New rules surrounding the aged care system to be introduced next year could have devastating financial consequences for individuals. That’s the warning from some experts, who say the changes could result in cost increases exceeding $100,000 per person.
Those experts have urged Australians to get appropriate advice to avoid or at least minimise the increases. The changes are set to take effect on 1 July next year.
Financial adviser Nick Bruining believes the changes will drastically alter the financial landscape for individuals going into residential aged care.
The reforms are being introduced as part of the federal government’s new Aged Care Bill 2024, tabled in September. The Opposition, led by Peter Dutton, has backed the changes.
Aged care reform pros and cons
The proposed reforms were welcomed by some when introduced. One supporter is Mark Sheldon-Stemm, an aged care industry adviser and member of the Aged Care Industry Association. Mr Sheldon-Stemm said the reforms would give operators a more secure financial footing.
“The new funding arrangements are quite different to some of the earlier proposals and are generally more palatable,” he said. Those earlier proposals included an aged care levy that would have been “similar to the Medicare levy”, he continued.
“It’s really being designed so that residential aged care becomes an end-of-life or dementia option with in-home care, the preferred way forward,” Mr Sheldon-Stemm said.
Making aged care facilities more financially viable makes sense, given the struggles some have had in recent years. So what then, is the potential problem? According to some, the facilities’ strengthened financial viability will come at a cost to the individuals taking up aged care.
One way this could happen is via the introduction of a new five-year retention rule for Refundable Accommodation Deposits (RADs). Previously a RAD paid as a lump sum was fully refundable upon the death of the aged care resident.
Now, aged care facilities will be allowed to retain up to 2 per cent of the RAD each year. They will be able to do this for a maximum of five years. A potential $500,000 RAD refund could therefore drop by as much as $50,000, reducing the amount passed on to beneficiaries.
In addition to this change, the maximum RAD payable without approval will jump significantly. Currently set at $550,000, it will be jumping to $750,000 next July.
Furthermore, the lifetime cap on means-tested care fees will also jump from $82,018.15 to $130,000. This could see the cost of aged care to rise substantially, potentially exceeding $100,000 for many seniors, Mr Bruining said.
What should individuals do?
First and foremost, seek guidance from a registered financial adviser. The complexities of the reform consequences will require expert navigation.
For example, some families may be tempted to sell the family home to cover the increase in up-front costs. Depending on individual circumstances, this could have costly consequences. For some on Centrelink, such a sale could tip them over the means test limit, resulting in the loss of their Age Pension.
A number of other scenarios are also possible, making an understanding of each individual circumstance paramount. These are best mapped out with your registered financial adviser.
Were you aware of the upcoming aged care reforms? Could they potentially affect you? Let us know via the comments section below.
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I wasn’t aware of these changes for people going into nursing homes. I have a level 3 home care package. Will there be changes to home care packages as well. I haven’t heard anything about any changes with them either.
It’s a disaster. Big, complicated fees will be applied to home care packages. One official example is “Bill”, a pensioner renting and with only $10,000 to his name.
He will be charged a “small” amount of $2,500 a year.
So stony broke in jig time.
They do say it’s “grandfathered”, so existing participants not hit unless they choose to switch to the new system.
But providers don’t like that, and they’ve been driving this mess, so who knows?
A well-kept secret – It’s actually far worse.
In residential care DAPs are charged at 8.38% per annum on the RAD, which could be $1 million or more, so around $84,000 EVERY YEAR.
And DAPs are not covered by the “Lifetime Cap”, so you keep paying them until you have nothing left.
Eg the median super balance is around $200,000. That will vanish quickly, and you will be a pauper. Once that happens, and you can’t pay anymore, will the proprietor keep you on?
The new system appears engineered for the sole benefit of corporate providers. Bizarrely, as we see in the article, providers actually opposed the levy recommended by the Royal Commission, even though it would have given them secure predictable funding.
And it is obviously much fairer to spread the cost given that everybody in Australia may need support one day.
Nobody knows about it, so credit to YourLifeChoices for talking about it.
The new proposal is fiercely contested, and may prove a political hot potato – so if anybody opposes it, jump on the phone to local members, Senators and media.
Once the public finds out what is planned, the backlash could be powerful.
The system is a joke. People are forced to sell the family home to cover the RAD, or take out a loan provided by the facility to cover the RAD. Then the care facility takes 85% of the residents pension via a daily care fee. To make matters worse, the care facility can now skim off up to 10% of the RAD over the first 5 years. Similar to retirement villages where the purchase price is reduced 2.5% per year up to a maximum of 25% (ten years)
People currently on Home Care Packages, like myself, won’t notice big changes. It will be more like tinkering with different categories. Your provider will probably be letting you know soon. People entering from now will have to pay a percentage for all but basic care.