Aged care remains a moving target. The aged care reforms introduced in 2014 have just been reviewed, with a brief to examine the effectiveness of the changes, and to make recommendations for future reform to the aged care system.
The review report is a comprehensive analysis of what is working, and what is not - along with 38 recommendations to the government for improvements.
The review included the financial arrangements, and the clear message is that consumers should pay more. Recommendations include:
- Assessing the full value of the former home for means testing (except when a protected person is living there). Currently a cap of $162,815 is applied to the home.
- Removing the annual and lifetime caps on income-tested care fees and means-tested care fees.
- Removing the basic daily fee cap, with the exception of people who are of low means, with providers requiring approval to charge amounts more than $100 a day. The current basic daily fee is set at 85 per cent of the pension, $49.42 a day, and some operators don't charge it or offer discounts on this amount.
- Increasing the market price lump sum (and equivalent daily charge) from $550,000 to $750,000 before requiring approval from the aged care pricing commissioner.
Many consumers breathed a sigh of relief when the government said it wouldn't support the first two recommendations - but it remained silent on the last two, which could see the cost of aged care skyrocket.
Let's consider a case study. Jack is moving into aged care, while Jill will stay at home. Their assets are: home $750,000, investments $350,000 and personal assets $50,000.
Jack's cost of care today, assuming a market price of $550,000 paid by daily charge, would be $137 a day, or $49,961 a year. If the recommendations are implemented, increasing the accommodation payment to $750,000 and the basic daily fee to $100 a day, Jack's cost of care will rise to $218.69 a day, or $79,822 a year. If we allow $25,000 a year for Jill's cost of living, we are talking about pensioners requiring nearly $105,000 a year of income to meet their expenses. If the means-tested care fee cap was removed it would make no difference to Jack.
Rachel Lane from Aged Care Gurus says: "Maintaining the home cap is certainly a win for most people, but maintaining the annual and lifetime limits is really only of benefit to the wealthy. The recommendations to increase the market price cap and the basic daily fee, on the other hand, will be felt by most people. It doesn't take much to go over the threshold to qualify as a market price payer - a full pensioner with assets of $163,000 is a market price payer. But to hit the annual limit for the home care package income-tested fee someone's income needs to exceed $47,500 per year; for the means-tested care fee in aged care it is a combination of assets and income, but if we look just at financial assets you would need to have at least $1.26 million to hit the annual limit.
"Of course, from the government's point of view, they want more people to make a greater contribution so it makes sense to keep the annual and lifetime limits, as only a minority of people would contribute more if they were removed."
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org