Aged care can be a minefield for prospective residents and their families to navigate, and it is about to get more difficult with significant rule changes looming.
Making decisions about aged care can be stressful and emotional, not only for the resident but also for their families. How do family members ensure the best outcome for their elderly relatives, both financially and emotionally?
Not surprisingly, the rule of thumb when dealing with families in emotional situations like this tends to be that no one agrees on anything—from the standard of the facility, to geographic location, to the standard of care, to what should happen with the family home.
And then often complex decisions need to be made about the person’s finances which can include investments, Centrelink rules, taxation, superannuation, and retirement income streams.
A growing need
The provision of a good aged care system is becoming more important every year. There are roughly 168,000 aged care residents in Australia at present and according to the Department of Health and Ageing, there are an estimated one million people that receive government-subsidised aged care services (expected to grow to 3.5 million by 2050). It is estimated that the number of people over the age of 70 will grow from roughly two million to eight million between 2011 and 2051, at a rate of about 60,000 per annum.
A new approach
The Living Longer Living Better aged care reforms, which came into effect on 1 July 2014, are the previous Government’s response to the work of the Productivity Commission and the National Aged Care Alliance’s Blueprint to build a better, fairer and more nationally consistent aged care system. It is hoped the reforms will encourage greater investment in the sector and improve the sustainability of the aged care system. Regardless of the intent of the reforms, it is generally accepted that aged care will be a complex and expensive proposition for most prospective residents.
The reforms mean that instead of lump sum bonds we now have RADs (refundable accommodation deposits), and where bond amounts were paid by periodic payments we now have DAPs (daily accommodation payments). The new system has removed the distinction between low care hostels and high care nursing homes, meaning all residents will be subject to the same fee structure. The new rules also combine the resident’s asset and income position and apply a broader means-tested amount to replace the income-tested fee. Another change is that the asset test exempt bond, now a RAD, will count as an asset, but only the first $144,500 of the principal residence will be taken into account.
Providers will also be required to disclose their accommodation prices on the My Aged Care website (www.myagedcare.gov.au), which will provide some visibility across all aged care facilities and allow prospective residents to more easily compare fees.
It is important to note that existing residents will be grandfathered under the current rules. The new rules will apply to individuals who enter residential aged care on or after 1 July 2014.
Existing residents will be subject to the new rules if they leave care and re-enter after 28 days, or if they change facilities and decide to re-enter under the new rules.
The means-tested amounts
One of the critical changes under the new rules is the introduction of a means tested amount. Under the previous rules, a resident’s assets were used to determine how much they pay for their accommodation (accommodation bond and accommodation charge) and their income was used to determine how much they pay for their ongoing care (income-tested fee).
However, the means-tested amount has replaced the income-tested fee and now both a resident’s assetsand income are used to determine how much they pay for their accommodation (accommodation payment) and their ongoing care (means-tested care fee).
The family home: keep or sell?
The decision of whether to keep or sell the family home is often an emotional as well as a financial one and can greatly impact on Centrelink/DVA benefits and ongoing care fees.
Under the reforms, the former home will continue to receive a Centrelink/DVA exemption if part of the accommodation payment is paid as a DAP and the home is rented out.
However, when calculating the means-tested care fee, only a portion of the former home ($144,500 if it is not occupied by a protected person) will count as an asset compared to the entire proceeds if the home is sold. For many residents, this means that the means-tested care fee may be significantly lower if the home is not sold.
Structuring Accommodation Payments
Residents have a choice of paying the accommodation payment as a refundable lump sum (RAD), or periodic payments (DAP) or a combination of both.
While the RAD is exempt for Centrelink/DVA purposes, it is counted as an asset for determining the means-tested care fee. More consideration may be given to keeping the family home with the asset value of the home capped and paying the accommodation payment as a DAP, compared to selling the home and paying a RAD where the entire balance is assessable.
Published accommodation prices will now make it easier for prospective residents to compare the costs for their accommodation from various providers. However, residents are not be able to pay an amount exceeding the published amount, eliminating a strategy available under the old rules where you could negotiate a higher accommodation bond with the age care provider.
The need for professional advice
As the means-tested care fee is now determined by a resident’s income and assets, there is a greater focus on whether to keep or sell the family home, how to structure accommodation payments and where to invest remaining funds.
Investment strategies that reduce a resident’s income and assets continue to play an important role in reducing ongoing care fees and may even be more effective in some instances.
It is important for families with an elderly relative who is on the cusp of making a move to receive appropriate financial advice early, to allow enough time for their relative to be assessed for aged care, find an appropriate facility and move in. As well as to ensure appropriate financial outcomes are achieved, and that there is enough time to deal with the attendant emotional and psychological issues. Of course, seeking quality financial advice can be a critical step in helping to ensure the best financial outcome for residents and their families.
If you'd like to find out more about Aged Care or Financial Planning please contact HTA Advisory and arrange a meeting with our Financial Adviser, Scott Millson.