Financial Adviser Shane Fisher breaks down some of the key proposals put forward by the Aged Care Taskforce.
The Australian Government introduced the Aged Care Bill 2024 to Parliament on 12 September 2024. The Bill is for a new Aged Care Act and is in response for the final report from the Aged Care Taskforce, which made 23 recommendations aimed at reforming Australia’s aged care system, specifically around fees and funding. The report is a lot to navigate on your own so below I breakdown of some of the key proposals and the potential impacts before the Aged Care Act commences, which is expected from 1 July 2025.
Increase in Refundable Accommodation Deposit (RAD) Threshold
Current Situation: Aged care facilities require government approval to set RAD prices above $550,000.
Proposed Change: The RAD price threshold would rise to $750,000. This increase reflects the rising cost of aged care accommodation and may affect most residents as many facilities charge close to the current cap.
3% Levy on RADs
The taskforce recommends introducing a 3% annual levy on RADs, capped after five years in aged care.
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- For a RAD of $550,000, the annual deduction would be $16,500, amounting to $82,500 over five years.
- For a higher RAD of $750,000, the total deduction would reach $112,500 over the same period.
Long-Term Proposal: The taskforce suggests eventually phasing out RADs entirely after 2035, moving to a rental model for accommodation payments. This model would eliminate the option to pay via lump sums and require a daily rental fee based on interest rates.
Impact of the Rental Model
The rental model uses a government-set interest rate (currently 8.38%), and the daily accommodation payments could be significant.
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- For a RAD of $550,000, the daily accommodation payment is $126, or $46,090 annually.
- For a $750,000 RAD, the daily charge is $172, amounting to $62,850 per year.
Effect on Pensions: If the lump-sum RAD option is removed, this could increase the cost of aged care, particularly for those relying on pensions, as RADs are currently exempt from pension asset testing.
Increase in Basic Daily Fees
- The Basic Daily Fee, which all residents pay (currently set at 85% of the Age Pension, or $61 per day), could see increases.
- The report recommends a tiered system where wealthier residents (those not fully reliant on the pension) contribute more. The government might also end its current $11 per day subsidy.
Flexibility in Pricing: Homes could be allowed to charge higher daily fees in exchange for better services, with transparency through published pricing and regular reviews.
Means-Testing Adjustments
The report suggests overhauling means-testing to be “simpler and fairer,” aligning aged care means testing with pension rules.
- Impact on Homeowners: Currently, a home is exempt from asset testing if a partner or “protected person” lives there, including carers or relatives. Any change to this exemption could have serious implications for carers and family members living in the home.
The taskforce did not offer specific changes but indicated the need for more tiered contributions based on a resident’s financial situation, categorised as full pensioners, part pensioners, or self-funded retirees.
Future Funding and Contribution Caps
Currently, residents contribute a capped amount towards care fees: $32,700 per year and $78,500 over a lifetime. The taskforce suggested removing these caps if the government does not fully fund aged care in the future. This could result in residents paying a larger share of their care costs.
Government’s Share: The government currently covers 94% of residential aged care costs, with residents contributing the remaining 6%. If the caps are removed, residents would likely pay more.
Who Will Bear the Costs?
The report ruled out introducing a new tax or levy on the public to fund aged care. Instead, it proposed shifting the burden onto residents through increased fees and contributions. While the government has yet to decide which recommendations it will implement, it appears likely that the cost of aged care will rise for individuals, especially those who are better off financially.
Conclusion
The Aged Care Taskforce’s report outlines significant changes to aged care funding, including increased RAD thresholds, a 3% levy, the eventual phasing out of RADs, and increased fees for wealthier residents. While the changes are designed to make aged care funding more sustainable, they may also lead to higher costs for residents, particularly those who can afford to contribute more. The government has not yet committed to which recommendations it will adopt, but these changes suggest that aged care will become more expensive, particularly for wealthier Australians.
If you are thinking about aged care for yourself or loved ones it is important to consider the impact the proposed changes may have on you.
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