How Does Aged Care Work?

Aged Care options can be confusing. You and your family may notice changes in a parent or loved ones’ situation. Perhaps they need help around the home or with some of their daily needs. 

However, many people enter Aged Care under emergency conditions due to an accident or illness. Making the move to residential care is quite sudden. From Home Care to Residential Care, it’s important to understand your options to make an informed decision.

The Aged Care system can be complicated to navigate at the best of times. When there has been an emergency, and the transition has come as a surprise, the family is often faced with the compounding stress of finding a suitable long-term solution in a short time frame. So it is no wonder making these decisions can be emotionally draining and overwhelming.  

Assessing Options

Firstly, it is important to understand that aged care help can be accessed in either the home or in a residential service. To help you decide which option is best, you can arrange a free assessment by an Aged Care Assessment Team/Service (ACAT/ACAS).

It is worth noting that you will need to have ACAT/ACAS approval before accessing a government-subsidised home care package or residential care.

Financing Residential Care

If Residential Care is required, steering your way through the jargon is not easy – especially if decisions are made in a time of crisis and emotions are running high. 

An excellent place to start is to ask yourself: 

1. How is the age pension affected if you move to aged care?
2. How to pay for the accommodation?
3. What are the contributions to ongoing care?
4. Will there be any tax obligations?
5. Is there enough cash flow to pay for care and living expenses? 
6. What is the impact on the net wealth and estate of you or your loved one?

Having strategies in place can help you identify suitable options and make informed and appropriate decisions. 

Strategies you use might take into account:

• Structuring assets to pay for accommodation as well as create sufficient cashflow
• Minimise fees or maximise Centrelink or Veterans’ Affairs benefits 

Engaging a third party who is an expert in this area can provide an objective viewpoint throughout the process.

Aged Care Fee Structure Explained

The government regulates most fees in residential aged care. However, some care providers offer additional services – with additional charges.

Payments for residential care are divided into contributions towards three areas:

Basic living expenses

The government subsidises food, electricity, cleaning and laundry services and nursing assistance. Residents are asked to contribute to the cost through a basic daily care fee plus a means-tested fee for those with a higher capacity to pay. 

Luxuries and lifestyle 

Additional items can be purchased on a user pays basis or in bundled packages as other service fees. The range of services and the prices charged vary widely.

Accommodation

Very simply put, residential care is an accommodation that needs to be ‘purchased’ (called a refundable accommodation deposit, or RAD) or ‘rented’ (called a daily accommodation payment, or DAP).

Market forces set accommodation costs with prices published on the MyAgedCare website. If assets and income can be reduced to low enough levels (to become a low-means client) before the move, the government may subsidise accommodation and regulate how much the resident pays. 

In this way, the accommodation cost may be cheaper. But cheaper is not always better as you may lose choice and control of your options. Residents may be faced with accepting a place in whichever service has a low-means place available – even a shared room.

Some fees such as lifestyle contributions are not published on the MyAgedCare website. For full disclosure of the costs associated with a facility, ask the provider for a schedule of available services and the prices for each one.

Residential Agreements

When you are offered a place in residential care, you will be asked to sign a Resident Agreement. This should detail (amongst other things) the cost you have agreed for your room, the type of room and what additional service fees you have agreed to pay.

Somethings you may consider as you read through the agreement include:

• What services you are being provided with and whether they are things you want, need and will use;
• The fee you need to pay for these services;
• Whether you can opt-out and stop paying the costs if you no longer wish to receive the benefits.

Common Errors

Despite the best intentions, three of the most common errors I see come down to simply not having the right information to make long-term informed decisions. These are:

1. Selling the home without understanding the implications;
2. Being afraid to pay a lump sum (refundable accommodation deposit) for residential care accommodation and missing out on Centrelink concessions;
3. Not generating enough cash flow.

Getting the correct information and advice can help you understand your options and the implications for your cash flow, Centrelink or other concession cards, aged care fees, taxation and estate planning. This will allow you to make the best choices for future care, security and happiness for you or your loved one.

Financial advice isn’t just about superannuation and investments. The advice can help guide you on how to afford the care you need and provide clarity and a deeper understanding of how it all works.

Disclaimer: Any information contained in this article is general information and has been prepared without taking into account your objectives, financial situation, or needs. Before acting on any information in this article, Infocus Securities Australia Pty Ltd recommends that you consider whether it is appropriate for your circumstances. Information in this article was correct as of Current as of 12th Oct 2021.

Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523 trading as Infocus Financial Advice and Infocus Money Management.