Updated 07 January 2024
Einstein is attributed with the phrase, ‘everything should be made as simple as possible, but not simpler’. When it comes to aged care fees, it seems there is a lot we could do to simplify the explanations so as to comply with Einstein’s directive.
While the www.myagedcare.gov.au website goes a reasonable way to explaining some of the things to consider, understanding the implications of the means tested care fee, and the plight of a ‘partially supported’ resident may seem a bit like getting your head around quantum physics.
In our effort to help untangle the spaghetti we have outlined some of the care fees that you will be faced with, busted some acronyms and also given some insights into how the fees are calculated. Here are the main ones you will encounter.
- Basic Daily Care Fee
- Additional Services Fee
- Accommodation Fee
- Means Tested Care Fee
Basic Daily Care Fee
Don’t spend too much time worrying about this one. Everyone in aged care pays this fee. It is regulated and set as 85% of the single age pension amount (excluding the Energy and Pension Supplement) with regular adjustments. Currently it is $60.86 per day.
Additional Services Fee
This one is optional depending on the ‘extras’ you might want to pay for. Would you like a glass of wine with dinner every day? Foxtel? Other extra services? Consider if the person in care sees value in these and take them up only if you want to. It is not means tested, and not subsidised for anyone.
Accommodation Fee
This is where it gets complicated and that is the main reason for this article.
Accommodation Fees normally take the form of a Refundable Accommodation Deposit, or RAD. These prices must be clearly advertised on care facility websites. Common fee ranges are $350,000 up to $550,000. This ‘fee’ is what scares many people of limited means, thinking they may end up on the street under a sheet of cardboard if they can’t afford the entry fees.
In simple terms, if you can’t afford the Accommodation Fee, you don’t pay the Accommodation Fee!
Wait – What are you saying?
If, according to the Assets Test you will have less than $58,500 in assessable assets on entering the aged care facility, you will not pay any accommodation fee, so you don’t need to worry about anything after this point. The government is funding what would have been provided via the Accommodation Fee. You are a Fully Supported Resident. Facilities have minimum quotas of Fully Supported residents. These are designed to avoid discrimination against low means residents. You may not have as many choices in where your care is provided, but you won’t be under a sheet of cardboard. You may need some help in working out what is included in the assets test, and this link will help and we can assist with strategies.
OK, this is where we go deep, but stay with us.
If you have assets greater than the Asset Free Area but paying the quoted RAD would mean your remaining assets are below the Asset Free Area ($58,500 at date of writing) then you don’t pay the RAD or the DAP.
Instead, your share of the Accommodation Payment is going to be either a Daily Accommodation Charge (DAC), which can also be converted into a Refundable Accommodation Charge (RAC). You are considered a Partially Supported Resident.
Calculations
The next part of this helps to understand how your assets are assessed for both the Daily Accommodation Charge, and the Means Tested Care Fee (more on that one later)
Asset Free Area = $58,500 (the Asset Free Area)
First Asset Threshold = $197,735.20 (Also Family Home Capped Value)
Second Asset Threshold = $476,205.60
Assets that fall within the Assets Free Area are not assessed at all.
Assets between the Asset Free Area and the First Asset Threshold are assessed at 17.5% per annum
Assets between the First Asset Threshold and the Second Asset Threshold are assessed at 1.00% per annum
Assets above the Second Assets Threshold are assessed at 2.00% per annum
Let’s consider the example of a person who has assets of $100,000 on entry to the care facility. The first $58,500 is not assessed, and the balance of his assets are assessed as ($41,500 x 17.5%) / 365 = $19.90
He will have to pay the basic daily care fee of $60.86 plus the $19.90 which is called a Daily Accommodation Charge (DAC). He could also convert that DAC into a one-off lump sum that is refundable when he exits the home. The Calculation is DAC*365 / MPIR (Maximum Permissible Interest Rate) = Refundable Accommodation Contribution (RAC) Presently the MPIR is 8.38% so the RAC would be $86,676.61. Depending on other assets that may be available, he may choose to just continue paying the Daily Accommodation Charge, rather than converting that to a refundable lump sum payment known as the Refundable Accommodation Charge.
Refundable Accommodation Deposit (RAD) Payer
If you have enough assets (according the assets test) so that you are able to pay the published RAD and still have assets left over that are greater than the Asset Free Area sum ($58,500), then you will need to pay the RAD. An alternative is to convert the published RAD into a Daily Accommodation Payment (DAP). This calculation also uses the Maximum Permissible Interest Rate (MPIR) which is currently 8.38%.
Let’s use an example of someone that has assessable assets of $500,000. The RAD for entry to the home they are considering is $400,000. After paying the RAD they will still have assessable assets of $100,000 which is above the Asset Free Area. If they did not have quite enough liquidity to pay the full $400,000 they could choose to pay $200,000 and have the other $200,000 converted into a Daily Accommodation Payment (DAP). The rate of Daily Accommodation Payment is the unpaid RAD*MPIR. In this case, $200,000 * 8.38% = $16,760 (annual) or $45.92 per day.
Bonus knowledge point – Residential Aged Care Supplements
This is not a fee you pay, but rather is a payment that the government makes to accredited Aged Care Facilities. It can vary, but most are eligible for $66.94 per day per resident if they are new or recently refurbished facilities and have >40% of residents in the low means, supported, or concessional categories. It is calculated and paid according to the means of each resident. It is an important figure to keep in mind, because it is at the centre of both the DAC and the Means Tested Care Fee.
If a resident has the means to pay a full Refundable Accommodation Deposit (or the DAP equivalent) then the care facility gets none of this Residential Aged Care Supplement amount.
Alternatively, if the resident is a Partially Supported Resident, then the amount the resident is required to pay as a Daily Accommodation Charge (or RAC equivalent) is deducted from the $66.94 per day that the government pays to the facility.
Means Tested Care Fee
Great work if you have read this far. Understanding the Asset Free Area and the Residential Aged Care Supplement will help in making sense of the Means Tested Fee.
The means tested fee includes both income and assets, but it is relatively rare that we see the income test having much of an impact. So we will focus on the assets part of the Means Tested Care Fee.
This one effectively kicks in when you have assets above the First Asset Threshold, which also happens to be the Former Home Capped Value, currently $197,735.20.
Although it uses the same thresholds as the calculation for the Daily Accommodation Charge, there is no payment unless the fee exceeds the maximum Aged Care Supplement.
The My Aged Care website does a good job at calculating this fee for you, but if you want the formula (which Einstein would) then here it is:
Asset Free Area = $58,500 * 0%
$58,500 to $197,735.20 * 17.5%
$197,735.20 to $476,205.60 * 1.00%
Amount > $476,205.60 * 2.00%
If result is below the maximum Aged Care Supplement ($66.94) then there is no Means Tested Daily Care Fee. If the result is above that, then use that figure minus $66.94.
A shortcut rule of thumb is that you won’t be liable for any Means Tested Care fees if your assessable assets are below the First Asset Threshold of $197,735. And remember, that your Assets, if married or partnered, are only half of the total assets, and they include the RAD if you have paid one.
Maximum Means Tested Care Fee
The maximum you could be charged per year is $32,718.57 and the Lifetime Cap on Means Tested fees is currently $78,524.69.
What does this mean if you decide not to undergo an Assets Test via the Centrelink system? It means the facility, in addition to the Basic Daily Rate and the Refundable Accommodation Deposit, could charge you the maximum daily rate until you have reached the cumulative Lifetime Cap of $78,524.69.
When we run the assets through our calculator, we see that you only hit the maximum Means Tested Care fee when your assets are over $5,000,000. So if your total assets are less than that, you might be better to get an assessment done to avoid the maximum daily care fees.
Conclusion
We have not covered every angle here. There is more, such as the way the RAD payment is counted for the Aged Care means test but exempted from the Age Pension Assets test. There are a lot of strategies and even some investment solutions that can improve resident outcomes.
But for now, we hope that this slow walk through the Aged Care field of fees has helped you to better understand the Aged Care fee calculation system. You should now be able to explain it to Einstein!
