By Jeremy Gillman-Wells, Lead Financial Professional, Heather Hill Pathways.
While on the face of it the changes brought about by the aged care reforms, due to commence on 1 July 2014, are fair and reasonable:
However, when we look at the detail we can see the anomalies.
The means testing for community care packages will be an income assessment, based on Centrelink’s rules, with a liability to contribute at 50c per dollar of income above $22,701 per annum, capped at $5,000 per annum for part-pensioners (and people with equivalent income) and $10,000 per annum for self-funded retirees (and people with equivalent income).
While this may seem equitable, ignoring the assets of people who receive care in the home doesn’t necessarily mean that people will pay in accordance with their ability to contribute, just their ability to produce (or not produce) Centrelink assessable income.
One example – Joe and Geoff
Let’s look at an example of who will and won’t pay towards the cost of care at home.
Joe is a part pensioner, he has a house worth $600,000, $250,000 worth of investments and a car and personal effects worth $25,000.
Joe’s friend Geoff, lives in the next suburb, his house is worth $1,000,000, he has a holiday home worth $650,000, a boat worth $70,000, a car worth $50,000, investments totalling $200,000 and $300,000 in superannuation that provides him with an income stream of $25,000 (with only $10,000 assessed for Centrelink).
Post Reform Joe’s Care Contribution will be $6.27 per day in addition to his basic fee of $9.17 per day, giving him a total cost of $15.44 per day or $5,620.16 per annum.
Joe’s friend Geoff’s liability to contribute towards the cost of his care will be $0.00 per day, thus his total cost will be the basic care fee of $9.17 per day or $3,337.88 per annum.
When it comes to the comprehensive means testing of the care contribution in residential care and the pricing of accommodation payments the anomalies become far more complex. The capping of the contribution towards care in the home at $10,000 per annum (with a daily limit of $27.47 per day), while capping residential aged care contributions to $25,000 per annum with no daily limit, compounds the issues.
Another example – Peter
Peter is a Self -Funded Retiree with $1,344,500 in assessable assets and $65,000 per annum of assessable income. The facility Peter would like to move to has an accommodation payment of $534,000 or $100.05 per day. Peter has chosen to pay by DAP (daily accommodation payment).
Peter will need to pay the basic care fee $45.63 per day, his daily accommodation payment $100 per day plus a Care Contribution of $118.29 per day. However, Peter would only pay this amount for 211 days, after that his cost of care would be $145.68 per day.
While this makes a lot of sense for the government, as they are getting the $25,000 contribution towards his cost of care in the first 211 days rather than over 365 days, it poses some interesting issues for Peter to manage his cash flow for a cost of living that is almost double in the first 7 months of the year than the last 5 months.
Of course, Peter may decide to stay at home with the assistance of a home care package, private carers and additional services such as cleaning, laundry and meals. He will need to pay the basic care fee of $9.17 per day and the maximum care contribution of $27.47 per day giving a total cost of $13,337 per annum. Unlike in residential aged care the care contribution is spread evenly across the year.
If we assume that Peter’s additional services are $20,000 per annum his cost of care is $44,193 per annum less than moving to residential aged care. Or put another way, his additional services could be as high as $64,193 per annum and still be equal to the cost of living in an aged care facility. That’s a lot of extra care!
Of course it’s not that simple, Peter would have expenses associated with his house: utilities, insurance, maintenance, food, transport to medical appointments and structural works may be required to enable Peter to stay at home safely.
To sum it up
For most people the decision to move from their home to an aged care facility won’t be about the cost, it will be about accessing the care they need, living in an environment that is safe, customised social programmes and not having to worry about maintaining a house. But specialist advice will be needed to ensure they understand the impact on pension entitlement, cash flow, tax, estate planning wishes and of course the cost of care itself!