Aged Care insights | How accommodation payments work
On the surface, aged care fees appear as a minefield of acronyms that can be difficult to understand. This article looks at the definition of each one and how they combine.
For residential aged care there are 4 types of costs:
A basic daily fee is used to contribute towards day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone entering an aged care facility can be asked to pay this fee. The current fee effective to 19 September 2016 is $48.25 per day, being 85% of the basic single Age Pension and is the maximum basic daily fee for new residents (including respite residents). This rate increases on 20 March and 20 September each year in line with changes to the Age Pension.
An accommodation payment which secures a room. This may be by way of a Refundable Accommodation Deposit (RAD) or Daily Accommodation Payment (DAP), or indeed combination of both. The RAD or DAP is published on the websites of all residential care facilities and may vary in accordance with quality of room, location of the facility etc.
Once the resident moves into the facility, the RAD / DAP is locked in. As the name suggests the RAD is refunded to the resident (or their estate) upon leaving the facility and is government guaranteed. The DAP acts as a quasi loan for residents who elect not to pay the RAD in full (or at all). The DAP represents the interest on a loan which is essentially the facility accepting an income stream payment as opposed to a lump sum.
The DAP interest rates vary and are currently set at 6.01%. The rate is known as the Maximum Permissible Interest Rate or MPIR. So if the RAD was $550,000 and the resident elected to pay a DAP only the cost would be:
6.01% x $550,000 = $33,055pa or $90.56 per day.
Similarly they could elect to pay a portion of the RAD and the reminder as a DAP, so there is an infinite number of combinations.
A Means Tested Care Fee (MTF) which is designed to reflect the resident’s ability to service some of the cost of residential care themselves. It follows that the MTF is calculated as a function of income and assets in much the same way as it would be for the eligibility of a government pension.
An extra services fee which involves the provision of a significantly higher than average standard of services including accommodation, the range and quality of food and non-care services such as recreational and personal interest activities. Some facilities are recognised as ‘extra service facilities’ and the resident pays for these services regardless of whether or not they use them. Generally, the fee is expressed as a daily rate.
There are a number of strategies relating to how to fund the costs of residential care appropriately, so each solution requires some careful thought and customising. We recognise that this can be a very emotional time for families and in our experience; the ‘best’ solution is not always the least expensive.
Lex Goldsmith | August 2016
