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Understanding the new rulesRodney Horin of Joseph Palmer & Sons explains the new procedures set in place for the aged-care industry, and offers advice on how to reduce fees.

A lmost 11 months ago, on July 1,2014, several reforms weremade to the aged-care industry.

These reforms – which mainlyaddressed the distinction between lowand high-care, up-front accommodationcosts, retention amounts, daily fees,calculation of assets and assessment ofhome values – made an alreadycomplex industry even morecomplicated.The Centrelink Form, for instance,

which must be completed whenapplying for aged care, grew to 32pages and now requires the answeringof 144 questions, many of which requirethe lodgement of supporting paperwork.

Middle-class Australiansare worse offUnder the new rules, middle-classAustralians, who make upapproximately 50 per cent of thoseentering aged care, are significantlyworse off than they were under the oldrules. By contrast, wealthy people arebetter off under the new rules becausethe new means-tested fee has an annualcap of $25,000 (indexed) and alifetime cap of $61,000 (indexed).Before the changes, this fee was open-ended. The new rules have had littleimpact on people with few assets, whoreceive as much support as they didbefore the changes.Under the new rules, those in the

middle ground are faced with highercosts and more difficult decisions tomake. For instance, the new rulesinclude a means test that measures bothassets and income. This replaces ameans test that measured income only.Today, a person’s wealth includes alltheir assets, including the family home(maximum value of $157,051 perperson indexed) and investmentproperties, shares and other

investments, antiques, paintings, bankaccounts, term deposits, motor vehicles,family trusts and company holdings,loan accounts and superannuationfunds.The treatment of family trusts also

adds a significant layer of complexity.Before making any decisions, a personmust consider the types of assets theyown, the current returns they get fromthose assets and the capital gains taximplications of selling. After all, theoverall aim is to reduce the aged-carefees where possible, while increasingpension entitlements.

Prepare aheadUnder the new rules aged-care facilitieshave provided transparent informationon refundable accommodation deposits(RADs) and how they can be paid. Thethree options are either as full lumpsum, part lump sum and part by interest(currently set at 6.36 per cent, knownas daily accommodation payments(DAP), or fully by DAP).One thing that has not changed

under the new rules is the importance oftime spent preparing for aged care inadvance of a crisis. People usually onlystart looking into aged care whenchildren are told by a doctor that theirparent cannot return home. The hospitalrequires the bed and transition to anaged-care facility needs to be donequickly, often during emotional andconfusing times. Pressing issues that will require

immediate attention include: How do wepay the aged-care room cost? Do wehave funds available? Should we retainor sell the family home? What cash flowwill be required to pay ongoing costs? Each decision has a different impact

on the outcome, including the effects onaged pensions, and therefore requirescareful consideration.

Six key issues toconsider include:1. Room costs may be negotiable.2. With the daily accommodationpayments attracting interest rates of6.36 per cent, it might be preferableto pay a lump sum.

3. Liquidating assets may have costlytax implications.

4. Home property can provide funds ifsold.

5. Alternatively, home property couldbe rented out, but care is needed inthis process, and aged-pensioncould be affected.

6. Moving funds from investments canbe worthwhile – such as changingfrom asset/income to asset only.

Five key ways to reduceaged-care fees:1. Negotiate on the refundableaccommodation deposit (RAD)and examine alternatives.RADs (formerly known as bonds) can

be as high as $1 million to secure a bedin an aged-care facility. In many casesthese are negotiable, depending verymuch on the demand for beds – and thesupply of beds – in each aged-carefacility. Aged-care facilities prefer thatthe RAD be paid as a lump sum upfront, but must offer alternatives.Alternatives are to pay interest paymentsonly, or a combination of the two. Aresident has 28 days to decide whichpayment option to take. A bankguarantee is not an alternative.

2. Reduce the Centrelink Fee.The Centrelink Fee is a means-tested

fee – taking into account both incomeand assets – levied by the governmentand collected on their behalf by theaged-care facility. The fee no longer hasa maximum daily amount, but has anannual cap of $25,000 (indexed) and a

lifetime cap of $60,000 (indexed). Twoways to reduce the Centrelink Fee are totake out an aged-care annuity or buy aninsurance bond.

3. Regular assessment of familyfinances. For instance, an elderly person may

wish to consider whether to remain anappointor of a family trust if he/she isapproaching aged-care age. All incomeand assets from a family trust may bedeemed to be 100 per cent owned bythe appointor, therefore dramaticallyinfluencing the Centrelink Fee when theperson enters aged care.

4. Examine what you get for theExtra Services Fee. The Extra Services Fee, which can be

as much as $100 per day, is supposedto give the patient extra services at theaged-care facility, including moreattention and access to people likepodiatrists, hairdressers etc. Make sureyou are getting value for money withthis fee.

5. Protecting pension entitlements.The RAD is an excluded asset for

social security purposes. Therefore, insome cases, where existing cash is usedto pay for the RAD, it can result in anew or increased pension entitlement.However, more often, a family home issold to fund the RAD. In this case, whilethe home used is to be excluded,proceeds of its sale are counted as anasset. As a result, the cash remainingafter paying the RAD can often result ina pension being reduced or lost entirely.There are ways to maintain, or evenincrease, one’s current entitlements.

Rodney Horin is managing director of Joseph Palmer & Sons,

aged care specialists.For more information,

call (03) 9601 6800 or visitwww.jpalmer.com.au.

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