The following article was written by Rachel Lane, Principal at Aged Care Gurus a training, continuing education and support service provider in the area of aged care financial planning. Our Lead Aged Care Financial Planning Pathways Partner, Jeremy Gillman-Wells of Bravien Financial, is a part of this Aged Care Gurus Advisor Network.
The Good, the Bad and the Ugly of being a support resident post reform
Supported residents who entered care prior to 1 July could pay an income-tested fee but their accommodation payment (bond or charge) was fixed at entry. The Aged Care Reforms brought a significant change to supported residents – the ability to have both their accommodation payment and means-tested care fee recalculated if their assets/income change after entry.
Let’s start with the good. If someone is a supported resident on entry, they always will be – they cannot become a market price payer. Because the payments are asset and income tested people who are genuinely financially disadvantaged continue to pay a minimal amount towards their cost of care. The resident can choose to pay by Daily Accommodation Contribution (DAC), Refundable Accommodation Contribution (RAC) or a combination based on their personal financial circumstances. Resident’s whose means change due to the death of their spouse will be able to meet the criteria to keep and rent the former home.
For example, Betty moves into care as a fully supported resident while her husband remains at home. While Betty is in care her husband passes away. If Betty moved into care prior to 1 July her accommodation payment would remain unchanged ($0) and she would be unable to meet the criteria to keep and rent her former home with the asset and income exemptions applying to it. If Betty moved in after 1 July her accommodation payment would be recalculated (to a max of $53.04p.d) and if she chooses to pay at least some of it by DAC she will be able to keep and rent her home with the exemptions applying.
Now let’s look at the bad. The way in which the RAC is calculated means that it exceeds the resident’s capacity to pay.
For example, Shirley is a full pensioner with $90,000 in the bank and $5,000 worth of personal effects. Her DAC would be calculated as: income assessed amount $0, asset assessed amount $23.80p.d ($49,500 x 17.5% = $8662/364).
The amount Shirley can pay as an equivalent RAC is calculated using the MPIR (currently 6.63%), giving $131,026. However, the RAC exceeds her assets and she still needs to be left with the minimum asset amount ($45,500) so if she wants to pay a lump sum she could pay a maximum RAC of $49,500 and the remainder by DAC of $14.81p.d.
The ugly – Trying to explain to a couple who move into care on separate days, with the first person being supported, that when the second person moves into care (which may be the next day) the first person’s accommodation payment will increase by as much as $53.04p.d/$19,359.60p.a and there will likely be a means-tested care fee payable too! If the decision is to sell the former home to fund the move to care, the resident may have preferred to pay a market price RAD rather than a RAC to maintain pension entitlement. Of course, given the choice, the resident may have preferred to pay the market price to get a single room, a nicer outlook or a different location especially if their recalculated DAC is similar to what they would have paid as a DAP.
Residents should seek advice to ensure they understand their cost of care, not just when they move in but in the longer term.