Ridiculously overcomplicated: Aged care in Australia

The cost of growing old: the number of Australians in permanent aged care is expected to triple by 2050.

A lack of sound advice and a minefield of regulatory issues are adding to the stress of moving older Australians into aged care.

Updated 9 November 2017

With the number of Australians in permanent aged care expected to triple to 700,000 by 2050, the business of caring for an ageing population is set to become even more lucrative and more challenging.

That prediction is contained in the Australian Treasury’s 2015 Intergenerational Report, which also forecast that the number of Australians aged 65 years and over will rise from about 3.6 million in 2014-2015 to 8.9 million in 2054.

This all adds up to a surge in demand for aged-care places and, potentially, a surge in Australians paying thousands of dollars too much for services, particularly if they rush into signing a contract without looking at all the options.

“It is certainly the case that most Australians pay way too much for residential aged care,” says Rod Horin, an aged-care consultant at Joseph Palmer & Sons, investment managers and aged-care specialists.

“The major share market-listed companies are the biggest offenders because of the pressures they have from shareholders.”

Fiona May, chief executive officer of ADACAS (the ACT Disability, Aged and Carer Advocacy Service, an independent, not-for-profit organisation), echoes Horin’s concerns.

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“For-profit providers of aged-care services are faced with a dilemma, as they are required to provide the highest quality care to aged-care residents, while also meeting shareholder expectations of a profit,” May says. “It’s crucial that regulations safeguarding the rights and needs of the most vulnerable are in place and working well.” 

For-profit providers dominate the inner-metro areas of Australia and make up 39.1 per cent of the market, according to government statistics. Not-for-profits (religious, charitable and community-based providers) are responsible for 56.3 per cent of operational residential-care places, and government providers responsible for 4.6 per cent.

Through the aged care maze

The journey into aged care often begins suddenly – a parent or partner has a fall, or succumbs to a sudden illness, meaning they can no longer live independently.

Horin says family accountants who find themselves in the middle of negotiations with aged-care institutions on behalf of their clients then encounter a maze of regulations and acronyms, often with decisions that must be made quickly.

“The adult children find themselves grappling with refundable accommodation deposits (which can range from A$200,000 to A$1.2 million), daily fees, extra-services fees and means-tested fees. It’s ridiculously, absurdly complicated,” he says.

“Worse still, there is the dreaded Centrelink form, which must be downloaded and filled in in order to determine the means-tested fee – it is 28 pages long and includes 145 questions.

“If the wrong decisions are made at this time, families will pay more than they need to, particularly if the person, generally a parent, lives in aged care for several years.”

Margaret Harrison of Signpost Aged Care Services worked as a lawyer for more than 20 years in private practice and as a corporate lawyer in a major bank, but started a business providing legal and financial advice on aged care after her own parents move into the aged-care system. 

“It was classic circumstances and an absolute nightmare,” she says. “There was an endless supply of forms and I couldn’t work out the system. Even though I was happy to pay for advice, I couldn’t find anyone to help me sort it out.”

Harrison says the interplay of numbers involved in aged-care costs, and how to optimise them, as well as the interface between aged care and Centrelink, means many older Australians and their families will struggle with the same issues.

“Add to that the fact that they are asked to sign a residents’ agreement that is 40 pages long and that they often also need accounts checked and a power of attorney … beyond that, the rules are constantly changing.”

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A typical client was an 83-year-old man whose 81-year-old wife had dementia and needed to move from a home package to aged care, and he believed he would have to pay a A$500,000 bond.

“He was beside himself because he only had A$100,000, but incredibly relieved when we found his wife was a supported resident and it would only cost him what he could afford,” says Harrison. 

The Aged Care Complaints Commissioner, who provides a complaints resolution service across Australia, receives an average of more than 1000 complaints per quarter. Financial concerns and communication, especially for home care services, are consistently among the major issues that arise.

Further complicating matters is the mental health of people who require aged care or changes to their existing arrangements. Dementia is one of the major health challenges facing Australia, with Access Economics’ 2011 Dementia across Australia 2011–2050 report projecting an increase in dementia cases from about 300,000 in 2012 to just under one million in 2050.

Lawyer Faith Hawthorne, of Justice Connect, which provides access to justice through pro bono legal work, says all older Australians need to decide what type of aged care they favour while they still have the capacity to understand the options. “Formulate a plan,” she says.

Towards aged care reform

In 2015-16, the Department of Health tasked the Aged Care Sector Committee with developing an aged-care roadmap that would set out future reform directions for aged care. The aim was to maximise the capacity of the aged-care system, while making it more sustainable and consumer driven.

Released in March 2016, the roadmap suggests aged care and support will be delivered based on consumer needs.

People should be able to choose the type of care and support they receive, either for short-term episodes or on an ongoing basis. While the government would no longer regulate the number or distribution of services, there would be mandated core standards for services and facilities.

The 2015-16 Report on the Operation of the Aged Care Act 1997 included the announcement that the Australian Government would invest an additional A$649 million per year in 9911 new residential aged-care bed licences.

“It’s crucial that regulations safeguarding the rights and needs of the most vulnerable are in place and working well.” Fiona May, ADACAS

Chief executive of the Council on the Ageing Australia, Ian Yates, says while new beds are welcome, the sector needs to keep moving towards best meeting consumer needs. 

“One part of the aged-care system – home care packages – has changed since 27 February this year, so that packages are now ‘owned’ by, or allocated to, consumers rather than providers,” he says. 

“But home care packages are the smallest component of the aged-care system – about 90,000 now compared to nearly 200,000 residential care beds and about 800,000 receiving services through the Commonwealth Home Support Program (CHSP). We are arguing for all those to be put in consumer hands as well, so there is choice and control across the whole system.

“By letting market mechanisms dictate supply and demand, aged-care providers will be able to deliver the highest quality of care and support to older Australians in both metropolitan and regional areas.” 

Says Harrison: “I am all in favour of consumers having greater control. However, the success of this depends on people’s ability to both access information and negotiate with providers.”

Moving into aged care can be a complicated, potentially expensive, and sometimes stressful process. As the population ages, it’s something that will more regularly confront family members and public practitioners with elderly clients. 

Becoming familiar with Australia’s aged-care system, and knowing where to access independent advice, is an important step to achieving the best outcomes. 

Aged care by the numbers

At 30 June 2016:

  • The average age on entry for new admissions to permanent residential aged care was 82.0 years for men and 84.5 years for women.
  • 50 per cent of residential aged-care residents had a diagnosis of dementia. 
  • There were 949 residential aged-care providers in Australia, and 195,825 operational residential aged-care places, with an occupancy rate of 92.4 per cent.
Source: Department of Health’s 2015-16 Report on the Operation of the Aged Care Act 1997

5 ways to reduce the cost of residential aged care

1. Negotiate the refundable accommodation deposit (RAD). It depends on demand and supply of rooms, and at times can be as much as halved. It is also possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on a person’s cash flow.

2. Look at potentially part-paying the RAD through interest payments only, or a combination of lump sum and interest payments. Be aware, though, that an unpaid RAD attracts an interest rate of 5.73 per cent (set by the Australian Government). Unless you have funds earning at least 5.73 per cent, it might make more sense to use any liquid funds to pay off the RAD. 

3. Structure finances so that a resident can keep the full pension. The full pension, currently A$888.30 per fortnight (or A$23,095.80 per annum), can be lost if the family home is sold and the cash from the sale is added to the person’s assessable assets. Sometimes it is better to keep the family home and pay aged-care fees from the rental income generated.

4. Lower the daily means-tested fee based on income and assets, so it increases as the resident’s assessable assets and income increase. A resident on a part-age pension with assets totalling A$200,000 and deemed to be earning A$28,109 per year will pay A$2.07 per day (A$756 per year), while a resident with assets of A$1.2 million and deemed to be earning A$38,262 per year will pay A$67.48 per day (A$24,629 per year). One option to reduce the means-tested fee is to buy an aged-care annuity, if appropriate. Other options include making gifts to children (A$10,000 per year allowable, with a maximum A$30,000 allowed over a rolling five-year period)  or prepaying a funeral (A$12,500 maximum).

5. Look closely at the extra-services fee. Premium extra-services fee packages can cost as much as A$120 a day and provide for additional services like a choice of meals, alcohol at meals, expanded activities program, cable television, etc. 

Source: Joseph Palmer & Sons

Talking the aged care lingo

RAD: A refundable accommodation deposit which the Aged Care Act states must be repaid in full at the end of the care period. There is no provision to draw down on this amount and it is included as part of the resident’s overall assets.

Means-Tested Fee: Set by the government and collected by the aged-care facility based on an individual assessment for each resident. It is an attempt by the government to ask residents with the financial capacity to contribute to the cost of care. This fee can range from zero to a maximum A$244.97 per day.

BDF: The basic daily fee is paid by everyone moving into an aged-care home. It is set by the Australian Government at 85% of the single age pension (even if residents are part of a couple). It covers day-to-day costs such as meals, cleaning, laundry and power, and is paid in addition to the means-tested care fee, accommodation fee, and extra service fees.

DAC or RAC: The amount a resident pays for accommodation is based on their income and assets. If they have below a certain amount, the Australian Government pays all the accommodation fee. If a resident needs to part-pay for accommodation, this can be done through a refundable accommodation contribution (RAC), a daily accommodation contribution (DAC) – which is similar to paying rent – or a combination of both. 

If a resident is not eligible for any government assistance, they pay the full accommodation fee through an RAD, a daily accommodation payment (DAP), or a combination of both.

Ageing in place: Ageing in place means a resident in aged care is not required to move to another facility when their care needs become higher. However an offer of ageing in place doesn’t guarantee a resident won’t be required to move in some circumstances, and this should be discussed with the service provider.

DAP: The daily accommodation payment is paid on a regular basis, up to a month in advance, similar to paying rent. This fee is set by the federal government. If a person has no asset base, the DAP equates to about 80 per cent of the pension.

More information at www.myagedcare.gov.au

Read next: Ageing at home? How Australia can cope with 1.2 million over-85s


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