay $11,464 per year for his Support at Home Package. The Government will pay $28,110 per year.

Harry, a self-funded retiree with $100,000 p.a of income and $500,000 of assets, will pay $16,615 per year for his Support at Home Package . The Government will pay $22,959 per year.

Aged care homes

The changes to what you will pay for an aged care home span both the cost of your accommodation and the cost of your ongoing services.

Accommodation costs

Market Price Cap increasing to $750,000

From 1 January 2025, the market price cap on Refundable Accommodation Deposits (RADs) will increase from $550,000 to $750,000. The cap sets the price beyond which an aged care home requires government approval. While there are plenty of examples of prices above and below this price, the effect of the cap is that we see a clustering of prices around the cap.

The reforms don’t change who is classified as a Market Price payer. If you have assets above $206,039, you need to pay the market price. This perverse assessment currently creates a gap that I often refer to as “aged care no man’s land”, where people with $300,000 or $400,000 need to pay substantially more than they can afford. If most prices go up to $750,000, there will be a $500,000 gap between what some people need to pay and what they can actually afford for their accommodation.

Exit fee of up to 10% on RADs

From 1 July 2025 aged care homes will charge an exit fee of 2% of your RAD per year for up to 5 years. Which means if your RAD is $750,000 and you stay for 5 years (or more) then $75,000 will be deducted when you leave. There will also be a change from the current fixed rate that applies to people who pay towards their accommodation by daily payment. From 1 July 2025, Daily Accommodation Payments (DAPs) will be indexed twice a year at CPI.

The cost of ongoing services

When it comes to the ongoing cost of your aged care, you will pay the Basic Daily Fee, which is set at 85% of the Age Pension. Beyond this, you will pay a hotelling supplement and a Non-Clinical Care Contribution based on your assets and income, as well as a higher everyday living fee if you choose to get ‘extras’. The Government will pay for all of your clinical care.

No change to the treatment of the family home

There is no change to the assessment of the family home for aged care means testing. Your home will be included in your aged care assets up to a capped value of $206,039 unless a protected person lives there in which case, it is exempt.

A protected person includes your spouse or dependant child, a carer who has been living in the home for at least two years and is eligible for an Australian Income Support Payment, or a close relative who has been living in the home for at least five years and is eligible for an Australian Income Support Payment.

'No Worse Off Principle' for people already receiving aged care

The no worse off principle is designed to protect people already receiving aged care or waiting for a home care package. If you are receiving a home care package or have been assessed as eligible then the no worse off principle will mean that your costs will be the same or less after the reforms.

If you move from home care to an aged care home after 1 July 2025, the changes to accommodation payments will apply but you will have the choice of staying on the existing contribution arrangements or moving to the new ones. If you are already living in an aged care home or move in before 1 July 2025 your contributions will not change while you live there.

Case studies – Residential aged care (provided by Government)

Hannah is a full pensioner who owns her home and has $150,000 of other assets. Under the new rules she will pay $28,800 per year (the Government will pay $111,300 per year). Under the current rules Hannah would pay $24,700 per year.

George is a part pensioner who owns his home and has $500,000 in other assets. He will pay $47,700 per year (the Government will pay $92,400 per year). Under the current rules George would pay $34,300 per year.

Heather is a self-funded retiree who owns her home, she has $500,000 in other assets and receives $70,000 p.a of income. She will pay $62,800 per year (the Government will pay $77,400 per year). Under the current rules Heather would pay $49,400 per year.

The government estimates that 3 in 10 full pensioners and 3 in 4 part-pensioners will pay more. When you consider these case studies, it’s easy to see why. While the message has been that “wealthy Australians will pay more for aged care”, it seems that in reality most Australians will pay more. In some cases, much more.

 

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).

 

31 Comments
Ruth from Brisbane
September 30, 2024

I read as far as this:
'At its heart, the reform package will see the Government pay for all of your care, regardless of your means'.
I am growing very tired of individuals stating 'the Government will pay'. The government has no funds except what it reaps from taxpayers. I am not interested in the opinion of an individual who does not state which taxpayers should pay, and why.
My mother worked hard and saved frugally all her life. Her affairs have now been placed in the hands of the government, as the CBA in its wisdom ignored her valid power of attorney. She hates where she has been forced to live and just wants to go back to her own humble home, which she paid for.
An army of public servants is employed to 'manage', and 'journalists' report to get your vote for politicians. The plan is to take every cent you make. None of these people add an ounce of productivity to the country in the form of actual goods and services. I suspect they are in for a rude shock as their standard of living will be substantially lowered soon, and they have no useable skills.
I am glad my mother now has dementia and is not aware of what is happening to the country she loved.

David
September 24, 2024

I am not sure how much cross subsidy there is in the proposed new system, but if there is, I believe that will encourage well off oldies to get their whole home care by private means and leave the government right out of it. Not having to deal with government is the best thing about being well off.

Steve
September 22, 2024

For in home care the examples refer to one person. My question is if it is a couple do those costs double?

Bakker
September 22, 2024

As usual there are always “ unintended consequences “ ( or intended) with these reforms and you will never please all.
However it does appear that the Part Pensioner is the disadvantaged one in all this.
The various self contribution gaps in the examples are not proportional to assets or income and PAP is really going to do it toughest.
No doubt the financial planners will already be looking at best ways to work the angles.
One can just hope that your health and mobility holds up long enough to remain in your home to the very end.

Lily
September 22, 2024

I wonder how many part pensioners can afford a financial planner.

Aussie HIFIRE
September 23, 2024

You can have a paid off home, a new car, and a million dollars in savings (even more if one if you is under age 67) and still get a part pension. So plenty of part pensioners can afford a financial planner.

Dudley
September 24, 2024

"plenty of part pensioners can afford a financial planner":

Whom might advise building gold stairs in home to have Commonwealth pay 7.8% unto death on money spent on said stairs. The gold stairs can be smelted by heirs to repeat pending their demise.

Jack
September 21, 2024

From 1July 2025, BMW drivers will pay 20% more for petrol than other drivers. They are buying exactly the same product as others but they should pay more because they can afford it. It applies to age care now and can apply to all areas where the government is involved. We should expect the same principle to apply to stamp duty and car registration for example. In most areas of life, if I pay more, I receive a better product or service. With age care, if I pay more I get the same service as the person in the next room.

That is a huge incentive to impoverish myself to become “one of the most vulnerable”. Note the family home remains largely exempt from the assets test assessment. That is the key to such impoverishment.

James
September 22, 2024

Medicare levy. You earn more you, pay more levy, but you get the same service under medicare. In certain areas we are a means tested, user pays more society. The principle is well established. There are limited resources and many essential services that need funding. Is there horrendous wastage and misuse of tax payer dollars? Yes! But trying to fix that is beyond our mediocre polity and an unforgiving electorate. People on the wrong side of the zero sum game equation get upset, just look at the outrage over the aged care issue for example.

Jack
September 22, 2024

The Medicare levy is a tax, paid by everyone (according to their income) whether they use the service or not - like defence or foreign affairs. The means tested age care fee is an additional user fee payable according to individual income and assets.
Moreover, the government specifically rejected a levy, or having different classes of service according to payment. This is a redistribution of wealth that punishes prudent savers.

James
September 23, 2024

"The means tested age care fee is an additional user fee payable according to individual income and assets."

Aged care has been means tested for some time! All that has happened is that the user pays upper limit has been extended to about $130k from about $76K and they can now garnish the RAD, at most 10%, over a 5 year period.

Means testing (income and assets) as a principle has been around for a long time. The pension is means tested, as is childcare and other welfare or benefit programs. How do you propose the taxpayer pays for the increased burden of aged care falling on a future smaller worker tax base as the population disproportionally ages then?

And we all use medicare and defence, foreign affairs etc are rightly things we can't opt out of. We all may well need aged car and in home care too!

Rodney Staton
September 20, 2024

Isn't this 10%RAD deduction over 5 years just a sneaky death tax?

Warren Bird
September 21, 2024

No Rodney it's not.

First because it's payable even when the resident simply moves facility, so nothing to do with death.

Second because in the economics of providing aged care it actually works as a genuine capital charge to help cover repairs and maintenance on residences.

Third it's simply not a tax. It's collected by the aged care facility provider, not the government.

And BTW it's been around for years already.

Marianne Johnston
September 21, 2024

No it hasn't. Up until the recently announced changes RADs were 100% refundable.

Warren Bird
September 23, 2024

Marianne, I meant the concept of a portion of capital deposits being retained has been around for years. When my father passed away the estate only got back 80% of his outlay to live in his villa. He'd been there for a dozen years or so. The concept of part of a capital amount being retained by the provider has been around for years.

Peter
September 29, 2024

No it has not

Tony Folland
September 30, 2024

People are confusing the situation between Retirement villages and Aged Care facilities
The former is controlled by the States the latter by Federal There continues to be a charge of up to 30% on the leasing costs of Retirement Village accommodation plus no capital gain on any money spent. The RAD payments have until 1st July 2025 have and will be fully refunded. After that date the value of the RAD will be reduced by 2% per year for up to 5 years. Those people who are concerned about loosing the full 5% are optimists. If it does occur they have moved into care too soon!

Graham Jones
September 20, 2024

The money wasted by politicians of all persuasions on every stupid idea that is beyond their comprehension is gobsmacking. Every time they think there is a vote able issue they throw a bucket of taxpayers money at it regardless of value for money it is long overdue that politicians be relegated to legislation and outcome driven public servants work out the solutions regardless of politicians political preferences. This would save taxpayers billions and give ALL Australians better outcomes.

John N
September 20, 2024

Or as the saying goes "take the keys away from the inmates".

Mark
September 23, 2024

Yes, I agree that many politicians think they "own" Treasury and its there for largesse and ego driven "nation building" projects. If they were applauded for the many small, less headline grabbing projects we would all be better off.
Notwithstanding, there is a large gap between what many voters complain about compared to what they are willing to vote for. They ignore the interests of the country and future generations when it comes to crunch time at the ballot box. Perhaps if we the voters we more responsible with our votes, politicians would be more responsible with our money. I know... "eye roll"... but until then, communities get the politicians they vote for.

Trevor
September 24, 2024

Regarding who you vote for. It’s fine if a voter wants to give preferences but it shouldn’t be compulsory in my opinion.

Stu
September 20, 2024

Jull, my old mate passed way recently with a plastic card debt near $10K. His daughter sold or dumped all his possessions at fire sale prices which raised a sum of $1,500. She drove his very old and very unreliable motor car ( worth nil ) back to her interstate public housing home because his car was better than the one she owned. Cash at bank was just pennies. The tax payer paid for his burial. Outstanding bills remain outstanding. I understand old mate is one of many in a similiar situation, just ask the salvos and like organizations. How long do you think a labour government will allow a flat tax to remain without a review and is the death tax paid out before all other bills ?

Aussie HIFIRE
September 19, 2024

I wonder how much of a rush there will be from elderly people either of their own volition or from their children to get into an Aged Care home before 1 July 2025? The difference in cost is not inconsiderable, particularly with up to 10% of the RAD being kept by the facility as well as the increased ongoing costs.

In any case it doesn't seem unreasonable to expect that those who are using Aged Care facilities should have to pay a higher proportion of the costs rather than leaving the bill to future generations.

Marianne Johnston
September 21, 2024

The argument that higher means residents of Aged Care facilities should pay more because they can might be fair if the increased costs paid equated to commensurate levels of care. The problem is they don't, so more costs in the announced changes are tantamount to price gouging.

James
September 21, 2024

Government is just doing what it always does. If you have more, you pay more, and the excess the wealthier pay helps to reduce the taxpayer cost of providing for those that cannot pay much. It's just how it is! It's a long established precedent in a progressive taxation type society. Do you get better treatment under Medicare when you pay a lot more medicare levy as a wealthier tax payer (private health cover aside)? Complaining ain't going to change the principle!

Aussie HIFIRE
September 23, 2024

So how do you feel about the means testing for the age pension then? Those who have a lot of retirement savings get no age pension and are expected to pay their own way, those who have less than 450k get the full pension, those in the middle get some age pension. It's exactly the same principle.

george
September 19, 2024

Its time we all understand the government's code

"Reform" means giving the impression of a reduction in cost, while in fact there is an increase

Everything the government does is to increase taxation, while trying not to lose votes (hence hiding the increase and telling us all there is a reduction)

David Williams
September 19, 2024

The changed financial aspects will no doubt dominate the initial discussion and debate. However, we should not lose sight of the fact that increasing longevity is a major driver of necessary reforms (plus the demographic shift as the Boomers flood this space).
It's important too for everyone to understand they can make a significant difference to the financial outcomes if they commit to more informed management of their remaining longevity - regardless of whether they are pre or post 'retirement".
It's not only an individual opportunity. The government would reap a considerable longer term benefit from more productive and healthy elders, which would result from better informed people supported by adequate and inexpensive longevity planning. Financial advisers and super funds would also benefit and should be encouraged to become active supporters.. We need a National Longevity Strategy to properly co-ordinate, design and oversee these changes affecting the fast growing older community, not just doing it piecemeal as at present. See nationallongevitystrategy.au for some ideas.

JohnS
September 19, 2024

There is something inequitable about the Aged Care fee model.

I have no problems with a "user pays" and "wealthy pay" model for the expenses that will be incurred by the Aged Care facility that will no longer be paid for by the old person. I am thinking of food, rent (or return on the old home), rates, electricity, etc.

But I have a huge problem with other expenses being paid for by the "old, so called wealthy person"

Consider two families.

Family one's old person has multiple hospitalisations, many of which end up with the old person in intensive care, costing many thousands of dollars, multiple times. Who pays for these expenses, maybe several hundreds of thousands of dollars in total? Answer, medicare (ie the tax system, not the patient)

Family two's old person suffers from dementia. A long term illness not requiring hospital care (which would be paid for by the taxpayer) but requiring constant care in an Aged Care facility. The patient makes a significant contribution to those costs

My concern, and my conclusion of "inequity" is that one family's estate is diminished while the other's isn't.

Surely, there must be an equitable way of making both family's estate (ultimately, though indirectly - the old person actually pays).

Inheritances should not come down to "luck" of what disease finally takes the old person

James
September 19, 2024

The government is not concerned with inheritances! As for luck, good and bad, well that's life! There is inequity everywhere and limited resources to go around. Is there heinous wastage elsewhere? Yes! But politics is a dirty game with dubious national motivation and a huge amount of self interest!

Jull
September 20, 2024

But why create inequity when the simple introduction of a formal death tax would fix the inequity.
A flat $5000 death tax paid when everyone dies could finance the aged care. Or perhaps a 0.25% of all assets past on death.
It would be like an insurance policy on death, paid after death instead of during your life time

 

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