The ‘new normal’ price of aged care

Did you know that recent changes to the aged care system mean a ‘high care’ aged care bed in Australia will cost, on average over $350,000 with some costing as much as three times that amount, even more?   More than six months on, Keryn Curtis wonders how many people really understand that this is the new normal?

In case you missed it, one of the recent changes to the Australian aged care system has been the new requirement to pay a fee for your accommodation, should you or a loved one need what is known as ‘high care’ in a residential aged care home.  While it was part of a package of changes developed under the previous Labor government, it had strong bipartisan support.  It was also supported by most of the key advocacy groups representing everyone from older people themselves to doctors and nurses, allied health workers, welfare agencies and unions.

Why the change?  Essentially, the rapidly escalating cost to governments of providing care and other services for an ageing population meant the previous system had become unaffordable and individuals themselves needed to contribute.  It was ultimately about maintaining a ‘sustainable’ and high quality aged care system alongside healthcare and other services we expect.

But  the impact of the changes introduced on 1 July 2014 will inevitably still come as a surprise to many, if they find themselves needing the kind of high level support offered in residential aged care facilities.  Prior to this date, an accommodation charge, referred to as a ‘bond’, could only be charged for a ‘low care’ room (offering a low level of medical support; once known as ‘hostels’).

Of course, in Australia we don’t refuse care to anyone who needs it, just because they may not be able to pay.   So some people will have their accommodation costs met in full or part by the Australian Government, based on an assessment of their income and assets which is performed by Centrelink.

But if the income and assets test finds that you are able to contribute to the cost of your accommodation, you will have to pay the price of your aged care accommodation, as well as a contribution to the cost of your care. (The Government’s myagedcare website provides a helpful fee estimator.)

How much you have to pay depends on the quality and location of the aged care facility, and the quality, location and features of the room you choose.  All aged care organisations are required to publish their prices on their websites so you can readily see what different options will cost you.

While set prices are not negotiable, the good news is that you can choose how you want to pay it.  If you have access to the funds, you can pay it as a lump sum that is fully refundable (called a Refundable Accommodation Deposit, or ‘RAD’).   Alternatively you can choose to pay the equivalent amount as a daily fee (called a Daily Accommodation Payment or a ‘DAP’).  Unlike the lump sum option, this is not refundable.    You can also choose a cocktail – to pay using a combination of both forms of payment: a reduced lump sum RAD plus a lower Daily Accommodation Payment.

The decision you make will depend upon a number of factors including any pension entitlement you have, your actual or potential care costs, your estate planning and tax situation.

Apples and apples?

The new system has been operating now for a bit over six months and the data available is limited but so far the national average for a RAD is $355,055, but they range from as low as $100,000 in some regional areas up to a small number that are over a million. To provide some comparison, the national average cost of the old ‘accommodation bond’, which was only chargeable for a low care bed, was $214,374.

The bottom line is that the cost of care, should you or a loved one need it, is a potential cost that needs to be at least acknowledged in financial planning for later life.  Prudent thinkers and planners will familiarise themselves with the new aged care landscape and take any steps that might be necessary to ensure they can afford the options they would like to have.