O'Donnell Kerr Financial Planners
  • 23 January, 2015

Aged care… is it really that expensive?

Realise your Dream 

The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here 

Like most people, my first reaction to the costs of residential aged care was one of shock and horror. How can anyone afford to pay a daily fee, a daily means tested fee, an extra service fee and an accommodation charge or deposit?

But before we run off and write letters of complaint to our local MP, newspapers, ACA, Today Tonight or even worse, start to hide assets or give away Gran’s assets, let’s look at the fees a little closer and understand what a resident is receiving in return for what they are paying.

First things first. My esteemed colleague PK recently wrote a blog titled “How Much is Enough?” in which he outlined the annual income required for a single person to support a comfortable lifestyle. The figure was $42,597 per year. If we look closely at the basis of this figure, we find that an amount of $34,963 covers transport, leisure, energy, food and household costs for a twelve month period. The balance covers the cost of health, communications and clothing.

What is the relevance of this explanation if we are looking at aged care costs?

In an aged care facility, the fees charged cover a resident’s ongoing weekly expenses. This includes food, energy, entertainment, upkeep and maintenance of the residence, telephone (landline, not mobile) and 24 hour nursing care. A person still has to pay for their own clothes, personal requirements and any additional medical and pharmaceutical expenses.

The fees in an aged care facility can be broken down into four possible components, depending on a resident’s own circumstances and the facility that they have chosen.

The first fee is the Refundable Accommodation Deposit. It is important to remember this is “refundable” and comes with a government guarantee.

This deposit pays for a person’s accommodation and enables the facility to operate, the deposit can be used for renovations or building of new facilities to a standard that is required by not only the government but the residents. Think of it as buying a home and knowing what the sale price is going to be when you leave.

The second and third fees are the Basic Daily fee (currently $47.15 per day) and a daily Means Tested Care fee, which has an annual cap of $25,349 or $69.64 per day. These fees cover a resident’s weekly expenses for meals, energy, entertainment, laundry, cleaning, maintenance and24 hour nursing care. It is important to mention that the Means Tested fee is based on a resident’s income and assets. To be liable for the maximum Means Tested fee, a resident would need to have close to $1,500,000 in assets.

The fourth fee is an Extra Service fee. This may be payable depending on the aged care facility a person decides to enter. Not all residential facilities charge this fee so it can be avoided.

So hypothetically, based on this information, if I were to enter an Aged Care home, pay my Refundable Accommodation Deposit, and not have to pay an Extra Service Fee and still have $1.5 million in assets; the maximum fees I would pay for the year would be approximately $42,500.

Considering what I will receive in return for the fees I pay in residential aged care, I believe that the argument that aged care fees are expensive may be flawed. It is about the same cost of a “comfortable” lifestyle.

Hiding or giving away Gran’s assets to ensure that fees are reduced is not always the right option and will certainly limit the choices that you have in looking after Gran. And doesn’t Gran deserve the best?

*Please note that a person’s individual circumstances will influence the outcomes mentioned in this article and anyone who is entering, or knows of someone who is entering residential aged care should talk to an expert to ensure that they do understand the options available and the level of fees that are likely to be asked to pay.

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