As Australians live longer, more and more will end up in residential aged-care. Children may consider a parent to be many years away from aged care, but circumstances can change very quickly; elderly people are often only one fall away from hospital and then residential aged care. This article aims to empower readers to save money on aged care.
The Australian aged-care sector is a maze of jargon and acronyms. Decisions involving tens of thousands of dollars must often be made in a short timeframe, putting massive pressure on children with ageing parents.
The result is that most Australians pay way too much for residential aged care. Some are paying hundreds of thousands of dollars too much, particularly if they are rushed into signing a contract without looking at the options available.
Here are five ways to significantly reduce the cost of residential aged care:
Negotiate on the Refundable Accommodation Deposit (RAD).
The Refundable Accommodation Deposit (RAD, formerly known as the bond) to secure a room at an aged-care facility can be as high as $2 million. In many cases these RADs are negotiable, and at times can be as much as halved. The willingness of an aged-care facility to negotiate on RADs depends very much on the demand and supply of rooms at their facility. It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on a person’s cashflow. This means of course that less of the RAD will be returned at the end of the care period.
Pay The Refundable Accommodation Deposit In Full.
With interest rates on unpaid RADs now at 7.46% per year, it is advisable to pay RADs upfront, if possible. Any investments that are not earning more than this rate per annum, after tax, should be considered for sale, to enable the RAD to be paid in full.
Structure finances so that a parent can keep the full pension.
The full pension, currently $1,064 per fortnight ($27,664 per annum), can be lost if the family home is sold and the cash from the sale is added to the person’s assessable assets. Sometimes it is better to keep the family home and pay aged-care fees from the rental income generated.
Lower the daily means-tested fee.
The means-tested fee is based upon the income and assets of the aged-care resident, so it increases as the resident’s assessable assets and income increase. A resident on a part age pension with assets totalling $250,000 and deemed to be earning $4,497 plus the pension $27,664 per year will pay $1.56 per day ($569 per year), while a resident with assets totalling $1.25 million and deemed to be earning $26,997 per year will pay $50.58 per day ($18,462 per year). It is possible to lower the daily means-tested fee by making gifts to family members ($10,000 per year allowable, maximum $30,000 over rolling five-year period) or prepaying a funeral ($14,000 maximum).
Look closely at the extra-services fee.
Premium extra-services fee packages can cost as much as $100/day and provide for additional services like a choice of meals, alcohol at meals, expanded activities program, cable television etc. Many aged-care facilities lowered the extra-services fee during and since COVID. Look closely at the extra-services fee and ask whether the person can use all these services. If not, ask for a reduction.
The earlier that advice is sought, the better the outcomes that can be achieved. Once a contract has been signed the leverage for negotiation has gone, but there are still some expenses that can be reduced i.e. the government means-tested fee.
If a parent is in his/her 80s, it is worth considering an Aged Care Assessment Service (ACAS) assessment, which determines the level of aged care that a person will require. This is the first vital step to enter aged care.
Authors John Rawling and Rodney Horin are aged-care specialists at Joseph Palmer & Sons.
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