When moving into residential care in Australia, there are four main costs to consider. Understanding these fees is essential for making informed decisions about your parent's care. In today’s blog, I want to zoom in on the RAD – the fee that I get the most questions about.
Before we jump in, here’s a summary of the different fees paid by an Aged Care Resident and how they contribute to overall care:
Means-Tested Care Fee (MTCF)
This fee contributes to the cost of care and is calculated based on your parent's income and assets (their financial means). This assessment follows similar rules to the Centrelink Aged Pension, with a few minor changes we will cover in another blog.
Basic Daily Fee
This fee covers basic living costs such as meals, cleaning, and laundry. Everyone pays the same amount regardless of their financial position, and it is pegged to 85% of the Single Person Aged Pension amount.
Additional Services Fee
Not all facilities charge this fee, but it is increasingly common. It usually ranges from $1-20 a day (sometimes more) for extra services like higher-quality meals or entertainment options. In my experience, this fee often goes towards providing much better food and comfort for residents and is very worthwhile.
Can My Parents Afford This Aged Care RAD?
This is the second most common question I get in Aged Care (next to if they should sell the family home). Clients often come in with two options, one RAD of $550,000 and another of $300,000, commenting that "Mum just can’t afford the more expensive option, but it just feels better."
The first thing to know is that RADs must be advertised and can be referred to as Room Prices. You can also negotiate your RAD; however, the facility cannot charge you more than the advertised rate.
It’s also important to know that you don’t have to pay it all to move in. While they are quoted as a Lump Sum, they can also be paid as a Daily Accommodation Payment (DAP) or as a combination of both. The DAP is calculated based on the RAD amount left unpaid and works like an interest-only payment on a mortgage. The interest rate is set by the government and is known as the MPIR (Maximum Permissible Interest Rate). The current rate is 8.36% (as of 1 July 2024) and is fixed the day you move into care. This allows families to choose a payment option that best suits their parent's financial situation.
Let’s Look at an Example
Meet Gayle: She has $500,000 in her bank account and a RAD quoted at $500,000.
Full Payment: If she paid the whole RAD, she would have no DAP, as there is no outstanding amount, but she would also have no money left in the bank.
Part Payment: If Gayle paid $400,000 as a Lump Sum, she would have $100,000 left outstanding (Part RAD), which would cost $22.90 per day ($8,360 per year).
No Payment: Gayle could also opt to just pay the DAP, which on an outstanding balance of $500,000 would cost her $114.89 per day ($41,940.85 per year).
This is not an uncommon conundrum. How do we get Mum or Dad into the best facility that they can afford without them running out of money? With an MPIR of over 8%, it is quite difficult for other investments to provide a better rate of return net of tax, so serious consideration needs to be placed into the investments, any capital gains liabilities, and their estate wishes.
There can also be added complexity when you include a spouse or dependent not in care who relies on these assets for income.
Couldn’t We Just Take Money Out of the RAD?
No, once money has been paid into the RAD, you cannot withdraw it unless you leave the facility or pass away. In either of those events, you will get 100% of the money back, and it must be paid within 14 days (pending Probate in the case of your parent passing)
That being said, you can fund your DAP from your RAD. I’ll leave you to read that sentence again. Say we looked at the Part Payment example above. Gayle could draw her DAP from her RAD balance. This year she has a balance outstanding of $100,000. In one year’s time, the outstanding RAD would be $108,718.35 (accumulating based on the daily payment, invoiced monthly). This can be an effective way to help manage cash flow but can creep up on you as well, as the DAP increases with the higher balance.
Some facilities may also let you draw your other Aged Care fees from the RAD; however, this is at their discretion.
When Do I Need to Decide?
When first moving into care, a new resident has 28 days to decide how they want to make the payment. Once they have moved in, the RAD is not closed to additional payments, so you can always pay more amounts in the future, paying the DAP in between. This is usually the case where you need to sell assets to fund the RAD – you can make them in interim payments.
How Does Centrelink Assess the RAD?
Centrelink assesses it in two distinct ways, as they assess both for the Aged Pension and the Means-Tested Care Fee.
For the Aged Pension (as well as Carer’s Payment and Disability Support Payment), Centrelink does not include amounts paid into the RAD as assessable assets.
For the Means-Tested Care Fee, any payment made onto the RAD is still included in your assessment.
Rooms Over $550,000
There is a special rule for RADs quoted above $550,000. To advertise that rate, the facility must have that room approved by the Independent Health and Aged Care Pricing Authority (IHACPA). This approval relates to what additional benefits the resident gets for paying a much higher RAD. Interestingly, this rate has not been indexed, so more and more rooms are hitting this limit.
The RAC and a Couple Moving Into Aged Care Together.
For those with lower financial means, a Refundable Accommodation Contribution (RAC) may be required instead of a RAD. The RAC is calculated based on your parent's financial means and works similarly to the RAD. You can learn more about being low means by clicking here.
Where you have a couple moving in together, timing becomes very important as one entrant may be classes as Low Means. This can be problematic if as it's possible for the RAC to be higher than the RAD. This is a great opportunity to discuss and negotiate with the facility at fixing the room Prices, particularly if your parents share a room. I would advocating seeking advice if this is the situation, as it's easy to miss the small details that make the world of difference.
In Closing
There are a range of options to get your parents into care, no matter their financial capacity. With a greater understanding of these costs and payment options, you can make better decisions to ensure that your parent receives the best possible care without unnecessary financial strain. Where things get a bit complex or you want to understand the pros and cons of each option, seek advice from an Accredited Aged Care Adviser or reach out.
Resources
For more information or to book an assessment, visit MyAgedCare.
If you suspect a loved one may be experiencing elder abuse, contact the Elder Abuse Phone Line on 1800 353 374.
If you think they are in immediate danger, ring 000 or make a non-urgent report to Crime Stoppers in your state.
Understanding the RAD and other related fees can help you navigate the complexities of aged care and make informed decisions for your loved ones.
