The royal commission on aged care will examine the shocking cases of abuse and the key question of staffing ratios. It is imperative the commission identifies appropriate minimum standards of care. It is equally important to broaden its scope to identify who pays what for care now, and who should pay what in the future.
When it comes to user contributions, the system is broken. Means testing uses a complex formula combining income and asset tests to determine what each person contributes to the cost of their accommodation and care. In practice, the current system protects the very poor and the very wealthy, leaving those in the middle to pay the most. In addition, various caps apply, which tend to protect wealthy retirees.
Let’s look at how it works.
First, every resident pays a basic daily fee, set at 85 per cent of the age pension, currently $51 a day. Second, the cost of care is not the cost of living in care: residents still have personal expenses including telephone, medications, clothing and travel, as well as any additional services the facility provides.
Low means: Betty
At the low means end, Betty is a full-age pensioner with $90,000 in the bank and $5000 of personal assets.
Based on Betty’s assets, her daily accommodation contribution (DAC) is $22.11 a day. The equivalent lump sum (refundable accommodation contribution or RAC) is calculated at a government set interest rate, currently 5.96 per cent a year. This gives a RAC of $135,067, which she cannot afford. If she pays $40,000 towards her RAC, her DAC will be $15.52 a day meaning after meeting her cost of care she has less than $2 a day for personal expenses before she needs to dip into her capital.
Part-pensioner: Bob
Bob is a part-pensioner. He has $190,000 of investments and $10,000 of personal assets. Because Bob’s assets exceed $166,707, his accommodation payment is based on the market price set by the aged-care facility. If Bob lives in a city, the refundable accommodation deposit (RAD) could easily be $500,000 or more.
If Bob moves to a facility with a RAD of $500,000, paying $100,000 from his investments towards his RAD, his daily accommodation payment (DAP) would be $65.31 a day. Combined with the basic daily fee, this would take his cost of care to more than $42,000 a year. Bob’s pension and income from investments give him income of just $26,000 a year. So Bob would either dip into his remaining investments to meet his cash flow or deduct his DAP from his RAD, which would see his DAP increase each month as his lump sum reduces. In less than five years, Bob’s RAD would be gone.
Self-funded: Beryl
Beryl is a self-funded retiree. She has a home worth $1 million, $1.5 million of investments and $50,000 of personal assets. She is also moving to a facility where the RAD is $500,000, but she pays her RAD in full from her investments.
If she keeps her home, which is assessed at the capped value of $166,707, she would pay a means-tested care fee of $85 a day. After 320 days Beryl would reach her annual cap and stop paying this fee for the remainder of the year; in two-and-a-half years she would reach her lifetime limit of $65,000.
Possibly the biggest anomaly of the current means testing is the assessment of the former home at a capped value of only $166,707. In Beryl’s case, keeping her home saves her about $90 a day.
If all three retirees live out their lives in aged care, Betty, as a low-means resident, would have just $2 a day to cover her living expenses or need to eat into her limited capital.
Beryl would keep her $1 million home, $1 million of investments and $50,000 of assets. She would pay the lifetime limit of $65,000 toward her cost of care, plus the basic daily fee of $18,156 a year. When she died, her estate would receive the RAD.
Bob, meanwhile, would have lost the entire $100,000 of his RAD within five years. He might still have some investments left, but like Betty his assets have been reduced in meeting the cost of care.
The outcome of the royal commission will undoubtedly recommend changes to the cost of aged care. Let’s hope the changes make it a far more equitable system.
Article Source: SMH | R.Lane
