Ages care reforms bring changes post-June 30

The Aged Care reforms due to come into effect on 1 July 2014 will see retirees paying more for their admission to, and ongoing care in, aged care facilities, says Anna Lawton, senior manager, aged care services at Equity Trustees Limited.

“If a move to an aged care facility is something that is being considered as likely in the next six to 12 months, it may make sense for families to consider making the move before June 30,” Ms Lawton says.

“The cost of aged care will increase, particularly for part pensioners and self funded retirees,” she says.

How much they will pay will depend on their asset and income level, whether they remain homeowners once in care, and how much they pay for the cost of accommodation (called the Accommodation Payment).

“Accommodation Payments will be structured slightly differently to the current system, which will mean most people will pay more for the right to reside in care. Asset and income levels will determine how much they need to additionally contribute towards their daily care payments in the form of the means tested fee,” Ms Lawton says.

The current system of accommodation bonds will be replaced with refundable accommodation deposits (RAD). Period payments will be replaced with daily accommodation payments (DAPs).

“Providers will be obliged to start advertising their prices from 19 May 2014, and until this time there is no certainty about how much a provider will charge those entering care after June 30. However the expectation is it will cost more,” Ms Lawton says.

“The maximum Accommodation Payment that can be charged by a facility will be $550,000. Those aged care providers wanting to charge a higher amount will need to apply for permission to do so, and will need to provide justification for the higher price.

“The biggest change is that a resident’s co-contribution will be assessed based on both assets and income rather than the current system of income only.  As a result, no one situation is going to be straightforward and simple.

“The amount of RAD a person pays counts in the means tested fee calculation. The current simple strategy undertaken by most – to sell the house, pay the bond, keep the pension and cover the fees – will no longer be a given.

“The means tested fee will impact significantly on a person’s cash flow resulting in the resident having to fund many out of pocket expenses, such as medications, from income earned on their investments, if there is any left over, or more likely by drawing down on capital.

“No one situation will be simple anymore. It is entirely possible that two aged care residents will face a different financial outcome, despite having essentially the same level of assets. Now more than ever before, it will be imperative for those entering aged care to seek professional advice to ensure they can afford the cost of aged care,” Ms Lawton concludes.

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Ages care reforms alter provider payment structure.

The Aged Care reforms due to come into effect on 1 July 2014 will require a new approach to aged care provider payments, and advisers can play a key role in ensuring their clients, and their clients’ parents, are structuring their financial affairs in the best way, says Anna Lawton, senior manager, aged care services at Equity Trustees Limited (EQT).

The reforms come with new terminology, and new requirements, Ms Lawton says.

“Accommodation bonds will be replaced with refundable accommodation deposits (RADs) while period payments will be replaced with daily accommodation payments (DAPs)

“The biggest change from a resident’s cost point of view is that RADs will count as an asset while only the first $153,905* of a Principal Residence will be taken into account and included as an asset,” she says.

Ms Lawton provides the example of two aged care residents who face a different financial outcome, despite having essentially the same level of assets.

Resident A has a house worth $500,000 and cash assets of $200,000. Resident B sold the house for $500,000 and so now has cash assets of $700,000.

The additional cash assets acquired through selling the house results in resident B paying a MTF of $30* a day versus $5.50* a day for resident A,” Ms Lawton says.

This is because although Resident A’s home is worth $500,000, only the first $153,905* is included for asset test purposes. Resident B’s full cash value of $700,000 is included for asset test purposes.

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