Transitioning from home care to residential aged care | Accurium

Transitioning from home care to residential aged care

People generally want to stay in their family home for as long as they can and home care packages can help them do this. However a person’s health may decline, leading to a greater need for care, making permanent residential aged care the most common reason for leaving a home care package service.1 In this month’s article we explore some issues a care recipient should consider for a smooth transition to permanent residential aged care, and look at how advisers can help clients plan during this phase.

Care considerations

When a home care recipient requires additional care and can no longer live at home there are a number of issues to consider, including:

  • What additional level of care is required? What, if any, additional support can family provide?
  • Can a home care provider provide the additional level of support required? What will be the cost and is it affordable?
  • Would a move to residential aged care be more appropriate and provide a higher level of care than could be achieved if the person remains at home? Which facility provides the support required and what are the costs?

Identifying the additional need for care

An ACAT2 assessment is a free health assessment performed by a local ACAT member, who may be a nurse, social worker or other health care professional. They will ask a number of questions to understand how well the person is managing in their day-to-day lives. They will also discuss what additional support the person may require – whether that be in their own home or in an aged care facility.

ACAT will then provide the assessment, detailing the level of care the person has been approved for. This could include one or more of the following:

  • home care packages (level 1, 2, 3 or 4)
  • respite residential care
  • permanent residential care.

If your client is already receiving a home care package, then they are likely to have received an ACAT assessment previously. Since 1 July 2014, ACAT assessments for any of the above services do not expire, so if the client has been approved for permanent residential care, there‘s no need to organise a new one.

If they do not have an ACAT approval for permanent residential care, or wish to receive home care at a level higher than what they currently have, they’ll need to organise another ACAT assessment and be approved before they can transition. An ACAT assessment can be organised by calling My Aged Care on 1800 200 422. It can take a few weeks to receive an ACAT approval, so planning for this in advance of a move into aged care can help with the transition.

Finding a government subsidised residential care service

The My Aged Care website (www.myagedcare.gov.au) is a valuable tool that identifies the types of services a person can access in locations across Australia. In addition to the My Aged Care service and ACAT representatives, clients may wish to seek support from other resources including advocacy groups, such as the Older Persons Advocacy Network (OAPN), or aged care placement specialists.

In almost 70%1 of cases, it will take longer than one month to move into care after being approved, so it’s important to start researching facilities and begin discussions as early as possible to help to reduce transition time.

Respite

Respite care is an important option and may be used on a planned or emergency basis to help with a person’s care needs. Its primary purpose is to give a carer or a care recipient a short-term break from their usual care arrangement for a period of up to 63 days each financial year.

Respite care can also give both the care recipient and the aged care facility a chance to determine if the arrangement is the right fit before committing to a permanent arrangement.

During a financial year, respite can be extended in lots of 21 days, if extra time is required and approved by an ACAT member. However if a care recipient receives respite for longer than they are approved for then they may have to pay additional fees and their carer’s Centrelink entitlements may be affected. Centrelink should be contacted to discuss these situations where respite is extended.

While in respite care, the recipient pays the basic daily fee of $49.073 per day and may also pay a booking fee upon entry. The booking fee cannot be more than one week’s basic daily fee. They pay no accommodation amount or means-tested care fee but may pay an additional services fee.

Where the move to respite care is expected to be temporary, a home care recipient is able to request a suspension of their home care package. During a suspension period, the care recipient will not pay the basic daily fee for home care (but will pay one for respite care) and will continue to pay their income-tested fee, if any, for a period of 28 days. After 28 days, they cannot pay more than their income-tested fee amount but may be eligible to pay a lesser amount.

Estate considerations

Generally, estate planning documents need to be established when a person has testamentary capacity. As someone goes through the stages of care, their testamentary capacity may start to decline. In cases where a client’s care needs are increasing, an adviser could discuss the need for various documents or the need for existing documents to be updated. These include:

  • the client’s will, and any specific bequests
  • enduring Powers of Attorney
  • enduring Guardian
  • beneficiary nominations.

Affordability of the level of care required

Home care services provide eligible individuals who want to stay at home with a range of services to help them with their daily activities, whereas residential aged care provides 24-hour nursing care. Understandably residential care fees are different to home care fees because care provided is generally at a higher level and includes accommodation.

Table 1: Home care and residential care fee comparison4

Type of fee Home care Residential aged care
Basic daily fee $10.10 per day (17.5% of basic single Age Pension)
$49.07 per day (85% of basic single Age Pension)
Care fee assessment Income test only
Means test (both income and assets)
Care fee counts towards lifetime cap?5
Yes  Yes
Care fee annual cap  $10,552.18
$26,380.51 
Accommodation fees?  No Yes

In cases where the client’s need for care increases, for instance if they’re required to move from home care to residential care, it’s important to consider how this could affect the client’s cash flow. The adviser could discuss how social security pension entitlements interact with aged care, and the various ways in which aged care fees can be paid.

Planning for a refundable accommodation deposit (RAD)

In many cases paying a RAD in full is a useful strategy for an aged care resident that helps enhance their overall cash flow. It can save paying a daily accommodation payment (DAP – currently based on 5.73%7 of the outstanding RAD) and it is an exempt asset for Age Pension/DVA assessment.

It’s important to help clients understand the different fees involved and how they may fund a move into residential care.

The My Aged Care ‘find a service’ can provide an indication of what the RAD amounts are in your client’s preferred areas. Methods to fund a RAD include:

  • using available funds
  • selling the family home
  • assistance from family
  • taking out an aged care loan.

Home care package refunds

For those who are leaving a home care service, any unspent amounts must be paid back by the provider to both the Government and the care recipient in proportion to how much each party has paid during the home care period.

An exit fee may be deducted by the home care provider before being paid to the former home care recipient. These fees must be both publicly available on the My Aged Care website and stated in the client’s home care agreement.

Care recipients must be notified of the unspent amount within 56 days after the cessation day in writing by the provider and it must be paid within 70 days from the cessation date.

Centrelink considerations

Whenever there is a change in a client’s situation, Centrelink/DVA must be notified within 14 days. In addition to any change in their current entitlements (discussed further below), amounts paid to a Carer would also be affected.

For example, if your client ceases home care to move permanently into a residential aged care facility, their carer will lose their Carer Allowance from the first day care is not provided. If they are also receiving a Carer Payment, there’s a 14 week period in which it will continue to be paid from the day care was no longer provided, usually the day after the person enters residential care. An adviser could talk with the carer to discuss their options before the payment ceases.

It’s also worth assessing if the cessation of the Carer Payment will have an impact on the resident’s aged care costs. For example, if a carer had occupied the home for the previous two years and they were eligible to receive an income support payment at the time the person entered care, they would be considered to be a protected person at that time and the home would be exempt from aged care assessment.

However, once their payment ceases, if they’re not eligible for another income support payment, they would cease to be a protected person and the home would be assessed up to the home cap for aged care purposes (currently $162,087.20).

In these situations, the adviser could discuss the impact on the resident’s aged care costs, for example, the means-tested care fee or daily accommodation contribution (DAC).

For a couple, when the first partner moves into residential aged care, they begin to receive the couple illness-separated rate of pension (maximum $46,191.60 p.a.7) and relevant thresholds. In a number of cases this could mean their Age Pension entitlement would increase by up to $11,372.40 p.a. ($46,191.60 less $34,819.20).

For a single pensioner moving from home care to residential aged care, they’ll continue to receive the single rate of Age Pension and be subject to the single thresholds. Where there is a change in their home-ownership status, for instance because they sold their home on entry, then the non-homeowner rates will be used.

To improve the client’s cash flow, advisers can consider a number of strategies based on the client’s situation.

To help illustrate this, consider the following case study that looks at a strategy designed to improve cash flow and provide estate certainty.

Case study

Joyce (89) is a single homeowner who is receiving a level 2 home care package and is starting to forget things. Her children, Sandra and Anthony, have recently liaised with the family doctor and the doctor has explained that this is the early effects of dementia. Joyce owns her own home worth $600,000, has $300,000 in the bank and $5,000 in personal assets. Her expenses on top of aged care are $500 per week.

Table 2: Home care cash flow before advice8

Cash flow Per annum
Investment income9 $9,000
Age Pension
$19,098
Less personal expenses
($26,000)
Less basic daily fee
($3,687)
Less income-tested care fee
$0
Net cash flow
($1,589)

Joyce goes to see her adviser, with her children as support. They determine that her goals are to:

  • improve her cash flow to a positive position
  • look after Sandra and Anthony in equal shares
  • leave enough for a RAD to be paid if she needs to move to permanent residential care.

They research facilities in the local area and determine that a good amount to plan for is $400,000. After talking with Sandra and Anthony, Joyce is happy to sell the former home to fund her move into residential aged care.

One strategy the adviser recommends is an investment of $200,000 in Challenger Care Plus.

Table 3: Home care cash flow after advice9

Cash flow Per annum
Investment income10
$3,000
Care Plus10 $6,085
Age Pension
$21,048
Less personal expenses
($26,000)
Less basic daily fee
($3,687)
Less income-tested care fee
$0
Net cash flow
$446

By making this recommendation, Joyce will be able to achieve the following:

  • positive cash flow (an increase of $2,035 p.a.) which allows her to cover home care fees
  • increase her Age Pension by $1,950 p.a.
  • nominate Sandra and Anthony as equal beneficiaries for the Care Plus death benefit.

Joyce’s dementia worsens and her children are now concerned for her safety. They feel the best option for her to get the care she requires is by going into appropriate residential aged care. Her original ACAT assessment approves Joyce for respite residential care, but not for permanent residential care.

On contacting My Aged Care another ACAT assessment is organised. To help her transition, Sandra and Anthony search for different facilities that can cater for dementia patients. 

On contacting the provider they investigate the option of respite, and take up that offer. While Joyce is in respite, Sandra and Anthony arrange for the home to be sold along with a short settlement period so she has the funds required to pay the accommodation payment. Once approved for permanent residential care, Joyce transitions from respite to permanent care and, with the proceeds of the sale of her home, she is able to pay her $400,000 RAD in full, leaving $300,000 in cash. Her personal expenses have now dropped to $100 per week.

Table 4: Permanent residential care cash flow before advice14

Cash flow Per annum
Investment income9
$9,000
Care Plus10 $6,085
Age Pension
$19,632
Less personal expenses
($5,200)
Less basic daily fee
($17,911)
Less income-tested care fee
($13,837)
Net cash flow
($2,231)

Although Joyce is able to pay her full RAD after selling her home, she has higher aged care fees and less Age Pension compared with when she was at home, resulting in her net cash flow becoming negative again. At this point, her adviser recommends an additional $200,000 CarePlus investment to again help with Joyce’s cash flow.

Table 5: Permanent residential care cash flow after advice14

Cash flow Per annum
Investment income9
$3,000
Care Plus12 $12,170
Age Pension
$21,733
Less personal expenses
($5,200)
Less basic daily fee
($17,911)
Less income-tested care fee
($12,286)
Net cash flow
$1,506

By taking this additional recommendation, Joyce will be able to achieve the following:

  • a positive cash flow (an increase of $3,737 p.a.) which allows her to cover aged care fees
  • increase her Age Pension by $2,101 p.a.
  • reduction in means-tested care fee by $1,551 p.a.
  • nominate Sandra and Anthony as equal beneficiaries for the additional Care Plus death benefit.

1Australian Institute of Health & Welfare (AIHW) Residential aged care and home care data 2014-15.
2Aged care assessment team (ACAS in Victoria – Aged care assessment services).
3Aged care rate as at 1 July 2017.
4Aged care rates and thresholds as at 1 July 2017.
5Not including pre-reform care recipients who began receiving care before 1 July 2014.
6Maximum permissible interest rate (MPIR) from 1 July 2017 – 30 September 2017.
7Centrelink rate as at 1 July 2017.
8Centrelink and aged care rates and thresholds as at 1 July 2017.
9Bank account interest rate is 3% p.a.
10CarePlus rates as at 17 July 2017 for $200,000 investment, monthly payments, no adviser service fees.
11Centrelink and aged care rates and thresholds as at 8 August 2017.
12CarePlus rates as at 17 July 2017 for $400,000 investment, monthly payments, no adviser service fees.

The information contained in this update is current as at 8 August 2017 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of Challenger annuities (Annuity(ies)). 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 applicable Annuity 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 document 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 re ceived 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.