Chapter 03 – Permanent Residential Care

Permanent Aged Care Facilities

Aged care facilities are operated subject to the Aged Care Act 1997 (Cth).

The type and style of aged care facilities can differ greatly. For those with sufficient financial resources to be able to make a choice, there will be many variables that determine which aged care facility they choose (or is chosen for them).

In this section, we will concentrate on the financial elements of aged care.

Fees

There are two main types of fee that are payable by a resident in an aged care facility. The first is for care and the second is for accommodation.

Some facilities will impose a third kind of fee, for extra services such as recreational activities. 

Care Fees

Care fees are also broken down into two types. These are the basic daily care fee and the means tested care fee.

Basic Daily Care Fee

Until March 2016, the basic care fee payable by residents in aged care facilities is $47.86 per day. This amount equates to 85% of the aged care pension. This fee can be (and usually is) requested to be paid by all residents of aged care facilities. It is not means tested.

Means Tested Care Fee

As the name suggests, the means tested care fee is calculated based on the resident’s ability to pay it. The means test is performed by the Commonwealth Government, using a form that is 31 pages long and which involves 145 questions. The good news is that all residents who complete the form then receive a Government Accommodation Supplement, regardless of the outcome of the assessment. This supplement provides an amount based on various features of the aged care facility. If a facility is new or has been significantly refurbished, and has more than 40% of its residents drawn from special needs groups (basically, lower wealth residents), then a daily supplement of $53.84 is payable and offsets the means tested care fee. 

The means tested care fee is subject to a yearly cap of $25,731 and a lifetime cap of $61,754 (2.4 times the yearly cap). The yearly cap dates from the date that the resident moved into the facility (for example, if a resident moves in on the 1st of March then the year runs until the end of February in the next year). Residents pay the daily amount up to the point in time when they have reached the limit, and then do not pay any more in that year. A resident paying $100 per day, for example, will pay that fee for 258 days of the year (the last day will be a payment of $31, such that $25,731 is paid), and then not pay again until the anniversary of their arrival in the facility. 

The income test requires that income in excess of $25,316 has the effect of increasing the amount of means tested contribution that a resident must make. The care fee equates to 50% of the income in excess of $25,316. The amount is calculated daily. So, a resident with income of $30,000 will be subject to an annual means tested care fee of $2,342 (being 50% of the difference between $30,000 and $25,316). This fee is then divided by 364 to give a daily figure (in this case, $6.43 per day). Don’t ask us why the figure is divided by 364. It just is.

The assets test requires that assets in excess of $46,000 will have the effect of increasing the amount of means tested contribution that a resident must make. The contribution will be:

  • 5% of the value of assets between $46,000 and $157,051 (maximum of $19,433); plus
  • 1% of the value of assets between $157,051 and $379,153 (maximum of $2,221); plus
  • 2% of the value of assets above $379,153.

So, a resident with $500,000 in assessable assets will pay $19,433 plus $2,221 plus $2,416 ($2,416 being 2% of the difference between $500,000 and $379,153). Altogether this is $24,070. This fee is then divided by 364 to give a daily figure (in this case, $66.13 per day).

Taken together, a resident with assets of $500,000 and income of $30,000 will be subject to an annual means tested care fee of $26,412. This equates to a daily fee of $72.56.

Depending on the features of the facility in which they are living, the resident can then claim a supplement of up to $53.84, reducing the daily fee down to $18.72.

$26,412 is above the maximum annual limit of $25,731. As a result, the resident would only pay the daily fee of $72.56 until their total for the year was $25,731. This means that they would only pay this fee for the first 354 days of the year.

Accommodation Fees

Aged care facilities can also set their own accommodation fees. That said, the fees are capped by the Federal Minister and facilities need to apply for permission to charge more than this cap. The current cap is $550,000.

These are typically paid in some combination of two ways – as a lump sum up-front amount, or as a daily accommodation expense. The daily expense is calculated mathematically based on the up-front expense. Residents who do not pay the entire up-front charge must pay a daily amount based on the outstanding amount. The payments are as follows:

Term

Meaning

Description

RAD

Refundable Accommodation Deposit

This is a lump-sum payment made by a resident upon entry into an aged care facility.
A refundable accommodation deposit works like an interest-free loan to an aged care home. The balance of the deposit, less any amounts the resident has agreed to have deducted,  is refunded when the resident leaves the aged care home.  

 DAP

Daily Accommodation Payment

With a DAP, the resident pays their accommodation costs periodically. The amount payable is calculated on a per day basis (hence the name), although it is typically payable on a monthly or quarterly basis.
Essentially, the DAP is an interest payment on any unpaid RAD. 

The RAD is used by the facility as an interest-free loan. Deposits are guaranteed by the Commonwealth Government. The RAD is refundable to the resident (or to the resident’s estate) upon the resident’s departure from the facility. The resident and the facility may agree that some expenses payable by the resident, such as their DAP or an extra service fee, may be withheld from the refund.

The DAP is calculated according to a formula, using a government-stipulated maximum interest rate of 6.15% (as of December 2015). Facilities can apply a lower interest rate if they choose.

So, if the RAD for a room is $400,000, then the annual DAP is 6.15% of this, or $24,600. But, as the name suggests, this amount needs to be paid daily, so the DAP becomes $67 per day.

The resident therefore has three choices. One is to pay $400,000 as a RAD. There will be no more to pay for accommodation (care fees are still payable). The second is to pay no RAD, and then pay $67 per day as a DAP. The third is to pay some part of the $400,000 RAD, and then pay the DAP on the unpaid amount of the RAD. If a person paid $200,000 as a RAD, for example, then the DAP would be $33.50.

The resident could then choose for the DAP to be deducted from their RAD. In the above example, the RAD of $200,000 could have the DAP of $33.50 deducted from it. If the person stayed in the facility for 100 days, a total of $3,350 DAP would be payable. Upon departure, they would then receive $196,650 as their refunded RAD.

Means Testing of the RAD – Fully-Supported Residents

The RAD is somewhat means tested. Residents with assets less than $46,000 do not have to pay it. In addition, they will not have to pay the means tested care fee, leaving only the basic daily care fee to be paid.

These residents are known as ‘fully-supported’ residents, in the sense that the Commonwealth pays all of their accommodation and means tested fees.

Only some aged care facilities accept residents who do not make any personal contribution, meaning that those residents may not have much choice when it comes to finding a facility. 

Means Testing of the RAD – Partially-Supported Residents

Residents with assets between $46,000 and $157,051 are known as ‘partially-supported’ residents. They do not have to pay the RAD or the DAP either, but they are obliged to pay either a Refundable Accommodation Contribution (RAC) or a Daily Accommodation Contribution (DAC). This fee is asset-tested, whereby residents with assets of $46,000 do not pay anything, and residents with $157,051 pay a DAC of $53.39 per day. Asset amounts in between these two limits give rise to a DAC of something less than $53.39 (roughly 48 cents per $1,000 of assets). A resident with assets halfway between $46,000 and $157,051 ($101,525.50) would pay half of the maximum DAC, which is $26.70.

The resident can choose to pay the RAC as a lump sum, rather than the DAC as a daily fee. The amount is calculated using the same interest rate as that which applies to the RAD and the DAP above. If the DAC is $53.39, then this figure is multiplied by 365 days and then divided by 6.15% to calculate the lump sum RAC of $316,000.

For partially-supported residents, the RAC will exceed their assessable assets. Unless someone else pays the contribution for them, they will need to pay at least some part of their accommodation costs as a DAC.

Again, the resident could then choose for the DAC to be deducted from any RAC that they pay. So, an obligation for a RAC of $316,000 could be paid using a lump sum of $105,333, from which the remaining DAC of $35.77 could then be deducted. If the person stayed in the facility for 100 days, a total of $3,577 DAC would be payable. Upon departure, this person would then receive $101,755 as their refunded RAC.

The payments for partially-funded residents are as follows:

Term

Meaning

Description

RAC

Refundable Accommodation Contribution

This amount applies where a resident is required to pay some, but not all, of their accommodation costs.
A refundable accommodation contribution works like an interest-free loan to an aged care home. The balance of the deposit is refunded when the resident leaves the aged care home less any amounts the resident has agreed to have deducted.

DAC

Daily Accommodation Contribution

This amount applies where a resident is required to pay some, but not all, of their accommodation costs.
With a DAC, the resident pays their share of their accommodation costs periodically. The amount payable is calculated on a per day basis (hence the name), although it is typically payable on a monthly or quarterly basis.
Essentially, the DAC is an interest payment on any unpaid RAC. 

How the Means Test Is Conducted

The means test must be requested using the appropriate form, obtainable from Centrelink. The form is 31 pages long and contains 145 sections, so it is likely that most clients will need substantial assistance to complete it.

The Commonwealth Government website www.myagedcare.gov.au has a residential care fee estimator which can be used to input assets and income and gauge the likely fee payable for a particular resident.

The Family Home Counts for the Assets Test

The resident’s former home can be counted towards the assets test limit, up to a maximum of $157,051, unless some exemption applies. This means that, unless their family home is very low value (less than $157,051) a person who owns a family home is not eligible for partial or full support of their aged care. This is because the upper limit of assets for this kind of support is $157,051.

The most common exemption is where a ‘protected person’ lives in the home. A protected person is one of the following:

  1. The resident’s spouse or partner;
  2. A dependent child or student;
  3. A residential carer of at least two years standing and who is entitled to a Centrelink benefit on the day the resident moves into the aged care facility; or
  4. A close relative who has lived with the resident for at least five years and who is entitled to a Centrelink benefit on the day the resident moves into the aged care facility.

Case Examples – the Cost of Residential Aged Care

The Dover Group