You’ve probably heard by now that the government has begun its reform of Australia’s aged care system with the second round of changes to begin from July 1.

We speak to resident Aged Care Guru Rachel Lane to find out what these changes can mean to your family. 

The changes will cover both care in the community (Home Care Packages) and care in an aged care facility. Understanding the changes and how they may affect your loved one, including: cost of care, eligibility for pension and estate planning wishes is important.

The latest changes include:

  1. Income testing arrangements for home care packages
  2. Changed means testing in residential aged care
  3. New accommodation payments arrangements for residential aged care
  4. Removal of the distinction between high and low care in residential care

Breakdown of the changes:

  • Lump sum (known as a Refundable Accommodation Deposit or RAD) 
  • Daily charge (known as a Daily Accommodation Payment or DAP) 
  • Or a combination of lump sum and Daily charge

From 1 July, if your parent or relative lives in an aged care facility, they will be able to choose how to pay for their accommodation, either by:

Aged care facilities will also need to publish the market price of their accommodation payments on their website, the My Aged Care website and in their brochures.

What does this all mean for your family?
Currently, your parent or relative may be asked to pay a basic daily fee and income-tested care fee for their Home Care Package. From 1 July 2014, people who have the financial capacity to pay will be asked to contribute to the costs of their care. Income will determine the income-tested care fee one may be asked to pay.

Your parent or relative may be asked to pay one or more of the following fees in residential care:

  • A basic daily fee: This covers living costs such as meals, power and laundry. For some people this is the only fee they are required to pay.

  • A means-tested care fee: This is an additional contribution towards the cost of care that some people may be required to pay. The Department of Human Services will work out if one is required to pay this fee based on an assessment of their income and assets, and will advise them of the amount.

  • An accommodation payment: This is for accommodation in an aged care home. Some people will have their accommodation costs met in full or part by the Australian Government, while others will need to pay the accommodation price agreed with the aged care home. The Department of Human Services will advise which applies based on an assessment of income and assets.

  • Fees for extra or additional optional services: Additional fees may apply if choosing a higher standard of accommodation or additional services. These vary from home to home. The individual aged care provider can assit you with details of these services and the fees that apply.

The Daily Accommodation Payment is calculated using a government set interest rate, currently 6.63%.

For example, if an aged care facility had a market price Refundable Accommodation Deposit (RAD) of $300,000, the Daily Accommodation Payment (DAP) would be $54.49 per day. Of course one may decide to pay $200,000 by lump sum and the remaining $100,000 via a Daily Accommodation Payment which would be $18.16 per day.
In relation to care payments, the current daily care fee, set at 85% of the Age pension, will continue to apply to all residents.

You can call My Aged Care on 1800 200 422 to help estimate the fees and charges your family member may have to pay towards the Home Care Package.
Before calling you should have their financial information ready, especially details of their various forms of income.

There are annual and lifetime caps in place to limit any income-tested care fees.

Get to know the formula:
The formula the government will apply to calculate the new income-tested care fee is:

  • 50c per dollar of income above $24,731 (Single) $24,263 each (Couple), plus 17.5% of assets between $45,000 to $154,179, plus 1% of assets between $154,179 and $372,537, plus 2% of assets above $372,537

Specialist financial advice will be critical in ensuring the correct structuring of assets and income and that all of the financial implications are understood.

For more information about the changes you can also go to the Department of Social Services Website