Aged care - know what's involved
Written and accurate as at: Oct 19, 2018 Current Stats & Facts
The decision to move into aged care doesn’t just come with a raft of emotional issues. There are also financial considerations. That’s because nursing home accommodation can involve substantial costs, especially for self-funded retirees.
The costs involved
New residents entering aged care are often asked to pay an upfront accommodation bond. There is no set level for this bond – the only proviso is that residents must be left with at least $46,500 in assets (excluding the family home) after the bond has been paid. An accommodation bond works like an interest-free loan to an aged care home. Any income earned from the bond is used by the aged care home to improve accommodation and services for residents.
As aged care facilities are generally free to set their own bond, it’s usually open to negotiation between families and the home’s staff. This can be a source of discomfort as it means revealing your financial worth to complete strangers. Simply being aware of how the system works can help you plan for it.
How do I pay my accommodation costs?
You can choose to pay an upfront bond by:
- a lump-sum style ‘refundable accommodation deposit’
- rental-type payments called a ‘daily accommodation payment’, or
- a combination of both.
The accommodation bond is generally returned to residents or their estate, if they move out or pass away when it is paid as a lump sum.
Bonds vary widely and in some of our capital cities, the cost is running into hundreds of thousands of dollars. So it’s extremely important to consider all the facilities available and consider if a particular aged care home is the right place for you or your loved one.
Unfortunately, high demand for aged care, particularly high level care, often means families who haven’t done their research have to accept the first place that becomes available and that can see a mad scramble to find the bond money.
Basic daily fee
In addition to the accommodation bond, a basic daily fee is used to contribute towards your day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone entering an aged care home can be asked to pay this fee.
The maximum basic daily fee for new residents is $51.63 per day. This equals 85% of the basic age pension rate and it increases on 20 March and 20 September each year in line with changes to the age pension.
Means-tested care fee
This is an additional contribution towards the cost of care that some people - self-funded retirees in particular, may be required to pay. The Department of Human Services will work out if you are required to pay this fee based on your income and assets.
There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees.
The means-tested care fee that you pay will be between $0 to $252.20 per day.
Not everyone will have to pay a means-tested care fee. The exact amount you will pay is determined through an income and assets assessment.
The means-tested care fee is an ongoing fee that you pay towards the cost of your personal and clinical care. Personal care can include help with bathing, dressing, grooming, and going to the toilet. Clinical care can include services like specialised nursing services, medication assistance, or catheter care.
The government’s Aged Care website features a Residential Care Fee Estimator to help gauge the sorts of fees you could be looking at.
Annual and lifetime caps
There are annual and lifetime caps on means-tested care fees. The maximum an aged care home can charge you is:
$27,754.52 per year, or
$66,610.90 in a lifetime.
Accommodation
Each home sets its own pricing, depending on factors such as the location of the facility and the size of the rooms. The amount you pay for your accommodation depends on your eligibility for government help.
Government help with accommodation costs
If you can afford it, you are expected to pay for your room. However, help with some or all of the accommodation costs is available to those that need it. This is determined by an income and assets assessment, but as a general guide:
- if you have income below $27,460 and assets below $49,500, the Australian Government will pay your accommodation costs
- if you have income above $69,430 or assets above $169,079.20, you will need to pay for the full cost of your accommodation, negotiated and agreed to with the aged care home
- if you need to pay for part of your accommodation, the Australian Government will pay the rest.
More information on how the income and assets assessment is used can be found below, or you can read more on our Income and assets assessment page.
Self-funding your accommodation
If you’re not eligible for government assistance, the amount you pay will depend on:
- the type of room you choose
- your price negotiations with your aged care home.
The type of room you choose
If you are not eligible for government assistance, the price you agree to pay will vary depending on what type of room you choose. For instance:
- whether you choose a single or shared room, or opt to have a shared bathroom or ensuite
- the size of the room
- the geographical location of the aged care home.
While there is flexibility in how you pay for your accommodation, it’s still important to choose a room within your budget. You can find and compare room costs using the Find a provider tool.
Your price negotiations
Whether you have to pay towards your accommodation or not, everyone entering an aged care home needs to agree a room price in writing with their aged care home. Aged care homes are required to publish their maximum accommodation costs for their various rooms on this website. You and the home can negotiate and agree to a lower price, but you cannot be charged more than the maximum published price.
Do I have to pay the full cost upfront?
No, you have a choice as to how you can pay. The options available are:
- a lump sum (a refundable accommodation amount)
- If the government is helping with the costs, this is called a Refundable Accommodation Contribution (RAC).
- If you are paying the full amount yourself, it’s called a Refundable Accommodation Deposit (RAD).
- rental-style daily payments (a daily accommodation charge)
- If the government is helping with the costs, this is called a Daily Accommodation Contribution (DAC).
- If you are paying the full amount yourself, it’s called a Daily Accommodation Payment (DAP).
- or a combination of both (for instance, to make the total required of $300,000 you could choose to pay $100,000 as a refundable lump sum, and the rest through smaller non-refundable daily payments).
If you choose to pay an amount as a lump sum, any unused money is refundable when you leave the home.
Funding it all
Meeting the future cost of aged care is just one aspect retirees need to factor into their investment portfolio.
The way your portfolio is structured can impact on your age pension entitlements as well as the costs you’ll pay for aged care.