At least a quarter of a million Australians reside in residential aged care at any one point in time. As we saw last week, residents in aged care are asked to pay a range of fees for their stay. In this article, we will focus more closely on the largest of these fees: the accommodation fee.
The accommodation fee is the fee paid ‘for the roof over your head’ and is therefore distinct from the fees paid for the care you receive. Remember, residential aged care provides two things: accommodation and care.
People can receive Government assistance to pay their accommodation fees, subject to a means test which we discussed last week. People with assets and/or income above particular thresholds must pay their own accommodation fees. People with assets and/or income below particular thresholds can have some or all of their accommodation fees paid for them.
There are two ways to pay the accommodation fees. The first is by a refundable lump sum payment to the aged care provider. The second is by a regular ongoing payment to the provider. The lump sum is known as a refundable accommodation payment and the smaller ongoing payment is known as a daily accommodation payment. (Confusingly, if the Government pays any portion of the accommodation fees, then the payments you make become the refundable accommodation contribution or the daily accommodation contribution respectively).
The basis for either type of payment is the ‘price’ of a room or bed in the facility. This price is largely set by market forces: when demand is high relative to supply, the price will rise. When demand is low relative to supply, prices should be lower. (That said, providers who wish to charge more than $550,000 per room need Government approval to do so).
People who choose to pay the lump sum will receive that lump sum back when they leave the facility. People can choose for their other fees, such as their care fees, to be deducted from the lump sum as they go. For example, if a person pays a lump sum of $500,000 and agrees that a monthly care fee of $1000 can be drawn from this amount, then they will receive $488,000 back if they leave after 12 months, $476,000 back if they leave after 24 months, etc. Alternatively, people can choose to pay these other costs ‘as they go’ and receive the full deposit back when they leave the facility.
People who prefer not to make a lump sum payment instead make an ongoing payment. This payment is calculated as a percentage of the lump sum. The percentage charged is typically the maximum permissible interest rate (MPIR), which is currently 4.02%. So, a person paying for a $500,000 room via an ongoing payment will pay $20,100 per year. (The fee is usually paid in smaller, regular instalments).
If a lump sum is paid, it does not count towards the Centrelink assets test for the aged pension (basically standing in the same place as a family home). It does count towards the assets test for the means tested care fees in the home.
Whether the accommodation fee should be paid as a lump sum or in ongoing instalments is very much an individual matter and it depends on the entirety of a person’s circumstances, including whether they have either lent to or borrowed from other people such as adult children. It also very much depends on any other uses to which you might like to put your money. So, before making any decision regarding how to pay for your aged care accommodation, we recommend you talk to us. This is another area where we really love the value we can add to your decision making. Good advice makes a huge difference at this stage of a person’s life.