How to Avoid Paying Too Much For Your Aged Care

The professional standards and pricing structures of retirement communities are back in the news once again for the wrong reasons.

It is certainly the case most Australians pay way too much for residential aged care. In fact, some pay hundreds of thousands of dol- lars too much, particularly if they rush into signing a contract with- out looking at the options avail- able.

The major sharemarket-listed companies are the biggest offend- ers because of the pressures they have from shareholders. The lat- est listed group to hit the head- lines is Aveo. The retirement group was sold off sharply this week after media investigation into poor practice at the company.

People often feel they have to make quick decisions about very large sums of money. This is often the case when a parent, for exam- ple, has a fall, ends up in hospital and the doctor advises the child- ren that the parent can no longer live at home but must move into residential aged care.

All of a sudden, the adult child- ren find themselves in a maze of refundable accommodation dep- osits, daily fees, extra-services fees and means-tested fees.

Worse still, there is the dread- ed 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, particu- larly if the person, generally a par- ent, lives in aged care for several years.

Here are five ways to dramatically reduce the cost of residential aged care:

1. Negotiate on the Refundable Accommodation Deposit. The RAD (formerly known as the bond) to secure a room at an aged care facility can be as high as $2 million. In many cases these RADs are negotiable, and at times can be as much as halved. The willingness of an aged- care facility to negotiate on RADs depends very much on the de- mand and supply of rooms at their facility. It is 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. This means, of course, that less of the RAD will be returned at the end of the care period.
2. Look at potentially part-pay- ing the RAD. Although aged-care facilities prefer people to pay a RAD in full at the time of entry into aged-care, it is possible to choose to pay interest payments only or pay with a combination of lump sum and interest payments. This frees up capital for other expenses.
3. Structure finances so that a parent can keep the full pension. The full pension, currently $888.30 per fortnight (or $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-test- ed fee. The means-tested fee is based upon the income and assets of the aged-care resident, so it in- creases as the resident’s assess- able assets and income increase. A resident on a part age pension with assets totalling $200,000 and deemed to be earning $28,109 per year will pay $2.07 per day ($756 per year), while a resident with assets totalling $1.2m and deemed to be earning $38,262 per year will pay $67.48 per day ($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 ($10,000 per year allowable, maximum $30,000 over rolling five-year period) or prepaying a funeral ($12,500 maximum).
5. Look closely at the extra-ser- vices fee. Premium extra-services fee packages can cost as much as $120 a day and provide for ad- ditional services like a choice of meals, alcohol at meals, expanded activities program, cable tele- vision etc. Look closely at the extra-services fee and ask what services are being delivered and assess whether they represent value for money.

As Australians live longer, more and more will end up in resi- dential aged-care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050. Adult children may consider a parent to be many years away from aged- care, but circumstances can change very quickly.