Aged care costs are an important consideration to not only determine which aged care facility is appropriate for you, but also in helping calculate how aged care fees and charges will be funded.
This simple explanation gives you an overview of all the types of fees you’ll come across when deciding on an aged care home.
In This Article
- Residential Aged Care Costs In Australia
- Aged Care Fees and Charges
- Low-Means Residents
- Who Pays for Aged Care in Australia?
- Accommodation Fees & Payment Options
- Total Costs of Aged Care: How Much Do You Have to Pay?
- Aged Care Costs Example
- Frequently Asked Questions (FAQ’s)
Residential Aged Care Costs In Australia
When it comes to residential aged care fees in Australia, some costs are fixed by the Government, others are set by the aged care home and some are means-tested. We’ll go through each of these types of fees, below.
To understand what your aged care costs will be, you first need to understand the types of fees and how they apply to your situation.
Aged Care Fees and Charges
The types of aged care home fees include the following:
- Basic Daily Care fee
- Means-Tested Care fee
- Refundable Accommodation Deposit (RAD)
- Daily Accommodation Payment (DAP)
- Additional Services fee
1. Basic Daily Fee
The Basic Daily Care fee is a fee that is payable by everyone who enters residential aged care. The fee is designed to cover the cost of care, daily living, meals, cleaning, laundry, and heating & cooling. The Basic Daily Care fee is a set amount that is always calculated as 85% of the single Age Pension rate.
The Basic Daily Care fee rate is the same for everybody, regardless of whether or not you receive Age Pension entitlements.
The Basic Daily Care fee increases with the cost of living every 20th of March and 20th of September.
How Much is the Basic Daily Care fee?
The rate of the Basic Daily Care fee as of 20th September 2023 is $60.86 per day. This fee is set by the Government.
Pro Tip: An aged care home may charge the Basic Daily Care fee up to 7-days prior to moving in. It will also be charged on days you are on temporary leave and not staying at the aged care home, such as when you are in hospital or on social leave.
The next type of fee to be aware of is the Means-Tested Care fee.
2. Means-Tested Care Fee
The Means-Tested Care fee is a fee that is required to be paid, in addition to the Basic Daily Care fee, to assist with the costs of your care.
Most nursing home residents will have their fees subsidised, but the subsidy effectively reduces as a result of the Means-Tested Care fee.
The Means-Tested Care fee is calculated using your assessable income and assets, based on a hybrid formula. The higher your income and assets, the more you will pay as a Means Tested Care fee. However, there are maximum annual and lifetime caps that apply, as explained below.
How is the Means-Tested Care Fee Calculated
When you complete the Residential Aged Care Calculation of your Cost of Care form (SA457), your Means-Tested Fee will be determined by Services Australia and your aged care home will be notified.
Processing the SA457 form can take several weeks to complete, so some aged care homes may ask for information of your income and assets to calculate an Interim-Means Tested Care fee. This will be charged until the official assessment is finalised. Any over or under payment during the interim will then be credited or debited.
If you choose not to complete and submit the form to disclose your income and assets, then you will not have your aged care fees subsidised and will be charged the maximum Means Tested Care fee.
If you are a member of a couple, your combined income and assets will be used to calculate the Means-Tested Care fee, with exactly half of the income and assets used to calculate your fee, regardless of who owns the assets or earns the income.
As your assets and income change over time, so too will your Means-Tested Care fee. You are required to update Services Australia through your MyGov account (or via phone) of any updates to your personal and financial circumstances that will affect your aged care fees. The Government will also review your income and assets every three months and adjust your Means-Tested Care fee accordingly.
How Much is the Means-Tested Care fee?
The rate of the Means-Tested Care fee as of 20th of September 2023 is $364.67 per day, up to a maximum of $32,718.57 per year and $78,524.69 over your lifetime. This fee is set by the Government.
Pro Tip: Your family home is not assessed for Means-Tested Care home purposes if a Protected Person will continue to live in it. Also, if you were paying a home care package prior to moving into aged care.
Now that we’ve covered the Basic Daily Care fee and the Means-Tested Care fee, the next cost to consider is the Refundable Accommodation Deposit (RAD). The RAD is a bond paid to the aged care home and is arguably the largest cost consideration when it comes to residential aged care.
3. Refundable Accommodation Deposit (RAD)
A Refundable Accommodation Deposit is a lump sum value that an aged care will request is paid as a bond towards aged care costs. Though, importantly, there is no requirement to pay any lump sum amount towards the RAD.
The RAD can be paid in full, in part or not at all. However any part of the RAD that is not paid will need to be paid as a Daily Accommodation Payment (DAP) – see Daily Accommodation Payment below.
Every aged care home sets a Refundable Accommodation Deposit sum for each room within their aged care facility. Generally, the fancier the room, the higher the RAD will be. For example, a higher RAD amount will apply to a non-shared room with its own bathroom in a 5-star facility, compared to a shared room with a shared bathroom in a 3-star facility.
A RAD will generally range between $300,000 and $1.5 million.
The only instance where a RAD (or DAP) is not required to be paid is where the aged care resident has been assessed as a low-means resident – see Low-Means Resident below.
4. Daily Accommodation Payment (DAP)
A Daily Accommodation Payment (DAP) is a monthly payment required to be made on any unpaid RAD. Therefore, if you pay the RAD in full, no DAP will be payable.
The DAP is calculated as the unpaid RAD multiplied by the Maximum Permissible Interest Rate (MPIR). The MPIR as of October 2023 is 8.15% p.a.
So, as an example, if the aged care facility had a RAD of $600,000 and you paid $500,000 towards the RAD as a lump sum, there would be $100,000 outstanding. In this instance, you would be required to pay a DAP equal to $100,000 x 8.15% = $8,150 per year ($679.17 per month).
There is also the option of having the DAP payment deducted from the amount you contributed towards the RAD, instead of paying the RAD from your personal bank account. However, if you choose to have the DAP deducted from the RAD, your DAP will increase each month at a compounding rate, because your effective outstanding RAD amount will be continually increasing.
5. Fees for Additional Services
Additional Services Fees, also referred to as Extra Services Fees, are fees for services such as:
- Cable Television / Streaming Services
- Phone & Internet
- More Meal Options
Not all aged care homes will offer additional services. Those aged care homes that do will often have it as a mandatory service, while others will have it as optional.
Additional Services Fees will generally range between $5 and $80 per day.
Certain residents of an aged care facility will not be required to pay the aged care home’s RAD or an associated DAP. Such residents are referred to as Low-Means Residents and have their aged care fees be either fully-supported or partially-supported through government funding.
A resident is Low-Means if, upon initial admission to aged care, they are assessed as Low-Means, generally due to having assessable assets below the First Asset Threshold.
The First Asset Threshold from 20 September 2023 is $197,735.
Once a resident enters aged care as a Low-Means resident, they will remain assessed as Low-Means for the duration of their stay. However, an ongoing assessment of income and assets will continue to apply to determine if a Daily Accommodation Contribution (DAC) is payable.
Daily Accommodation Contribution (DAC)
A Daily Accommodation Contribution (DAC) will be payable by a Low-Means resident on any given day if the assessment of their income or assets exceeds either the Asset Free Threshold or the Income Free Area.
The Asset Free Threshold from 20 September 2023 is $58,500.
The Income Free Area from 20 September 2023 is $32,331 for a single person and $31,707 for each member of a couple separated by illness.
Assets and income below these amounts will mean the Low-Means resident is fully-supported. Assets and income above these amounts will mean the Low-Means resident is partially-supported.
The DAC payable by an aged care resident will be calculated based on how much their assets or income exceed the Assets Free Threshold and Income Free Area.
A resident also has the option of paying a Refundable Accommodation Contribution (RAC) in full, so that no DAC is payable, or partially-pay the RAC to reduce the DAC. A RAC is a lump sum contribution payment towards aged care – similar to a RAD -that will reduce the DAC payable.
Refundable Accommodation Contribution (RAC)
The way to calculate the full RAC amount is to divide the annual DAC amount by the MPIR. For example, if the DAC is calculated as being $50 per day, the annual DAC would be $18,250 ($50 x 365 days). This $18,250 is then divided by the MPIR (8.15% p.a. As of September 2023) to determine the RAC of $223,926.
This RAC amount can then be paid in full or in part. Any unpaid RAC will then be paid as a DAC. It’s important to be mindful that a RAC will change regularly based on the aged care resident’s change in income or assets.
So, who is responsible for paying each of these aged care fees and what payment options are available?
Who Pays for Aged Care in Australia?
Any resident entering an aged care facility in Australia will be required to pay for their own aged care costs. However, some aged care residents will be fully or partially supported if assessed as low-means upon entry.
- BDCF – All residents are required to pay the Basic Daily Care fee.
- RAD, DAP, RAC & DAC – All residents will also pay a RAD and/or DAP, unless assessed as low-means. A low-means resident will pay a RAC and/or DAC, instead,
- MTF – All residents could potentially pay a Means-Tested Care fee, based on their level of assessable income and assets.
- ASF – Additional Services Fees are paid by aged care residents if required by the aged care home.
Importantly, as best practice, all fees should be paid from the aged care resident’s personal bank account. If a family member is assisting with any fees, it should ideally be paid to the resident’s bank account first, then to the aged care facility.
Furthermore, when it comes to payments made towards the RAD or RAC, a person other than the aged care resident should be mindful of the implications in making payments towards the RAD or RAC with monies other than the residents. This is because such deposits and contributions will form part of the resident’s assets and therefore assessed for Centrelink and aged care purposes. Plus, such payments may end up forming part of the resident’s estate.
Read more: Who Pays for Aged Care in Australia?
Accommodation Fees & Payment Options
When it comes to aged care accommodation fees, there are a number of payment options. Some fees are fixed, others are means-tested and others are set by the aged care home.
Let’s take a look at the options available with each type of aged care cost.
- Basic Daily Care Fee – Mandatory payment of $60.86 per day to be paid by the aged care resident.
- Means Tested Care Fee – Means-tested fee ranging from $0 per day to $400.08 per day, limited to an annual maximum of $32,718.57 and a lifetime maximum of $78,524.69. This is to be paid by the aged care resident.
- Refundable Accommodation Deposit (RAD) – Optional lump sum payment to be contributed to the aged care provider and paid by the aged care resident. A RAD generally ranges from $300,000 – $1.5M.
- Daily Accommodation Payment (DAP) – Compulsory payment calculated as the unpaid RAD multiplied by the MPIR. This will be $0 per day if the RAD is paid in full. The DAP can be paid by the aged care resident or be deducted from the lump sum RAD payment (effectively reducing the RAD balance each month).
- Refundable Accommodation Contribution (RAC) – A RAC is applicable to low-means residents only and payable instead of a RAD. It is an optional lump sum payment to be contributed to the aged care provider and paid by the aged care resident. A RAC is a variable value based on the resident’s level of assessable income and assets and the MPIR.
- Daily Accommodation Contribution (DAC) – A DAC is applicable to low-means resident’s only and payable instead of a DAC. This is a compulsory payment calculated as the unpaid RAC multiplied by the MPIR. This will be $0 per day if the RAC is paid in full. The DAC can be paid by the aged care resident or be deducted from the lump sum RAC payment (effectively reducing the RAC balance each month).
- Additional Services Fee (ASF) – The Additional Services Fee is set by the aged care facility. This payment could be optional or mandatory. It is usually paid from the aged care resident’s bank account, but some homes will allow the fee to be deducted from the RAD (effectively reducing the RAD balance each month).
There you have it – all of the types of aged care costs, together with the payment options of each.
Total Costs of Aged Care: How Much Do You Have to Pay?
The amount of aged care costs you have to pay is a culmination of all the types of fees involved, as explained above. The total amount can vary significantly from one person to another, based on:
- The aged care home chosen; and
- The resident’s level of income and assets.
The total fees paid by an aged care resident can range from a minimum of $22,214 per year up to more than $200,000 per year.
Aged Care Costs Example
To help understand the application of aged care costs, it might be useful to see an example.
Mary is 88 years of age and single. Her daughter, Sophia, is helping her transition into aged care.
Mary has a home valued at $1,000,000 and $50,000 in her bank account and $300,000 in a term deposit.
Sophia has found a nice aged care home for Mary, which has a Refundable Accommodation Deposit (RAD) of $600,000 and an Additional Services Fee of $10 per day.
If it is decided to keep Mary’s home and rent it out on the open market for $900 per week and use $200,000 to pay towards the RAD, then Mary’s aged care fees would be:
|Fee Type||Amount (per year)|
|Basic Daily Fee||$22,214|
|Means-Tested Care Fee||$15,021|
|Additional Services Fee||$3,650|
|Daily Accommodation Payment (paid on outstanding RAD)||$32,600|
|Total Fees Payable||$73,485|
If it is decided to sell Mary’s home and use $600,000 to pay the RAD in full, then Mary’s aged care fees would be:
|Fee Type||Amount (per year)|
|Basic Daily Fee||$22,214|
|Means-Tested Care Fee||$20,165|
|Additional Services Fee||$3,650|
|Daily Accommodation Payment (paid on outstanding RAD)||$0|
|Total Fees Payable||$46,029|
As you can see, aged care fees for the one person in the exact same financial position can vary significantly depending on how assets are structured and the decisions made in relation to funding aged care.
At Core Value Aged Care Advice, we will help you navigate the complexities of aged care and find the best financial solutions for your family. If you have any questions or concerns regarding your situation, please call us on 1300 944 011 to speak with an expert aged care adviser today
Frequently Asked Questions (FAQ’s)
Listed below are some frequently asked questions relating to Aged Care costs.
What Is the Average Daily Cost of Aged Care in Australia?
The average daily cost of aged care in Australia would be around $60 – $100 per day, based on someone with assessable assets of up to $1 million. This assumes that the RAD has been paid in full and there is no Additional Services Fee.
What Happens When You Run Out of Money in Aged Care?
When you run out of money in aged care, you can apply for financial hardship through Services Australia to receive the hardship supplement. The hardship supplement applies to aged care residents who are in financial hardship and/or cannot pay for aged care costs due to circumstances beyond their control. However, some aged care homes may require another person (such as a family member) to be guarantor and responsible for the resident’s aged care fees in the instance where they are unable to cover their own fees.
Do You Have To Sell Your House To Go Into a Nursing Home in Australia?
You do not have to sell your house to go into a nursing home in Australia. Selling your home might assist you with paying for nursing home costs, but there is no requirement for you to do so. In fact, in some instances, keeping your house can result in lower aged care costs and higher Age Pension payments.
How Do You Reduce Cost in Aged Care?
There are several ways to reduce costs in aged care. These include:
- Choosing an aged care home with a lower advertised Refundable Accommodation Deposit (RAD);
- Choosing an aged care home with a lower Additional Services Fee (ASF) or no ASF at all.
- Providing financial gifts to loved-ones, within the allowable gifting limits.
- Purchasing a funeral bond or prepaying a funeral.
- Reducing assessable income and assets, such as keeping the family home, if affordable and viable.
- Making sure home contents are valued at fire-sale value, not replacement value.
- Seek advice from a specialist aged care financial adviser on strategies suitable for your situation.
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