Choosing aged care: what you need to know

There are lots of things to consider when you’re looking at aged care.

You’ll need to think about the type of care that’s available, depending on how healthy you are. You’ll also need to factor in different options for paying for your accommodation, based on your means.

This is especially important because major changes to the way the cost of aged care is calculated are on their way. A new system starts on 1 July, so it’s worth understanding how these changes work.

The changes formalise the way means testing works for people who wish to receive aged care but still stay in their own home. There are also new formulas to calculate how much someone moving into an aged care facility will pay for their accommodation and how much the government will contribute.

Calculating the cost of care when you stay at home

The new income means tests determine how much someone pays to receive care in their home. Under the system, everyone pays a basic fee of $9.39 a day, which is the only fee someone on the full age pension pays. Part pensioners pay a means tested fee of up to $5,000 each year and self-funded retirees pay a means tested fee of up to $10,000 each year, depending on their circumstances.

So people with a higher level of income pay more for home care, but those with more modest means won’t pay as much.

Calculating the cost of residential aged care

Under the new system, formulas that take into account income and assets determine how much a resident will contribute to the cost of their accommodation and ongoing health care and how much the government will pay.

The formulas are complicated and take into consideration 50% of the resident’s income above a certain threshold. Approximately the first $44,0001 in assets is exempt from means testing, with assets above this amount included in the formula, but on a sliding scale.

From 1 July it is estimated the maximum accommodation supplement the Federal government will pay towards the cost of a person’s accommodation will be $52.84 a day. This amount drops on a sliding scale the higher the value of the resident’s assets and income, with the resident paying the shortfall.

Under the new system residents will also contribute to the cost of their ongoing health care. But the daily health care fee will be the lower of their means tested amount and the amount the government would otherwise pay in subsidies and other payments for their care. Care fee payments are capped at $25,0002 a year, with a lifetime cap of $60,0003.

Residents also pay a basic daily fee, currently $45.63, to cover living expenses. They may also purchase other services on an opt-in basis.

Accommodation payments to the aged care provider

Under the new system, residents can choose to pay for their accommodation as a refundable upfront deposit, or by a daily payment, or a combination of both.

As you can see, the situation is complex. So talk to your adviser to work out what’s best for you or, if you’re starting to plan care options for your parents, what’s best for them. It’s also worth discussing whether in-home care might be a better option, depending on your financial circumstances and the type of care you would like to receive, as well as any health issues you may have.

1. The income and asset free areas increase with indexation. 2. The annual limit will increase with indexation. 3. The lifetime limit will increase with indexation.