A Guide to the Costs of Aged Care
As we or our loved ones enter the later stages of life, the topic of aged care becomes increasingly important. Aged care services in Australia provide essential support and assistance to elderly individuals who may require extra help with daily tasks, medical care, and accommodation. However, it’s crucial to understand the costs of aged care to make informed decisions.
In this guide, we will explore the various fees and charges involved in aged care.
Aged care fees
Basic Daily Fee
The Basic Daily Fee is a standard fee that covers the basic living costs in an aged care facility. It is payable by everyone receiving residential aged care services. The Australian government sets this fee, and it is calculated as a percentage of the basic Age Pension.
As of current rates, the maximum Basic Daily Fee is $63.57 per day, or $23,203.05 per year. However, the actual amount can vary depending on an individual’s income and assets.
Means-tested Care Fee
The Means-tested Care Fee is an additional fee that may apply to residents in aged care facilities. This fee takes into account an individual’s income and assets, including property, investments, and superannuation. The purpose of this fee is to contribute towards the cost of care based on an individual’s capacity to pay.
As of 20 September 2024, the government sets an annual cap on the Means-tested Care Fee, which is $34,174.16, or lifetime cap which is $82,018.15.
Accommodation Payments
Accommodation Payments, also known as accommodation charges or fees, are costs associated with accommodation in an aged care facility. These payments are meant to cover the cost of living in a residential aged care facility, including the room, meals, and other amenities.
There are two options for accommodation payments: Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment (DAP). Individuals can choose to pay either a lump sum RAD, a daily DAP, or a combination of both, depending on their preference and financial situation.
Fees for Extra Services
Some aged care facilities offer Extra Services that go beyond the basic care provided. These additional services may include premium accommodation, specialised therapies, enhanced meal options, or access to specific amenities like gyms or wellness centres. The fees for these Extra Services are separate from the standard aged care fees and are negotiated between the facility and the resident. It’s important to note that Extra Services are optional, and individuals have the choice to opt-in or opt-out based on their needs and preferences.
Residential Aged Care Fees
As individuals age, the need for specialised care and accommodation may arise. In Australia, residential aged care facilities provide the necessary support for older adults who require assistance with daily activities and medical care. While these facilities offer essential services, understanding the associated fees and payment options can be complex.
There are three ways on how you can pay your residential aged care accommodation fees: refundable lump sum, daily payments, and a combination of the two.
Refundable lump sum payments
Refundable Accommodation Deposit (RAD)
The Refundable Accommodation Deposit (RAD) is a lump sum payment made to the aged care facility. It is a prepayment for accommodation costs, which is refunded to the resident or their estate when they leave the facility. The RAD amount varies based on factors such as facility location, room type, and amenities. The maximum amount that can be charged for a RAD is determined by the government.
Refundable Accommodation Contribution (RAC)
The Refundable Accommodation Contribution (RAC) is similar to RAD but applies to aged care facilities that were approved before July 1, 2014. For these facilities, instead of paying a lump sum, residents can choose to make periodic contributions towards their accommodation costs. The RAC amount is calculated based on an established interest rate and the periodic contributions made by the resident.
Key points to consider:
- RAD/RAC payments can range from a few thousand dollars to several hundred thousand dollars.
- Choosing the RAD/RAC option may provide peace of mind for individuals who want to secure a place in their preferred aged care facility.
- The RAD/RAC payment may accrue interest, and the facility is obligated to return the full amount upon departure.
Daily payments
Daily Accommodation Payment (DAP)
The Daily Accommodation Payment (DAP) is an alternative to paying a lump sum upfront. It is a daily rental-style payment for the accommodation portion of residential aged care. The DAP is calculated based on a Maximum Permissible Interest Rate (MPIR) set by the government and the outstanding RAD amount. As of 1 October 2024, the MPIR is 8.38%. The daily rate is determined by dividing the RAD by a specified interest rate. The DAP is non-refundable but reduces the resident’s RAD balance over time.
Here is the formula in calculating the DAP: DAP = (RAD × MPIR) / 365. To give you an example, if a room has a RAD of $400,000 and the MPIR is 8.38%, the equation will look like THIS: DAP = ($400,000 X 8.38%) / 365. Hence, your DAP is $92.08 per day.
Daily Accommodation Contribution (DAC)
The Daily Accommodation Contribution (DAC) is applicable to aged care facilities that were approved before July 1, 2014, similar to the RAC. It allows residents to make regular contributions instead of paying a lump sum. The DAC is calculated based on an established interest rate and the periodic contributions made by the resident.
Key points to consider:
- Daily Payments are essentially rental-style payments for the accommodation.
- The DAP/DAC is calculated by multiplying the unpaid RAD/RAC by the government-set interest rate.
- Individuals can choose to pay their accommodation costs through Daily Payments while preserving their RAD/RAC as an asset.
Combination payment
The combination payment option allows individuals to pay a portion of the accommodation cost as a refundable lump sum (RAD/RAC) and the remaining balance as a daily payment (DAP/DAC). This option provides flexibility for those who want to balance their upfront costs with ongoing payments.
Key points to consider:
- By opting for a combination payment, individuals can reduce their daily payment amount while maintaining a portion of their RAD/RAC as an asset.
- The amount of the combination payment is determined by the individual’s preference and financial capacity.
Financial Hardship Assistance
As Australia’s population continues to age, the demand for quality aged care services has risen. Recognising the financial challenges faced by older Australians, the Australian government has implemented various financial hardship assistance programs. These initiatives aim to ensure that seniors can access the care they need without bearing excessive financial burdens.
Aged Care Fee Reductions
The Australian government provides fee reductions for aged care services based on an individual’s income and assets. The means-tested care fee ensures that those with limited financial resources pay a reduced fee or, in some cases, no fee at all. This reduction is determined through an income and assets assessment conducted by the Services Australia or the Department of Veterans’ Affairs.
Residential Care Subsidies
Seniors in residential aged care facilities may be eligible for subsidies provided by the government. The Aged Care Funding Instrument (ACFI) assesses the care needs of residents, and subsidies are allocated accordingly. This funding assists in covering the costs of accommodation, meals, nursing care, and other essential services. The level of subsidy is determined by the individual’s care needs and financial circumstances.
Home Care Packages
For older Australians who wish to receive care in their own homes, the government offers Home Care Packages. These packages provide financial assistance for services such as personal care, domestic assistance, and nursing care. The level of support is determined through an assessment process, and individuals are assigned a package based on their assessed needs. Subsidies are available at four different levels, ranging from basic care needs to high-level support.
Commonwealth Home Support Program (CHSP)
The Commonwealth Home Support Programme is designed to help older Australians live independently in their homes and communities. The program offers a range of support services, including transport assistance, home maintenance, social activities, and meals. Individuals may need to contribute towards the cost of these services, but fees are adjusted based on an individual’s income and assets.
Additional Support for Financial Hardship
In cases where individuals face exceptional financial hardship, additional support may be available. The Hardship Supplement provides extra funding for those who are unable to afford their aged care fees, even after the means-tested fee reductions. This supplement can significantly alleviate the financial burden, ensuring that seniors can access the care they need without compromise.
If you or your loved ones are facing financial difficulties related to aged care, it is essential to explore these assistance programs and engage with the relevant authorities to determine eligibility and access the support available.
Estimate the costs of aged care
If you are interested in determining the potential costs associated with your Home Care Package or aged care home, you can conveniently utilise the fee estimator offered by MyAgedCare.
This user-friendly calculator only requires a few details regarding your income, assets, and household in order to generate an estimate of your fees. It’s important to note that the figures provided are approximate, as the actual amount you will be required to pay is contingent upon your financial circumstances at the time of entering care and the specific provider you select.
This fee estimator caters specifically to individuals applying for a Home Care Package or seeking placement in an aged care home. It’s worth mentioning that if you are applying for services under the Commonwealth Home Support Programme (CHSP), MPS program, or Short-Term Care, your associated costs will differ.
How to afford aged care?
As the population of older adults continues to grow in Australia, the need for affordable and accessible aged care services becomes increasingly important. The cost of aged care can be a significant concern for individuals and families, but there are various tips and strategies that can help make it more manageable.
Understand the Aged Care System
Before diving into the strategies, it is crucial to familiarise yourself with the Australian aged care system. Gain an understanding of the different types of aged care services available, such as home care, residential care, and respite care. Familiarise yourself with the eligibility criteria, assessment processes, and associated costs. This knowledge will empower you to make informed decisions regarding the care options that best suit your needs and financial situation.
Seek Professional Financial Advice
Navigating the financial aspects of aged care can be complex. Consider consulting a financial advisor who specialises in aged care to help you understand the costs, funding options, and strategies available to you. They can provide personalised advice tailored to your specific circumstances, helping you make the most of your financial resources and maximise government support.
Conduct a Comprehensive Financial Assessment
Conducting a thorough assessment of your financial situation is essential in planning for aged care costs. Take stock of your income, assets, and liabilities, and identify potential sources of funding for aged care. This includes assessing your savings, investments, superannuation, and eligibility for government benefits such as the Age Pension and Aged Care Pension. Understanding your financial position will enable you to make more informed decisions about the affordability of aged care services.
Explore Government Funding and Support
The Australian government provides various funding options and subsidies to assist with the cost of aged care. These include the Home Care Package program, the Commonwealth Home Support Programme, and residential care subsidies. Determine your eligibility for these programs and seek guidance on how to access and maximise the available support. The My Aged Care website is a valuable resource for understanding government-funded aged care programs.
Consider Downsizing or Equity Release
For many individuals, the equity tied up in their home represents a significant portion of their assets. Consider downsizing to a smaller, more affordable home or exploring equity release options such as a reverse mortgage. These strategies can provide additional funds to cover aged care costs without the need to sell the family home outright.
Plan Ahead with Insurance
Aged care insurance policies, such as long-term care insurance, can help provide financial security for future care needs. Research and compare different insurance options to find a policy that aligns with your requirements. Starting early and planning ahead can help you secure coverage at more favourable rates and ensure peace of mind in later years.
Regularly Review and Optimise Financial Plans
Financial circumstances can change over time, so it’s important to regularly review and optimise your financial plans for aged care. Stay informed about changes in government policies, aged care legislation, and funding arrangements. Revisit your financial assessments and consult with professionals to ensure your plans remain aligned with your goals and circumstances.
Understanding the costs of aged care is vital for making informed decisions about the well-being of yourself or your loved ones. By familiarising yourself with the various fees and charges, such as the basic daily care fee, means-tested care fee, and accommodation costs, you can better plan for the financial aspects of aged care. Remember to consult with aged care providers, financial advisors, or the My Aged Care website to obtain up-to-date and accurate information regarding the costs of aged care in Australia.
