082.Front Loading: Aged Care

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Nov 8 2014 at 2:48 AM | Updated Nov 8 2014 at 6:02 AM

How to navigate the aged care maze |SAVE ARTICLE PRINT REPRINTS & PERMISSIONS

The average cost of aged care accommodation is estimated at about $300,000 to $400,000, payable as arefundable accommodation deposit. Illustration: Sam Bennett

by Bina Brown

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Deirdre Border knew it was time to talk to her 84-year-old mother, Margaret,about stepping up her care needs when she arrived to find the water to herhome had been cut off. What Deirdre hadnt realised was that Margaret hadunpaid utility bills going back several months. The once busy accountsdirector was now living the life of a virtual hermit in one room of hersubstantial home in Melbournes eastern suburbs.

Deirdres concern prompted a conversation about the need to increase thelevel of home care and the possibility of going into residential care.

Margaret was initially appalled at the idea of going into a home but, after shewas assessed and there was an independent voice presenting the scenarios,she resigned herself to at least look at her options. When she fell and injuredherself and was no longer able to get home care, the move to residentialcare was inevitable.


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Within days, the family had to find a bed in a facility they were happy withand a vacancy they could afford.

There were dozens of phone calls to Centrelink, potential homes andadvisers. On the advice of Equity Trustees, which Deirdre engaged to helpadvise on finances, it was decided to keep the family home and use otherassets (Margarets deceased husbands superannuation) to pay for her moveto the aged-care facility.

AGED CARE CAN BE A DIFFICULT SUBJECTLike Deirdres situation, finding and funding the right level of home andresidential care for older relatives is an increasingly pressing issue forAustralian households.

Even with recent reforms and a focus on assisting the countrys ageingpopulation, the aged care system is a minefield where the help of youngerfamily members and professionals is highly sought.

An emotional and stressful situation can be made easier with some priorplanning starting with a conversation about care when a parent or relativeis fully cognisant," says Denise Tomaras, of aged care placement specialistTender Living Care.

It is a hard conversation to have at any time but if residential care issomething that is inevitable, it is better to have the discussion when someonefully understands. If they get to the stage of dementia, then paranoia setsin."

The average cost of aged care accommodation is estimated at about

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The average cost of aged care accommodation is estimated at about$300,000 to $400,000, payable as a refundable accommodation deposit(replacing the old bond), a daily accommodation payment or a combinationof both.

About 5 per cent of facilities charge $550,000-plus under special governmentapproval. Someone without the means to pay for accommodation will getgovernment assistance.

One big improvement since the introduction of the Living Longer, LivingBetter reforms is that all aged-care facilities are required to publish the costof the accommodation on the Governments My Aged Care website(myagedcare.gov.au), as well as whether they offer supported" beds (thatis, paid for by government).

A residential care fee estimator on www.myagedcare.gov.au can help workout potential care costs. But this is just the start of what can be a verystressful and emotional process for individuals and their families.

Equity Trustees aged care advice senior manager Anna Lawton says a shift inattitude to aged care means more people are starting to factor it into theirplans earlier.

Earlier generations saw it as dont you dare move me. But the nextgeneration has a growing awareness and acceptance that there is thepotential for a move into care. So from a planning point of view, people needto be thinking about saving for that," she adds.

Lawton says the move to a user pays" system from July 1 this year meansthat people may have more choice as to where they go, but if they want tobe near family and have all the bells and whistles, planning is needed. Thebest way to do this is much like saving for an overseas trip is to havecapital saved for entry into aged care. Plan B is to discuss it with family members and consider all the options, including whether to sell the familyhome before it becomes a decision made under pressure in a short timeframe.


frame.

MEANS-TESTED CAREWhere someone does own their own home, it is counted as an asset by thegovernment in its calculation of the means-tested daily care fee but only upto the value of $155,823. Where a spouse remains in the home, it is notassessed.

As of July 1 this year, all refundable accommodation deposits (RADs) are published on www.myagedcare.gov.au, and on the facilitys website.

As the name suggests, this is a deposit and any balance is refunded when aperson leaves the facility less any amounts that have been agreed will bededucted. (The reduced amount could be because of daily payments or extracare fees.)

The deposit can also be paid in periodic payments called the dailyaccommodation payment (DAP), calculated by converting the refundableaccommodation deposit into a daily charge using the maximum permissibleinterest rate at the time someone goes into care. The current rate is6.63 per cent.

As well as the accommodation charge (which covers the cost of a bed only),there is also a basic daily fee (for costs such as meals, cleaning, laundry,heating and cooling), as well as a means-tested fee as an additionalcontribution towards the cost of care.

Everyone entering an aged-care facility can be asked to pay the basic dailyfee, which for new residents is 85 per cent of the single person rate of thebasic age pension (current rates put this at $47.15 a day).

The means-tested fee is calculated by the government based on yourincome and assets. A member of a couple being assessed would have half ofthe combined income and assets considered in determining the means-tested care fee, regardless of which partner earns the income or owns theasset.Easily create high-quality PDFs from your web pages - get a business license!

asset.

STILL MUCH CONFUSIONAnnual and lifetime caps apply to the means-tested care fee of $25,349 and$60,838 respectively. Some facilities offer extra services such ashairdressing or a as a glass of wine with meals, for which they will charge anadditional fee.

This can vary between $20 and $100 a day.

Just as the services may vary, so will the charges. But from July 1 this year,aged-care facilities with dedicated extra service" places are required topublish their extra service fees on the My Aged Care website, their ownwebsite and in other relevant materials provided to prospective residents.

Ipac Financial Care adviser Paul Intagliata says six months into the reforms,there is still much confusion. Part of this stems from the requirement thateveryone looking to enter aged care is presented with a Centrelink assetsand income form, irrespective of whether they are on an age pension or self-funded. This assessment will tell the facility just how much the resident willneed to contribute to the cost of care (with the government paying the rest).For residents of limited means this test may also help determine anygovernment support.

Where someone doesnt complete the form and the facility accepts them,the resident is liable for the full amount of the cost of care andaccommodation (subject to the caps mentioned previously)

Later Life Advice founder Brendan Ryan says ignoring the governmentsmeans testing will result in the resident paying the full cost of care, with dailyamounts reaching up to $240 a day.

The daily limit is the extent of the payments the government pays the provider, and it can be substantial," Ryan says. For example, if a residenthas high-level requirements for care, the governments payment to the


aged-care facility for providing the care could be $208 per day. At this rate,the $25,349 cap would be reached in four months, requiring high paymentsin the early months and nothing later," he says.

Ryan says based on the governments assessment, a resident would need tohave assets of $2.5 million (including the home) to be paying for the cost ofcare at this rate.

FRONT-LOADING OF COSTSIf the resident had financial assets less than $2.5 million, the governmentwould assess they should not have to contribute the full $208 in care fees perday and the overall cost of care would be more evenly spread over the wholeyear."

Based on calculations using the government residential care fee estimator,Ryan says a resident with $1.2 million in cash would be limited to paying $74a day.

The way the system is set up leads to a front-loading" of costs, as fees canbe charged at a high rate until the cap.

Where it was taking Centrelink 12 weeks to process the income and assetsforms, its down to about three weeks, Intagliata says .

Where some facilities wont accept a person without the necessaryCentrelink form, others have been letting people in an on agreed-cost basisand charging an agreed means-tested care fee until they are able to get thefull picture," Intagliata says.

While this arrangement will work better for some, he says, It makes theprocess longer which was not the intention.

The accommodation costs are more transparent because facilities arerequired to advertise their costs which means people can plan on how theymay pay for it.


may pay for it.

REFORMS TO GIVE FAMILIES MORE CONTROLBut someone can be ready to go in and the facility wont take them becausethe forms arent complete," Intagliata says.

One aim of the reform was to give greater control to the individual orfamilies than the facilities over the payment of the accommodation charges.

Since July 1, 2014, a resident has 28 days [after moving in] to inform thefacility how they intend to pay the accommodation charge whether it is byrefundable accommodation deposit or daily accommodation payment,"Intagliata says.

If after 28 days the resident hasnt informed the facility, it defaults to a dailyaccommodation payment. The payment by deposit [RAD] or daily payments[DAP] may be optional in theory but the practical side is different, especiallywhen it comes to the residents liquidity," says aged care specialist adviserJeremy Gillman-Wells, authorised representative of AMP Financial Planning.

Its important to find out the minimum RAD the facility charges. This willhelp the family and/or adviser work out the best funding strategy to achievethe quickest placement," he adds.

Financial considerations will include whether to pay a full or part deposit, or acombination of deposit and daily fees, as well as whether the daily fee shouldbe deducted from your cash flow or drawn down from the partial deposit.

ADVICE ON MINIMISING COSTSThe [daily accommodation payment] can be deducted from the lumpsum[partial deposit], which is a huge benefit, especially where the carecontribution fee makes cash flow difficult to manage until you hit the $25,000annual maximum," Gillman-Wells says.

He says the timing of entry into aged care for members of a couple, and theEasily create high-quality PDFs from your web pages - get a business license!

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He says the timing of entry into aged care for members of a couple, and thetiming of completing the income and assets assessment, can have a hugeimpact on the accommodation payment, means-tested fees and governmententitlements.

Other key considerations are whether the family home is kept and rented outor sold. Gillman-Wells says an experienced adviser will help people maximisetheir Centrelink or Department of Veterans Affairs entitlements and giveadvice on how to minimise aged-care costs, maximise cash flow andpreserve maximum value for the estate.

In one instance, after negotiation with a facility and restructuring of assets,we were able to save a resident over $50,000 a year in care and extraservices fees," he says.

*Not her real name

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082.Front Loading: Aged Care