This article discusses how low-income older adults living in aged care who have experienced a rise in their assets/income, could potentially result in them being subjected to paying higher than the advertised room rate.
Residential aged care fees
The fees that older adults needing 24-hour supportive care in a residential aged care home may be required to pay:
- Accommodation fee: This fee covers the cost of accommodation in the aged care facility, and it can be paid as a lump sum, a daily fee, or a combination of both.
- Basic daily fee: This fee covers the cost of care and services provided in the aged care facility, and it is capped by the government. The basic daily fee is paid by all residents, regardless of their income and assets.
- Means-tested care fee: In addition to the basic daily fee, older people entering aged care may be required to pay a means-tested care fee, which is based on their income and assets. The means-tested care fee is designed to contribute towards the cost of care, and it may be waived for those with very low means. The test takes into account the individual's income, assets, and financial circumstances, and it is used to determine their ability to contribute towards the cost of their care.
- Additional or extra services fee: Older Australians who require additional services, such as special dietary requirements or extra personal care, may be required to pay an additional fee to cover the cost of these services. Alternatively, the aged care operator will offer an ‘extra-service’ room. This room comes with additional services that are costed daily which may or may not be optional.
A low-means residents
A refundable accommodation contribution (RAC) is a fee that older adults entering residential aged care in Australia may be required to pay for their accommodation if they have low means. The RAC is intended to cover the cost of accommodation in the aged care facility and is paid either as a lump sum or as a daily fee.
For older people with low means, the RAC may be reduced or waived, and they may only be required to pay a lower amount or nothing at all, depending on their financial circumstances.
Also, the means-tested fee may be waived or reduced, and they may only be required to pay the basic daily fee.
Changes in circumstances for a person recognised as low-means
If a person's circumstances change, either an increase or decrease, this change will likely impact how much they are paying for their means-tested fee and/or the RAC.
Of greater concern is if a person in residential aged care who is recognised by the government as low-means has increased assets and income increase. In some cases, this could trigger a RAC that is higher than the original room rate (the refundable accommodation deposit).
For example, a person who is considered low means enters residential aged care. After a short time, their partner becomes ill and also requires residential aged care. To pay for the partner's aged care fees, they sell their house. The house sale results in a lump sum of cash in their bank.
The additional sum of cash will result in an increase in the means-tested fee. Many would be right to think that the value of the house would be the same as the value of the cash, but for aged care, the difference is:
- The house is valued at a capped amount and
- The house value is exempt when the partner was living there.
The risk of paying more than the advertised room rate.
In circumstances where a person has low-means (that is, they have been asked to pay a portion of the RAC), an injection of cash, such as in this example, could leave them paying more for their aged care room, than advertised.
To calculate the RAC, the government uses different values for different types of rooms. They also apply an interest rate (MPIR). In the context of residential aged care, MPIR stands for Maximum Permissible Interest Rate. It is the highest rate that a provider of residential aged care services can charge for a resident's accommodation payment, which is set by the Australian government. The MPIR is calculated based on a formula that takes into account the costs of providing care and the value of the accommodation, and it is reviewed and updated periodically to ensure that it remains fair and reasonable.
Theoretically, the MPIR helps to ensure that residents are not overcharged for their accommodation in aged care facilities, while the RAC covers the costs of providing care and maintaining the facilities.
It would be appropriate to conduct a review of low-income older adults living in aged care who have experienced a rise in their assets/income, as this could potentially result in them being subjected to paying higher than the advertised room rate.
With the MPIR likely to increase, we suspect to see more older adults living in residential aged care at risk.
It is always a good idea to consult with a knowledgeable professional such as an aged care specialist or financial advisor, to help you understand the implications of entering residential aged care as a low-means resident and its impact on your specific circumstances.