Funding home care strategies and considerations | Accurium

Funding home care strategies and considerations

The Federal Government’s Home Care Packages Program provides subsidised home care services for older people who want to remain in their home. Most people who require care prefer to stay in their home, however, this can be very difficult when their care needs are high and government funding is insufficient to provide the home care services needed.

In this article, we explain how home care packages are provided, how they are funded, and we look at strategies that can maximise cash flow and allow a person with high care needs to remain in their own home as long as possible.

How are home care packages provided?

Home care packages are offered on a consumer directed care basis. This gives recipients more choice for home care services and control over how they are delivered. Providers work in partnership with recipients to develop a home care plan that will meet their care needs.

From 27 February 2017, new home care packages are allocated to the recipient rather than to the provider. Recipients now have the ability to choose their provider and direct the government subsidies and supplements to that provider.

In addition, all home care packages are now portable giving recipients the flexibility to change providers and transfer unspent funds (less exit amounts) accordingly.

How are home care packages funded?

The funds available to provide home care services include government subsidies and supplements and the recipient’s contribution.

Once a recipient enters into a home care agreement, the provider will receive and administer the funds available under the home care package and issue recipients with monthly income and expenditure statements.

Government subsidies and supplements

The Government is the primary source of funding for home care packages, with subsidies determined by the level of home care required. There are four levels of home care packages, with each providing different subsidies towards the total amount of funds available to meet care needs:

Home care subsidy rates1
Home care package level
Subsidy rate (per day)
Level 1 $22.04 
Level 2 $40.09
Level 3 $88.14
Level 4 $133.99

There are government supplements available to provide additional funding for specific care needs:

Dementia and Cognition and Veterans’ Supplement
Home care package level
Amount of supplement (per day)
Level 1 $2.20
Level 2 $4.01
Level 3 $8.81
Level 4 $13.4
Oxygen and Enteral Feeding Supplements
Supplement
Amount of supplement (per day)
Oxygen Supplement
$11.12
Enteral Feeding Supplement – Bolus
$17.62
Enteral Feeding Supplement – Non-bolus
$19.79

Recipient’s contribution

Recipients of a home care package may be asked to contribute a basic daily fee and an income-tested care fee towards the cost of their home care.

The basic daily fee is 17.5% of the basic rate of single Age Pension and is paid by everyone who receives a home care package. The basic daily fee is indexed on 20 March and 20 September each year in line with the indexation of the Age Pension. It is currently $10.10 per day.

The income-tested care fee is determined by a recipient’s assessable income and is in addition to the basic daily fee. Assessable income includes income as assessed under Social Security rules and any Age Pension entitlement (excluding the minimum Pension Supplement and Energy Supplement).

The income-tested care fee is calculated by the Department of Human Services (DHS) and is reviewed quarterly. The amount of income-tested care fee payable reduces the amount of subsidy and primary supplements provided by the Government.

Is the funding enough for a high care needs recipient?

Where a person has high care needs, the funding from their home care package may be insufficient to provide the home care services required. A level 4 home care package provides funding of up to $144.09 per day ($52,592.85 per year)2. However, the cost of home care services and additional fees charged by providers can end up being higher than this amount, resulting in a significant shortfall.

Providers can charge case management and administrative fees to develop home care plans and deliver home care services. These fees are deducted from the home care package funding and reduce the amount available to provide home care services.

The average case management and administrative fees across all levels of home care is 27%3 of Government subsidies.

Opportunities for advice

Opportunities exist for advisers to help people with high care needs who have a shortfall from their home care package. Strategies that increase Age Pension entitlements, reduce the income-tested care fee and maximise cash flow can allow a person to remain in their home for as long as possible. Strategies we often see implemented include:

  • Investing in term deposits and/or cash and drawing down capital as required
  • Investing in Challenger Guaranteed Annuity
  • Investing in Challenger CarePlus
  • Investing in an insurance bond held within a discretionary trust

Case study

Yvonne is single, 80 years old and lives in her own home worth $900,000. She has $10,000 of personal contents and $250,000 in term deposits and cash. She is suffering from dementia and requires constant 24 hour care, however she does not want to move into residential aged care. Her daughter Caroline is currently caring for her and has an enduring power of attorney.

Yvonne has been approved for a level 4 home care package, with the Dementia and Cognition Supplement which provides funding of $57,483.85 in the first year. This includes Yvonne’s basic daily fee of $10.10 per day ($3,686.50 per year).

Caroline works three days a week and would like Yvonne to receive in-home care while she is at work during the day. This will cost $1,440 per week ($74,880 per year) and can be funded partly by her home care package. Caroline has additional expenses of $400 per week while she is caring for Yvonne.

If Yvonne receives in-home care three days a week, the shortfall from her home care package will be $17,396 and she will have a cash flow deficit of $13,632 in the first year.

 

Cash flow summary for first year4
  $250,000 term deposits/cash
Age Pension
$21,534
Interest
$7,5005
Expenses ($400 per week)
($20,800)
Home care shortfall
($17,396)
Total
($9,162)
Basic daily fee
$3,687
Income-tested fee
$783
Total
($4,470)
Net cash flow
($13,632)

Funding strategy

Caroline seeks financial advice for Yvonne to fund the shortfall from her home care package and address her cash flow deficit. Her adviser recommends that Yvonne purchase Challenger Guaranteed Annuity with $100,000 to fund the shortfall. Her adviser also recommends for Yvonne to purchase Challenger CarePlus with $100,000 to increase her Age Pension entitlement and reduce her income-tested care fee.

Cash flow summary for first year4
$250,000 term deposits/cash $100,000 CarePlus, $100,000 fixed term annuity, $50,000 term deposits/cash
Age Pension
$21,534
$23,096
Interest
$7,5005
$1,500
CarePlus N/A
$3,0586
Fixed term annuity
N/A
$17,3827
Expenses ($400 per week)
($20,800)
($20,800)
Home care shortfall
($17,396)
($17,396)
Total
($9,162)
$6,840
Basic daily fee
$3,687
$3,687
Income-tested fee
$783
$0
Total
($4,470)
($3,687)
Net cash flow
($13,632) $3,153

By purchasing Challenger Guaranteed Annuity and Challenger CarePlus, Yvonne will increase her cash flow by $16,785 in the first year. Yvonne will also increase her Age Pension entitlement by $1,562 to the maximum rate and reduce her income-tested care fee by $783 to nil in the first year.

Estate planning considerations

Challenger Guaranteed Annuity and Challenger CarePlus will pay an amount to beneficiaries or Yvonne’s estate in the event of her death.

Challenger Guaranteed Annuity can continue to make payments to a nominated beneficiary or Yvonne’s estate to the end of the annuity term. Alternatively the remaining payments can be paid as a lump sum8 to nominated beneficiaries or Yvonne’s estate.

Challenger CarePlus annuity will pay out 100%9 of the total amount invested to nominated beneficiaries or Yvonne’s estate.

Estate value at end of year10
End of year 1 2 3 4 5 6
$250,000 terms deposits/cash
$1,168,619
$1,177,028
$1,185,218
$1,193,182
$1,200,911
$1,208,395
$100,000 CarePlus, $100,000 fixed term annuity, $50,000 term deposits/cash
$1,164,571
$1,174,770
$1,185,051
$1,195,369
$1,205,670
$1,215,951

By indexing the payments from Challenger Guaranteed Annuity, Yvonne’s estate value for the recommended strategy is lower in the first three years. However, as the payments increase in line with CPI, the estate value increases at a faster rate than her current situation and in the fourth year is higher. The benefits of the recommended strategy will result in a higher estate value of $7,556 after six years.

To give Caroline the flexibility to continue to receive payments in the event of Yvonne’s death, she is recommended to nominate herself as a beneficiary on the Challenger Guaranteed Annuity.


1Rates at 20 March 2017.
2Government subsidy plus the basic daily fee
3Department of Social Services – Formative evaluation of the Home Care Packages Program – Detailed findings report, April 2015.
4Rates at 20 March 2017.
5Term deposits and cash interest rates assumed 3%.
6Challenger CarePlus quote with monthly payments and no adviser fees as at 19/05/2017.
7Challenger Guaranteed Annuity quote with 6 year term, nil RCV, monthly payments, CPI indexed and no adviser fees as at 19/05/2017.
8Lump sum is discounted to reflect payments made prior to the scheduled payment dates.
9Stamp duty of 1.5% will be deducted for residents of South Australia.
10Home capital growth rate assumed 2.5%.

The information contained in this update is current as at 7 June 2017 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of the Challenger Guaranteed Annuity and CarePlus Annuity. It is intended solely for licensed financial advisers and this update must not be passed on to retail clients. The examples shown are for illustrative purposes only and are not a prediction or guarantee of any particular outcome. This information is not intended to be financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should, therefore, consider its appropriateness having regard to these matters and the information in the product disclosure statement (PDS) for the Challenger Guaranteed Annuity and CarePlus Annuity or other relevant annuity product before deciding whether to acquire or continue to hold an annuity. A copy of the PDS is available at www.challenger.com.au or by contacting our Adviser Services Team on 1800 621 009. This update may include statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Actual results may be materially different from those shown. This is because outcomes reflect the assumptions made and may be affected by known or unknown risks and uncertainties that are not able to be presently identified. Neither Challenger nor its related bodies corporate nor any of their employees receive any specific remuneration for any advice provided in respect of the annuity. Some or all of Challenger group companies and their directors may benefit from fees and other benefits received by another group company. Any taxation, Centrelink and/or Department of Veterans’ Affairs illustrations are based on current law at the time of writing which may change at a future date. Neither Challenger, nor any of its officers or employees, is a registered tax (financial) adviser under the Tax Agent Service Act and it is not licensed or authorised to provide tax or social security advice. Before acting, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice from a professional and registered tax agent who can take into account the investor’s individual circumstances.