Residential aged care costs – an illustration

Residential aged care costs

by Christine Hopper

Families new to residential aged care can be confused by the web of fees and charges for residential aged care. Accommodation charges are fixed on entry but daily care fees change regularly. Below is an “illustration” of the fees and charges that could apply to new entrants to Commonwealth regulated residential aged care. For the puposes of illustrating the potential costs of living in Commonwealth regulated residential aged care, the finances of a typical older couple, Alan and Anne, are illustrated as though all transactions and care occurred at October 2012 Commonwealth Pension and aged care rates. Alan and Anne recently moved from the home where they brought up their children into a new home unit now valued at $500,000. Alan retired from his public sector job many years ago and receives a superannuation pension of $200 per fortnight. They are currently entitled to the full Age Pension from Centrelink as a homeowner couple. In addition to their home, Alan and Anne have the following assets. Combined assets of Alan and Anne “Market value”

$5,000 Personal items & household contents
$5,000 Motor vehicle
$2,000 Basic Pensioner Deeming Account
$50,000 Term Deposit
$62,000 Total assets excluding their home

Alan has a severe stroke and only partially recovers. He is assessed by ACAS as requiring “High Care”. Anne submits a “Request for an Asset Assessment” form to Centrelink and receives an Assessment that Alan’s half share of their assets, excluding their home, is only $31,000. Thus Alan qualifies for a “Fully Supported Resident” place in a Commonwealth regulated aged care facility. Centrelink now assess Alan and Anne as a homeowner “couple separated by illness” so they each receive the single rate of Age Pension. Alan’s basic cost of living in the aged care facility is similar to his Age Pension. Thus Anne can use his superannuation pension for new clothes and some ‘extras’.

Residential aged care costs for Alan

Alan’s nursing home expenses Daily Rate Fortnightly Rate
Accommodation Charge* Nil Nil
Basic daily care fee# $43.22 $605
Income tested fee^ Nil Nil
Basic personal expenses $11.96 $167
Total expenses $55.18 $772
Age Pension^ $55.18 $772
Available for other expenses Nil Nil

Anne is in good health and continues living quietly at home. She is losing her sight and can no longer drive so she gifts the car to their daughter, Angela. Later Anne becomes frail and falls. Her ACAS is for Permanent and Respite “Low Care”. Centrelink include the home in the Asset Assessment for Anne. Thus Anne’s half share of the assets amounts to $278,500. Anne will be treated as a “pensioner, non-supported resident” who could be asked for a maximum Accommodation Bond of $237,000. As her mother’s Attorney, Angela negotiates an Accommodation Bond of $200,000 for Anne to enter the same aged care facility as Alan. Angela cashes the term deposit and pays $50,000 of the Accommodation Bond on the date that Anne becomes a permanent aged care resident.

Residential aged care costs for Anne

On entry to low care

Anne’s Aged Care Expenses Daily Rate Fortnightly Rate
Interest on Accommodation Bond (7.62%*) $31.40 $440
Basic daily care fee# $43.22 $605
Telephone in room $2.00 $28
Income tested fee^ Nil Nil
Basic personal expenses $12.38 $173
Total expenses $89 $1,246
Age Pension^ $55.18 $772
Could use Alan’s superannuation for part of Anne’s costs $14.25 $200
“Gap” $19.57 $274

The aged care provider allows the interest on the unpaid portion of Anne’s Accommodation Bond to accumulate as she does not have the financial resources to pay yet. Angela realises that she cannot leave the home unit vacant as her parents have insufficient income to cover their ongoing expenses. Angela considers leasing or selling the home unit. Option A Lease the home unit A local estate agent could arrange to lease the property for $360 per week gross. After allowing for the costs of owning and maintaining the property, Angela would expect to average $240 per week net for Alan and Anne. Centrelink would not count the rental money as “income” for means testing purposes. Thus the net rental income of $480 per fortnight would be cover the costs of residential aged care and allow for some small ‘extras’. Angela consults her siblings and Anne. They agree that they would rather sell the home unit than lease it to strangers. Option B Sell the home unit Alan and Anne had disposed of their excess ‘stuff’ when they had moved from the family home. Thus Angela was soon able to share the treasured personal possessions among family members and recycle the remaining furniture. Within a month of Anne moving into residential aged care, the home unit was on the market and Angela was ready for the first ‘open inspection’. The home unit sold at auction for $520,000 with settlement 120 days after Anne became a permanent aged care resident. The costs of preparing the home for sale and the legal and estate agency fees amounted to $20,000. On settlement of the sale, Angela rearranges her parents’ assets as

Combined assets of Alan and Anne “Market value”

$2,000 Personal Items
$200,000 Accommodation Bond for Anne
$4,000 Accumulated interest on Bond
$10,000 Gift to children
$20,000 Pre-paid funerals for Alan and Anne
$260,000 Term deposits maximum term 24 months
$6,000 Basic Pensioner Deeming bank account
$502,000 Total asset value

For Centrelink purposes Alan and Anne are a “couple separated by illness” with assets of $268,000 and a superannuation pension of $200 per fortnight. The Asset Test does not impact on the Age Pensions payable. Centrelink count Alan and Anne as having financial income of $416 per fortnight. Thus Alan and Anne have a total income at Centrelink of $616 per fortnight which is above the Income Test Allowance for a couple. Residential aged care costs after selling their former home Alan and Anne’s aged care costs change once their assets are rearranged.

Alan and Anne’s aged care costs Alan” Daily Rate Anne’s Daily Rate Combined Fortnightly
Accommodation Charge Nil Not Applicable Nil
Interest on Accommodation Bond Not Applicable Nil Nil
Basic daily care fee $43.22 $43.22 $1,210
Income tested fee $3.50 $3.50 $98
Basic personal expenses $11.96 $12.38 $341
Telephone in room Not applicable $2.00 $28.00
Total expenses $58.68 $61.10 $1,677
Age Pension $48.95 $48.95 $1,371
Alan’s superannuation $14.29 Not applicable $200
“Gap” to be paid from interest income $106

Notes – An illustration of costs of residential aged care

*Accommodation Charge is determined on entry direct to High Care. The amount of the daily Accommodation Charge is fixed for that resident. New residents with assessed assets of $109,640 entering High Care in October 2012 pay the maximum Accommodation Charge of $32.76 per day. *Accommodation Bond is agreed on entry to Low Care or High Care Extra Services. In October 2012, the maximum Accommodation Bond is the assessed assets of the new resident minus $41,500. *The maximum interest rate to be charged on the outstanding part of an Accommodation Bond is 7.62% per annum for a new permanent resident entering in October 2012. #The Basic Daily Care Fee is notionally set as 84% of the Single rate of Age Pension. In October 2012, the Basic Daily Care Fee includes a surcharge of fifty cents per day. ^ The amount of Age Pension received and the amount of Income Tested Fee payable is determined by the Commonwealth based on the personal and financial situation of the resident. The individual amounts change as the maximum Age Pension rates, the means test allowances and the individuals circumstances change. ^Income Tested Fee is recalculated quarterly based on the resident’s financial and personal circumstances. Recipients of the maximum rate of Age Pension pay no Income Tested Fee. Failure to update Centrelink / DVA regarding a resident’s circumstances can result in cancellation of the Age Pension/DVA Income Support Supplement and levying of the maximum rate of Income Tested Fee, $68.65 per day in October 2012. For Income Tax purposes, where a resident of a Commonwealth regulated aged care facility receives some ‘personal care’ then ‘Medical Expenses’ may include • Accommodation Charge • Interest on the outstanding part of an Accommodation Bond • Retention Amount • Basic Daily Care Fee • Income Tested Fee This Illustration is provided to demonstrate the potential costs of living in residential aged care. Daily care fees for aged care are determined by the Commonwealth and could change at any time. This Illustration does not constitute “financial advice”. © 2012 Financial Care Services Pty Ltd. All rights reserved. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. Christine at Financial Care Services could prepare an Illustration based on your personal situation. To make an appointment to discuss your personal situation please call Financial Care Services on 9808 0338