Contribution to age care costs
Once you know the result of your income and assets assessment, you will know whether you will be contributing to your care and accommodation costs and how much it will be. So you will be able to get a full picture, based on the four types of costs involved.
These are explained in section 4.2 – The main costs explained, the costs are:
- Basic daily fee - fixed price, set at 85 per cent of the single Aged Pension see 4.2 The main costs explained. Currently (20 September 2023) that fee is $60.86 per day.
- Means-tested care fee - you cannot know this amount until you receive the assessment from the Department of Human Services... Accommodation costs - You may have to pay some or all of the accommodation costs, depending on your means test.
This, in turn, may force you to make some big financial decisions, including possibly selling your home.
If you have to pay some or all of your accommodation costs, you have three options:
- a lump-sum refundable accommodation deposit – known as a RAD for short
- a regular rental-type payment called a daily accommodation payment – known as a DAP for short
- a combination of both
About the RAD
A RAD is a lump sum payment that is fully refunded to you or your family when you leave the home. So it works like a loan, allowing the aged care home to invest and earn interest, in order to build and improve the home and help maintain it.
How the refund works
When you leave the aged care home (nursing home), the aged care provider is required to refund your deposit to you or your family within the following set timeframes:
If you give:
- More than 14 days notice of leaving – your lump-sum balance must be refunded to you on the day you leave.
- Within 14 days of leaving – your lump-sum balance must be refunded to you within 14 days of you giving notice.
- No notice of leaving – your lump-sum balance must be refunded within 14 days of your leaving.
- In the event of your death, the aged care home (nursing home) must refund the lump sum balance within 14 days of the day on which they were shown evidence of probate or letters of administration (for someone who has died without leaving a will).
If the lump sum is not refunded by the end of these legislated time frames, the aged care home (nursing home) will be charged a Maximum Permissible Interest Rate on the owing amount until the lump sum is fully refunded.
The Maximum Permissible Interest Rate
This higher rate of interest is called the Maximum Permissible Interest Rate (or MPIR). This amount is reviewed by the Australia Government per quarter. As of October 2023, the Maximum Permissible Interest Rate sits at 8.15%. This rate kicks in from the day after you should have been refunded your refundable deposit balance and it acts as an incentive.
The applicable MPIR is fixed on the day you sign your agreement with the aged care home (nursing home), so does not go up even if the rate goes up over the time you are in the aged care home (nursing home).
- When you leave the aged care home (nursing home), the entire amount will be refunded to you or your family. If you have pre-agreed for certain fees to be taken out of your refundable accommodation deposit when you leave, then you or your family will receive the balance. Pre-agreed arrangements must be detailed, approved and signed in the agreement that you sign with your aged care home (nursing home).
- The interest earned on this lump sum is retained by the aged care home (nursing home).
- Your loan is fully backed by the Australian Government. The Government sets strict rules about how the aged care home (nursing home) can invest this money and criminal penalties can be imposed for misuse of these funds.
Your RAD loan to the nursing home is fully backed by the Australian Government.
About the DAP
The Daily Accommodation Payment (DAP) is simply a refundable accommodation deposit (RAD) converted to a daily payment. You should know that a DAP payment is not refundable. For some people, the benefit is that the DAP might be an easier option than paying a lump sum up front.
A Daily Accommodation Payment is calculated from a RAD by dividing the lump sum figure by 365 days. However, the RAD is first multiplied by the maximum permissible interest rate (MPIR).
It is calculated in the following way:
DAP = (RAD x MPIR) ÷ 365
Below is an example using a RAD of $350,000 and a MPIR of 8.15% (current at October 2023)
DAP = ($350,000 x 8.15%) ÷ 365
DAP = ([$350,000 ÷ 100] x 8.15) ÷ 365
DAP = ($3,500 x 8.15) ÷ 365
DAP = $ 28,525 ÷ 365
DAP = $ 78.15
A combination of RAD and DAP payments
You can make a combination of RAD and DAP payments. The more you pay upfront via the RAD, the lower the DAP payment will be.
Below is an example of a combined RAD and DAP payment based on a RAD of $350,000. In this example, the resident has $125,000 money available for a part payment of the RAD. This means that the DAP is worked out on the remaining RAD amount of $225,000.
DAP = ($225,000 x 8.15%) ÷ 365
DAP = ([$225,000 ÷ 100] x 8.15) ÷ 365
DAP = ($2,250 x 8.15) ÷ 365
DAP = $ 18,337.5 ÷ 365
DAP = $ 50.24
So here instead of paying the full RAD of $350,000 you would pay a part payment of a RAD of $125,000 as well as a DAP of $50.24