How financial advisers can navigate the aged care minefield

Aged care is a challenging time for everyone involved, but for some financial advisers it can also be a legislative minefield. Troy Smith explains the basics.

Are you afraid of aged care? Few people enjoy thinking about aged care because that’s something we will do in the future, isn’t it? Moving a loved one into aged care can be a difficult time for family as well as a stressful time for anyone entering the facility.

But it’s not just those entering aged care who are faced with tough questions. Some advisers fear aged care queries, especially if the only training they received dates back to when they completed their financial planning studies.

Other advisers have jumped into the aged care planning arena and are generating an income by charging plan fees.

Given the move towards fee for service, assisting clients with aged care advice can create opportunities to bring plan fees through the door.

What are the requirements to enter an aged care facility?

Before entry into an aged care facility, an individual is assessed by an Aged Care Assessment Team (ACAT). The ACAT makes a determination whether high or low care is required. A person cannot be permanently admitted to an aged care facility without ACAT approval.

Facilities that provide low care, such as hostels, are designed for people who need some help. Residents are generally mobile, and the facility provides assistance with personal care such as bathing, dressing and eating.

Facilities designated as high care, such as nursing homes, provide constant nursing care to residents.

Residents entering nursing homes are generally immobile and unable to care for themselves.

Certain hostels and nursing homes may be classified as 'extra service homes'. These facilities provide a higher level of accommodation, such as private rooms, a wider choice of meals and additional services such as onsite cafes for residents and their families.

Aged care fees for hostels

Residents entering a hostel can generally expect to pay a basic daily care fee, a daily income tested fee and an accommodation bond. If the facility is an extra service facility, an extra service fee may also be payable.

The basic daily care fee is usually the minimum fee payable by a hostel resident. It is set at the time a resident enters a facility, and the amount depends upon when the resident entered the facility and their level of income.

Most residents who enter care after 19 September, 2009, will pay a basic daily care fee of $39.50 per day. Other rates of basic daily care fees may apply for residents who entered care before 20 September, 2009.

The daily income tested fee is calculated using Centrelink assessable income, including any Centrelink pension (less minimum pension supplement amount) or allowance entitlements.

Residents with income below the income free threshold will not pay a daily income tested fee, whilst those with income above the threshold will generally pay a daily income tested fee.

The current maximum daily income tested fee is $63.48 per day and is calculated using a formula.

Taking into account the income free threshold, the income a person can receive before paying a daily income tested fee is shown in table 1.

An accommodation bond, which can be paid as a lump sum or a series of periodic payments, may be payable by residents entering a hostel.

Residents must be left with a minimum of assets after paying the bond, currently $38,500. If the resident is a member of a couple then half the couple’s combined assets are used to calculate the resident’s assets.

If a hostel requires a certain amount of accommodation bond to be charged and this amount leaves the potential resident with less than $38,500, the hostel may not offer the potential resident a bed.

Accommodation bonds are subject to a retention amount that is subtracted from the bond. The current retention amount is $307.50 per month, which is paid in the first five years of residence. No further retention amount is payable after five years.

Case study 1

Kaz is entering a hostel. She is a widowed pensioner who requires low level care. She is not a homeowner and receives the full age pension of $716.10 per fortnight.

She has $10,000 in personal assets and an account based pension, with an account balance of $300,000 and a Centrelink assessable income amount of $50 per fortnight. Table 2 shows a summary of her fees.

Kaz is subject to the standard resident contribution thresholds. She will not incur a daily income tested fee as her income is under the threshold ($831.10 per fortnight).

Based upon her assets, she could be asked to pay an accommodation bond of up to $271,500 ($310,000 less $38,500).

Aged care fees for nursing homes

The rules associated with the basic daily care fee and the daily income tested fee apply to both hostels and nursing homes.

However, residents entering a nursing home can expect to pay either an accommodation charge or accommodation bond. As is the case with hostels, if the nursing home is an extra service facility, an extra service fee may also be payable.

A nursing home resident will generally be required to pay an accommodation charge, which is set at the time of entry to the nursing home.

The amount of accommodation charge depends on the date of entry into the nursing home and the assessable assets at that time.

Where a person is a member of a couple, half of the combined assets of the couple are assessed when calculating the accommodation charge.

For residents who enter care after 20 September, 2010, the maximum accommodation charge is currently $28.72 per day, which applies to residents with assessable assets above $98,237.60.

Residents with assessable assets under $38,500 won’t pay any accommodation charge.

Residents with assets between $38,500 and $98,237.60 will pay an accommodation charge based on a formula.

Nursing home residents may be required to pay an accommodation bond if the home is an extra service facility. Residents entering either a hostel or nursing home are subject to the same rules when calculating the maximum accommodation bond.

If a nursing home requires a certain amount of accommodation bond to be charged and this amount leaves the potential resident with less than $38,500, the nursing home may not offer the potential resident a bed.

Case study 2

Kaz, our widowed pensioner, is entering a nursing home. She has had a stroke and now requires high level care. A summary of her fees can be seen in table 3.

Kaz won’t pay a daily income tested fee because her income is below the threshold. Kaz could be required to pay an accommodation charge of $28.72 if she doesn’t pay an accommodation bond. The maximum accommodation bond the nursing home can request is $271,500.

Summary

Clients who are entering aged care often make the decision with their children and or family. Helping your clients and their family to understand aged care fees and costs will reduce the stress and anxiety of moving into care.

Aged care can present two opportunities for advisers, the first is to generate a fee for advice and the second is to build relationships with your client’s children.

Troy Smith is a technical specialist at ING Australia.