From today (1 July 2014) the aged care system in Australia undergoes massive change.
The Living Better, Living Longer Aged Care reforms become law, after five years of industry & community consultations. Two federal governments, three Prime Ministers and countless reviews later the moment has arrived. How will it affect you? We make some predictions below with our post Nursing Home Fees Up? New Aged Care Laws Hit Sydney Residents.
If you enter residential aged care from today (or you have a family member who does), it’s very likely you will pay more. It’s certainly better for the government, as they shift some of the overall cost burden back on to the end user. No one likes to pay more but most experts agree these reforms will be good for the aged care system as it makes it more sustainable for the long term.
As with any systemic change there will be issues during the transitional period. I expect residents, families, ACAT teams, and front line nursing home staff to be most affected. After reviewing the Living Better, Living Longer reforms here are the main ways we think they will impact residents and their families:
1. Higher upfront aged care accommodation costs
The new aged care rules allow for aged care facilities or nursing homes to set the Accommodation Bond, now know as a Refundable Accommodation Deposit (RAD) at what ever level they like, up to $550,000 or its equivalent. Aged care facilities can charge more than this amount as a Refundable Accommodation Deposit if they seek approval from the Aged Care Pricing Commissioner.
Given the resident now has the option in every case to pay this gradually via a Daily Accommodation Payment (DAP), and not just upfront via Refundable Accommodation Deposit (RAD), it seems likely that nursing homes will charge a higher ‘RAD’ compared to previous ‘Accommodation Bond’ amounts. (For a break down of new fees & charges see HERE)
Put simply, the old system favoured lump sum payments, where as the new system may see the volume of lump sum accommodation bonds (now called RAD’s) diminish.
2. Keeping the family home
Keeping the family home will become more popular for residents due to the favourable treatment under the aged care means tested fee calculations. A number of aged care facilities have increased there RAD to the maximum cap of $550,000 as a result of the new pricing regulations to compensate for a likely decreased level of lump sum payments.
3. Higher care costs via means testing
The income tested fee component of aged care will now be means tested against assets & income. This is a big change. It will mean that in many cases where residents have the capacity to contribute to the cost of their care, they will pay more.
4. Confusion reins
These changes are very significant and have not been well-explained to the public, although there is likely to be an increase in media coverage now they have gone live and indeed this has already begun. Nevertheless, I expect a period of general confusion as everyone adjusts to the new system.
5. Reverse mortgages become more popular for aged care
The new changes and the introduction of means-testing will create a greater incentive for many residents to keep the family home, rather than sell it. Therefore loan products such as reverse mortgages that allow older borrowers to access home equity should see an increase in popularity, as more people use equity release to pay for aged care entry fees such as the RAD or DAP in particular.
6. A greater need for aged care financial advice
There is no question that the changes to aged care rules create more complexities. Although the government has done a good job providing online tools & resources, most people will still find it difficult to navigate and will require professional assistance. While Centrelink & FIS can provide information ONLY, financial planners can provide advice on the best strategies to use to pay the lump sum accommodation payment, minimise fees and also maximise the aged pension.
Furthermore, the introduction of means-testing creates opportunities for aged care financial planners to help people to save on aged care costs. Once this message gets out into the community, the demand for aged care financial advisers will increase.
Good luck with the new aged care changes. If you require help or have questions, please call our office on 1300 659 677.