Transparency and choice are emerging as the key benefits from the new aged care funding arrangements under the Government™s Living Longer, Living Better reform program.
From 1 July 2014, all residents who can afford to will have the choice of paying for their accommodation in three ways:
- through a fully refundable lump sum;
- a rental style periodic payment;
- or a combination of both.
The so-called Refundable Accommodation Deposits is similar to the current accommodation bond for low level care (hostel) and extra services high care (nursing home) and will be paid by residents going into residential accommodation. Residents entering a care facility will be able to choose how they wish to pay for their accommodation rather than facilities dictating how the fees must be paid.
Indeed, going forward there will no longer be a distinction between high and low care accommodation. Favourably, where a resident pays a refundable accommodation deposit, a facility will no longer be allowed to deduct amounts referred to as the retention amount “ currently $331 per month for a maximum period of 5 years. Instead, unless the resident chooses for daily payments to be deducted from the refundable accommodation deposit, the resident or their estate will receive the full amount of the deposit back.
Unlike the current accommodation bond amount, which could be arbitrarily set by a provider and negotiated with the incoming resident, a maximum level of Refundable Accommodation Deposit has been set by the new Aged Care Financing Authority (ACFA) for certain facilities and anything over this must be applied for and approved in accordance with specified guidelines.
To further help consumers make an informed decision, each aged care provider will be required to make its accommodation fee schedule available on its website and published in written materials to anyone that requests it. The information will also be published on the My Aged Care website.
Providers will not be allowed to choose between people on the basis of how that person intends to pay for their accommodation and residents will not need to decide how they will pay until they have entered care.
The ACFA, already in operation and whose primary role will be to advise the Government on pricing and financing issues in aged care, must also approve the periodic payments to be charged by a facility.
Periodic payment equivalents of a Refundable Accommodation Deposit charged by a facility must also be advertised, and various examples given so that consumers understand the options in terms of how they pay for aged care. These will be known as Daily Accommodation Deposits and like the Refundable Accommodation Deposit, will be based on the value of the accommodation services being offered.
Similar to the way periodic payments are currently made, a Daily Accommodation Payment is a product of paying the maximum permissible rate of interest “ a rate set by the Government each quarter “ on a Refundable Accommodation Deposit.
So for example, a Daily Accommodation Payment on a $300,000 Refundable Accommodation Deposit at the interest rate of 6.6 per cent would be about $54 a day.
More choice for consumers
Deciding whether to pay a Refundable Accommodation Deposit or Daily Accommodation Payment is one of the many important financial decisions an individual or their family members may have to make and one where professional financial advice is strongly recommended. Choosing whether the accommodation payment is paid as a lump sum or periodically may impact Centrelink assessment of the former home so it is crucial to seek advice.
While the new Coalition Government has indicated its commitment to the implementation of the Living Longer Living Better reform program introduced by the previous Government, it is widely anticipated within the industry that there will be further changes to proposed pricing models.
Under the current proposed plan, the maximum an aged care provider will be able to charge is $455,000. Where a facility wants to charge more than $455,000, the prices must be justified against agreed criteria and approved individually by the Pricing Commissioner.
How much a prospective resident pays will largely be dependent on what beds and prices are available at their residence of choice as well as their assessable assets.
Facilities will be able to offer prospective residents different rates depending on ˜approved™ individual pricing of rooms. The big difference is that the charges will be more transparent to prospective residents with higher Refundable Accommodation Deposits being approved by ACFA.
These changes should allow residents to get better value
An important change under the new regime is that a Means Tested Fee (to replace the Income Tested Fee) will include the Refundable Accommodation Deposit as an asset. This amount is to be capped at $25,000 (indexed) a year with a lifetime cap of $60,000 (indexed).
As is the case now, the provider must leave anyone paying an agreed Refundable Accommodation Deposit with a minimum of $44,000. For the purposes of paying a Refundable Accommodation Deposit or Daily Accommodation payment, the full value of the home is included as an asset, unless an eligible person remains in the home. However, for means tested care fee purposes, the assessable value of the home is capped “ up to a maximum of $144,500 (indexed to approximately $153,905 in July 2014)
The likely impact of this broader means testing is that more people will be co-contributing to their care than may have been previously, which is a specific goal of the Government in order to help deliver an affordable aged care system for all.
Advice is critical!
On top of the Refundable Accommodation Deposit (or Daily Accommodation Payment) and asset and income tested care fee, there will be a Basic Daily Fee, which is the equivalent to 85 per cent of the Basic Age Pension. Whether someone needs care in an aged care facility or at home, the decisions around where to go and how to pay for it remain complex, are open to change and generally require specialist financial advice.
Source: Genesys Wealth Advisers as at June 2014.