With care reforms looming for the elderly next year, it may be prudent to assess a loved one's finances now.
The decision about whether it is time for mum or dad to move into an aged-care facility is never an easy one, but this year there is more incentive than ever to get a wriggle on.
Although the bulk of the government's aged-care reforms are not due until July 2014, some people may be better off securing a place under the current rules.
Rachel Lane, the founder of consultants Aged Care Gurus, says the people who will have the biggest issue with the new funding arrangements are "those who are going to sell their house [to fund an accommodation bond] and their house is worth more than the bond".
At present, people can negotiate with aged-care facilities to pay a higher bond than required in return for a reduced daily care fee and a potential increase in their age pension entitlement.
But under the proposed changes, facilities will have to charge market prices for accommodation bonds, up to a maximum of $500,000. The current average for a bed in a metropolitan facility is about $350,000.
Under the new rules, the family home will remain exempt from means testing. But if the family home is sold for more than the bond charge, the difference will be assessed when determining the aged-care contribution, daily fees and age pension entitlement.
The government argues that greater choice and flexibility in the way people fund their aged care will reduce the need for a fire sale of the family home to pay an upfront accommodation bond, but there could be unintended consequences.
"They are creating a situation where people who would prefer to sell their home will probably keep it," Lane says. Worse, people who might currently secure a bed with a heavily discounted bond payment because they are effectively cross-subsidised by people who choose to pay a higher bond may lose out entirely.
"The irony is that they are the ones that are happy about bonds being capped at $500,000," Lane says.
With so much focus on bonds and the sale of the family home, there is a tendency to overlook daily fees and charges. These are also set to rise (see box), which could be an incentive for anyone who will be worse off by the new assets and income thresholds to act sooner rather than later.
The first step towards securing government-funded help is to get in touch with an Aged Care Assessment Team (ACAT). This can be arranged through hospitals or your family doctor.
In the lead-up to July 2014, Lane expects aged-care facilities to begin publishing their bond prices online and in paper documents voluntarily.
The decision about whether to move now or wait until after July 2014, and whether to sell the family home or keep it and leave it vacant or rent it, will depend on an individual's needs and financial situation.
Due to the complexity of the system, the government recommends people seek financial advice from a specialist before they act.
Reforms are to be introduced over five years.
- Home care: Increased number of home care packages but there will be means-testing fees for in-home services such as personal care, housework, gardening and shopping. Full pensioners will pay only a basic fee equal to 17.5 per cent of the full single pension. For others, contributions will be capped at $5000 a year for incomes up to $43,186 (singles) and $66,134 (couples) and $10,000 for people on higher incomes. A lifetime cap of $60,000 will apply for everyone in home-based and residential care.
- Accommodation bonds: An inequity in the current system is that people in low-care facilities pay a bond while those in high-care don't. Under the reforms this will be removed and residents will choose a fully refundable lump-sum bond, a daily charge or a mix of the two. Charges will be subject to assets and income tests, but the family home is exempt. Residents with assets above $153,905 or income above $63,905 a year will pay the maximum amount of $52.84 a day, up from the current maximum of $32.58. People who pay a lump-sum bond will be exempt from the assets test.
- Daily care fees: Care contributions will be based on assets and income tests from July 2014. Low-income residents with assets below $40,500 will not pay a fee. Currently the fee is not asset-tested, which means asset-rich but income-poor residents do not contribute to their care.
The aged parent trap
People who would prefer to sell their home will probably keep it.
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