Prepare to pay more for aged care
Residential aged care costs are difficult to understand at any time, but many aged care facilities are introducing new fees which make comparisons even more difficult as costs rise.
Aged care facilities in Australia are funded by a combination of resident and government payments. In 2013-14, the government spent $14.8 billion on aged care services, with about $10 billion of that going towards residential aged care.
Through a range of different measures, the government is withdrawing about $2 billion of funding from the industry over the next four years, which has left aged care operators with a tough choice – cut their costs to make ends meet or maintain their current standards and ask the residents to pay more. Given that personal care is the greatest expense of an aged care facility, it is not surprising that many operators are choosing the latter.
Levies on aged care residents
While most aged care fees and charges are government regulated, aged care facilities can levy other payments on residents by mutual agreement.
When it comes to accommodation payments, aged care facilities set the market price for each bed. Those who wish to set a price above $550,000 require approval from the Aged Care Pricing Commissioner. The price of the beds must be published in the facility’s marketing materials, on their website and on the government’s MyAgedCare website. Residents must also be given the choice of paying for their accommodation by a lump sum (known as a Refundable Accommodation Deposit or RAD), a daily charge (known as a Daily Accommodation Payment or DAP) or as a combination of the two. The daily charge equivalent is regulated, with the government setting the interest rate for the calculation, which is currently 6.01%.
So if the market price is $500,000 the resident can choose to pay $500,000 as a lump sum or $82.33 as a daily charge. If they chose to pay $200,000 by lump sum then the daily charge would be reduced to $49.40.
A number of aged care providers have introduced additional accommodation payments. These payments are set by the individual facilities and take a number of different forms – some are fixed daily amounts, some only apply to residents who pay by lump sum, some are pro-rated (based on the amount of lump sum paid) and some are capped at a dollar amount or after a period of time.
Examples of specific charges
Let’s look at some examples. At one group of facilities residents who pay any amount of their accommodation cost by lump sum are charged an additional $10 per day as what the facilities call a ‘Capital Refurbishment Fee’. The fee is charged for as long as the resident stays. So if they stay there for two years they will pay an extra $7,300 and if they stay for five years it will cost them $18,250.
At another group, the facilities are graded and the residents are charged an ‘Asset Replacement Contribution Fee’ of between $13 per day and $18 per day, depending on the facility. Those in the lowest grade only pay the $13 if they choose to pay towards the cost of their accommodation by lump sum, while those in the highest grade pay the $18 regardless of how they pay for their accommodation. So in the lowest grade, residents who pay by lump sum will pay $9,490 after two years or $23,725 if they stay for five years and in the highest grade everyone will pay an additional $13,140 for staying for two years or $32,850 if they stay for five years.
There is at least one group who both pro-rata and cap their fee, which they call an ‘Asset Replacement Contribution’. That fee is a maximum of $13.70 per day and is charged for up to 2.5 years and prorated based on the amount the resident pays by lump sum. So if the resident pays entirely by lump sum the cost would be $12,501 after 2.5 years, whereas if they paid entirely by daily charge the Asset Replacement Contribution fee would be zero.
While there are a handful of operators currently levying these fees and charges, there are many more considering following suit. We have already seen significant increases to what residents are paying for additional services such as wine, Foxtel and personal therapies and I expect there will be an expansion in both the services offered and the costs associated with them as operators look for more revenue opportunities.
Call the fees and charges what you like. The bottom line is that consumers should expect to pay more, and in some cases a lot more.
About the author
Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers specialising in aged care. This article is for general educational purposes and does not address anyone’s specific needs.
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