Self-funded retirees to be charged more for aged care

On November 1 a seismic shift will take place in the Australian aged-care industry - more Australians, especially those with means, will pay more for their aged care.

The Government passing more responsibility patients to pay more for their aged care follows recommendations from the Royal Commission into Aged Care Quality and Safety, the Final Report of which was tabled in the Australian Parliament in 2021.

The government will continue to pay around 75% of the cost of care for older Australians.

However, from November 1 all self-funded retirees will pay between $20,000 and $50,000 more per year, depending on the quality of their room, the facility they choose, and their means. Three quarters of part pensioners will contribute more and 30% of full pensioners will contribute more.

These changes to aged care in Australia were supposed to be introduced on July 1 but were delayed by four months following concern from the industry.

'Necessary changes'

I firmly believe these changes are necessary for the future of the industry.

Nearly half of Australia's residential aged-care providers are operating at a loss, with too many going out of business including 32 Australia-wide in the July-September 2024 quarter.

For facility owners to continue to invest in the sector and provide more beds, the funding model needs to change quickly.

There is currently an aged-care bed shortage in Australia. With Australia's ageing population, over the next 25 years demand for aged-care beds in Australia is projected to grow more than 300%, from 180,000 beds to more than 750,000 beds.

The government has realised that for this to happen, more aged-care costs must be passed on to those who can afford it.

Importantly, low-means residents will be no worse off.

Key changes to aged care fees from November 1

Refundable Accommodation Deposits (RADs)

Currently RADs (formerly known as bonds) are fully refunded when a resident leaves care. Under the new rules, providers will retain 2% of the RAD per year for up to five years, meaning a total of 10% can be retained by the facility.

Daily Accommodation Payments (DAPs)

Interest rates on unpaid RADs, currently locked in at the time of admission, will instead be indexed to inflation (CPI) twice a year.

Hotelling supplement

Previously covered entirely by the government this daily fee, which will be up to $13.46, will now be means-tested, with residents contributing none, some or all of it, based on their financial circumstances.

Higher Everyday Living Fee (HELF)

Replacing the current extra or additional services fee - which ranges from $0-100 - this charge will be negotiated only after a resident has moved into care, with built-in cooling-off periods and regular reviews. It will also be indexed to CPI.

Non-Clinical Care Contribution (NCCC)

The NCCC will replace the current means-tested fee, which has an annual cap of $34,311 and a lifetime cap of $82,347. While clinical care will be fully funded by the government, residents will pay up to $101.16 per day with no annual cap, but a higher lifetime cap of $130,000

The Basic Daily Care Fee, which is set at 85% of the full pension, remains unchanged under the new rules.

Key financial considerations include:

• RADs will remain exempt from pension assessments and remain government guaranteed.
• Residents' contributions will need to factor in CPI-linked fee increases.
• The value of a resident's principal place of residence will remain capped at $206,663 for means-testing purposes.
• All protected person rules for the family home will still apply.

Residents who are already in aged care before November 1 this year will be grandfathered into the current system.

Those planning to move into care in the near future should assess how much more it may cost them if they enter after November 1.

The new rules add another layer of complexity, especially with the introduction of CPI-linked fees and the increased emphasis on means-testing. Although the rules aim to create a more sustainable aged-care sector, they also mean those who can afford to pay more will contribute more for their care.

Understanding these changes and determining how much money a person could save by entering aged care before the transition date requires careful planning.

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