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Aged care reforms from a residents perspective

Richard McCullagh - Tuesday, August 05, 2014

By Richard McCullagh

  • BA LLB,
  • author of ‘Retirement Village Law in NSW’ published by Thomson Reuters,
  • Adjunct lecturer in Elder Law at The College of Law and
  • Legal director of Patrick McHugh & Co Pty Limited, Solicitors

Major reforms to residential aged care commenced on 1 July 2014 under the Aged Care (Living Longer Living Better) Act 2013 (Cth) (No.76 of 2013), and associated regulations (or ‘principles’), notably the Fees and Payments Principles 2014 (No.2). Let’s call this the ‘new regime’ which applies, for the purposes of this article, to all residents entering into permanent residential aged care on or after 1 July 2014.

For all residents who moved into care before then, the ‘old regime’ under the Aged Care Act 1997 (Cth) as it applied immediately before then continues to apply, modified by some of the new principles.

It will be convenient to outline the changes wrought by the new regime by distinguishing between accommodation costs and care costs to residents and for readers to consult the following legend of new acronyms.

LEGEND of (mostly) new aged care acronyms
ACAT  Aged care assessment team
ACFI    Aged care funding instrument
ACPC   Aged Care Pricing Commissioner
ATA     Asset tested amount
BSA     Basic subsidy amount
DAP     Daily accommodation payment
FAT     First asset threshold
IFA      Income free area
ITA      Income tested amount
MASA  Maximum accommodation supplement amount
MPIR   Maximum permissible interest rate
MTA    Means tested amount
MTCF  Means tested care fee
PSA     Primary supplement amounts
RAD    Refundable accommodation deposit
SAP     Single age pension, maximum
SAT     Second asset threshold
SCR     Standard resident contribution
TAI      Total assessable income


Assessment

Admission to a nursing home (as they used to be called) requires an assessment by the Aged Care Assessment Team (ACAT) that a person needs ‘24/7’ care. There is a detailed ‘score sheet’ assessing various conditions and behaviours called an Aged Care Funding Instrument (ACFI). This determines the care provider’s entitlement to, amongst other things, a ‘basic subsidy amount’ (BSA) and to any ‘primary supplement amounts’ (PSA) for special conditions, in respect of the resident. 

Synopsis

The new regime in some superficial ways simplifies, but for the most part complicates, matters for a resident moving into permanent residential aged care on or after 1 July 2014. On the other hand, in adding an assets test, it is arguably more equitable to taxpayers in much the same way as income tax came to be supplemented by capital gains tax. For similar reasons, it is likely that over time the exemption for the value of the family home will diminish.

What’s totally gone

The most dramatic, and simplifying, reforms are the following:

  • The distinction between High, Low and Extra care levels has been abolished.
  • The corresponding distinction between a lump sum Accommodation bond and a periodic Accommodation charge has gone with it.
  • Retention amounts on lump sums (up to $331/m for up to 5 years) can no longer be charged.

What’s been tweaked

In terms of accommodation costs,

  • The old Accommodation bond has morphed into the new lump sum ‘refundable accommodation deposit’ (RAD), still payable as an equivalent ‘daily accommodation payment’ (DAP), being the RAD multiplied by the maximum permissible interest rate (MPIR), currently 6.63% pa to give the DAP, as has been the case with bonds.
  • The RAD must not exceed $550,000 without the prior approval of the new Aged Care Pricing Commissioner (ACPC), and must be advertised including on the government’s MyAgedCare website.
  • The care provider cannot charge a resident more than the advertised and, (if applicable) approved, RAD or DAP, or combination of both.
  • The resident has 28 days from entering into permanent care to decide which way to pay, or in what proportions of lump sum and daily equivalent, but can always elect to increase the RAD component later (eg on the sale of an asset or receipt of a bequest).
  • The same minimum resident asset threshold of $45,000 still applies, under which no RAD or DAP may be charged, subject to a new one (see below).

As to care costs,

  • The Basic daily fee has been re-named the ‘Standard resident contribution’ (SRC) but it is still currently $46.50/day, or 85% of SAP.
  • The Income tested daily fee has been re-named the ‘means tested care fee’ (MTCF), confusingly equivalent to the ‘care subsidy reduction’ (CSR), and is still subject to an annual cap, apparently a slightly lesser amount of $25,000 pa. However, as the name suggests, it now has a stand-alone asset component (see below).
  • Extra service fees still apply and require Departmental approval but they may apply to an individual bed or a room, and for particular services, rather than the whole, or substantial part, of a facility.

What’s totally re-vamped

For accommodation costs,

  • The big change is the across-the-board availability of a lump sum or daily equivalent or combination of both, rather than this being confined to Low or Extra Service care as under the old regime.
  • An additional threshold also applies, whereby a resident’s means tested amount must exceed the ‘maximum accommodation supplement amount’ (MASA), currently $52.49/day (see below).

The really big-ticket item is the means test and co-contribution for care costs.

  • The income test has been re-cast.
  • There is a new stand-alone assets test.
  • These are aggregated to give the MTA. Under the old regime, the greater of the assets test or income test under the Social Security Act 1991 (Cth) as applying to the pension was used.
  • This is used to calculate a means tested care fee (MTCF).
  • In addition to the annual cap under the old regime, there is a new lifetime cap on the MTCF of $60,000, after which it reduces to nil. This roughly equates to 2.2 x the annual cap, which period happens to be the average stay of a female in aged care, according to the Productivity Commission’s 2011 report ‘Caring for Older Australians’.

Income test

Most ordinary income under the Social Security Act is counted, including deemed income on financial and ‘gifted’ assets for pension purposes as well as the pension itself, but rent from the former home is still excluded while a DAP is payable. Income for members of a couple is combined and half attributed to each.

From this ‘total assessable income’ (TAI) is subtracted the ‘total assessable income free area’ (IFA), currently $951.20/fn or nearly $25,000 pa. The excess is halved and divided by 364 to give a daily ‘income tested amount’ (ITA).

Income tested amount:
If (TAI < IFA) then ITA = 0
or
If (TAI >= IFA) then ITA = [(TAI – IFA) x 50%] / 364

 

Assets test

Again, most ordinary assets are included but not the value of the former home if still occupied by a partner (or certain carers or relatives) when entering care. If not so occupied, the value exceeding a threshold, currently $154,179, is excluded for the purposes of the means tested care fee (s 44-26A(7)) while the whole value is included for determining the refundable accommodation deposit (s 52J-5(3)(b)).

As under the Social Security Act, assets of members of a couple - whether owned jointly, solely or as to a part interest co-owned with a third party – these are all combined (or the value of the part interest, if applicable) and, after deduction of loans and other debts, half the net total is attributed to each member.

There are a number of sequential thresholds that apply here according to the level of net assets.

  • If total assessable net assets (which may exclude the home) are less than the ‘asset free area’ (AFA) currently $45,000, the ‘asset tested amount’ (ATA) is zero.
  • If this exceeds the AFA but not the ‘first asset threshold’ (FAT), currently $154,179, then multiply the excess by 17.5%.
  • If this exceeds the FAT but not the ‘second asset threshold’ (SAT), currently $372,537, then multiply that excess (between FAT & SAT) by 1%.
  • If this exceeds SAT, then multiply the excess above SAT by 2%.
  • Add up all the above excesses, as applicable, and divide by 364 to give a daily ‘asset tested amount’ (ATA).

Asset tested amount:
If (net assets < AFA) then ATA = 0
or
ATA = {[17.5% x (FAT – AFA)]+[1% x (SAT-FAT)]+[2% x (assets > SAT)]} / 364


Means tested amount

The income tested amount and asset tested amount are ‘simply’ combined to give the means tested amount.

Means tested amount:
ITA + ATA = MTA


Means tested care fee

The MTCF uses a combination of figures, some of which are specific to the particular resident and others of which are generic.

When a resident is assessed as mentioned above, the ACFI will result in a determination of his or her level of dependence and the care provider’s entitlement to a ‘basic subsidy amount’ (BSA) of anywhere between $35 and $200/day and, if applicable, ‘primary supplement amounts’ (PSA) for needs such as oxygen and enteral feeding. This represents the actual cost of care to the government for the particular resident.

More generically, the ‘maximum accommodation supplement amount’ (MASA) represents the maximum amount the government would pay to a care provider for accommodation of any resident, currently $52.49/day.

Now, if the resident’s assessed MTA above is less than MASA, there is no co-contribution. If the resident’s means exceed that subsidy but are less than the actual cost of care, then the co-contribution is equivalent to the difference. Finally, if the resident’s means exceed the cost of care, the co-contribution is limited to that cost of care.

Means tested care fee:

If (MTA < MASA) then MTCF = 0
or
If [MTA => MASA & < (BSA + PSA)] then MTCF = (MTA – MASA)
or
If [(MTA – MASA) > (BSA + PSA)] then MTCF = (BSA + PSA)


 'The old annual cap still applies, now said to be $25,000 pa, as well as a new lifetime cap of $60,000.'

Some observations

If a resident owns a former home and upon entering into permanent residential care it is still occupied by a partner (or certain carers or close relatives) it will be an exempt asset for aged care and pension purposes. If later sold while the resident is still in care, this will not alter his or her accommodation costs (though the RAD component could be increased) but it may result in a revision of the co-contribution.

Alternatively, the former home may be vacant upon moving into care.  The value will be fully included for the purposes of the determining whether an accommodation payment (RAD/DAP) is payable and the value under a threshold, currently $154,179, is included for the purposes of calculating the co-contribution (MTCF).

If the resident has sufficient assets to pay the accommodation payment in part by lump sum (RAD) and in part by the daily equivalent (DAP) and the inclination to retain and rent the former home, that combination will maintain the exempt status of the home for pension purposes beyond the usual 2 years and the rental income will be exempt for both pension and aged care purposes, ie the income test for the means tested care fee (MTCF). The non-home assets applied to pay the lump sum (RAD) component will be exempt from the pension assets test but not the aged care assets test.

However, for residents moving into care one or after 1 January 2016, the exemption for rental income from the principal home while paying a DAP will still apply for pension purposes but not for the income test for aged care. That income is now assessable under the means tested care fee.

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