Must knows for low means aged care residents | Accurium

Must knows for low means aged care residents

Low means residents are those who are eligible to have their accommodation costs subsidised by the Government either in part or full. Low means resident aged care cases can be complex, especially where one member of a couple is treated as one and the other is not. In these cases, you can have a situation where couples staying in the same room, and receiving the same care, pay different fees. In this month’s aged care article we go through the must-know technicalities when providing advice to low means clients.

All Centrelink and aged care rates and thresholds referenced in the article are as at 20 March 2018 unless otherwise noted.

Determining low means status

When entering a residential aged care facility, residents have the option to complete the Centrelink ‘Permanent Residential Aged Care Request for a Combined Assets and Income Assessment’ SA457 form. Completing the form allows Centrelink to determine the person’s ‘means’ and the corresponding level of Government support for their aged care costs. This includes assessing the resident as a low means resident or as one who can pay an accommodation payment.

A resident’s means status is measured by comparing their daily means-tested amount (MTA) against the maximum accommodation supplement (MAS), currently $56.14 per day, at the time of permanent entry to a residential aged care service. A resident will be classified as a low means resident if their MTA is less than the MAS.

A person will be assessed as an accommodation payment resident if their MTA is equal to or greater than the MAS. This would be if:

  • their assessable assets for aged care are equal to or greater than $165,271.20;
  • their assessable income for aged care is equal to or greater than $67,642.60 per annum for singles or $67,164.60 per annum for a member of a couple; or
  • a combination of both assessable income and assets provided an MTA equal to or greater than the MAS.

Low means residents pay a daily accommodation contribution (DAC) instead of the advertised price for a room. The DAC is equal to a resident’s MTA, capped at the facility’s accommodation supplement (see section: The ‘facility’s daily accommodation supplement amount’). Except for accommodation, all other fees which an accommodation payment resident can pay may be paid by a low means resident, including a:

  • basic daily fee;
  • means-tested care fee (MTCF);
  • extra services fee; and
  • additional services fee

For more information on these fees and accommodation payment residents please see the Challenger Tech aged care guide available on AdviserOnline.

Can a resident change from a low means resident to an accommodation payment resident?

When a client enters residential aged care, they are assessed based on their means at their entry date. If a client is assessed as low means upon entry, they will remain a low means resident whilst they continue to receive services from the same facility. Low means residents cannot be asked to pay the advertised price if their means change.

A resident is only reassessed, and can therefore only change their low means status, if they change facilities or re-enter care after leaving for more than 28 days. 

Can a resident’s DAC change?

A low means resident’s DAC can change over time as their means change. Centrelink reviews aged care fees on a quarterly basis (effective 1 January, 20 March, 1 July and 20 September), or ad hoc if a resident has a change of circumstances which they are obligated to report to Centrelink within 14 days.

Consider the example of Santiago and Sofia who are homeowners and receive the full Age Pension. They have $80,000 in the bank and $10,000 in personal contents. Santiago moves into permanent residential aged care and Sofia stays at home. Santiago’s share of his assessable income and assets produces an MTA of nil, meaning his DAC is $0. He initially just pays the basic daily fee of $50.16 per day.

Sofia then downsizes their home to reduce home maintenance now that Santiago is no longer around to help her. This leaves an additional $100,000 in the bank. Santiago will now pay a DAC of $22.36 per day on top of the basic daily fee of $50.16 per day. If they need to draw down from their bank account to help fund these fees and living expenses, Santiago’s DAC may reduce in the future.

The same principals apply to the MTCF. Whilst a low means resident will not pay a MTCF where their MTA is less than the MAS, for example on their entry date, they may still pay one in the future if their assessable income and assets increase so that their MTA is greater than the MAS.

The ‘facility’s daily accommodation supplement amount’

A low means resident’s DAC is capped at the daily accommodation supplement amount which the resident’s facility receives for low means residents. The MAS is the maximum amount a low means resident can pay for their accommodation, however there are three rates of accommodation supplement which can each be reduced by 25% for each day that the facility does not have more than 40% of low means residents.

Table 1 - Accommodation supplements for low means residents 

Eligibility Amount of supplement 
If a service is significantly refurbished or newly built  
More than 40% low means, supported, concessional and assisted residents $56.14
40% or fewer low means, supported, concessional and assisted residents $42.11
If on the day the service meets building requirements in Schedule 1 of Aged Care (Transitional Provisions) Principles 2014
More than 40% low means, supported, concessional and assisted residents $36.59
40% or fewer low means, supported, concessional and assisted residents $27.44
If on the day the service does not meet those requirements  
More than 40% low means, supported, concessional and assisted residents $30.74
40% or fewer low means, supported, concessional and assisted residents $23.06

Source: Department of Health, aged care subsidies and supplements payment rates from 20 March 2018

These supplements are not static. They are subject to indexation and can change if a facility’s status alters. For example, if a facility is renovated and begins to meet the requirements to be classified as significantly refurbished. This means the amount which a resident’s DAC is capped at can change over  time.

Advisers can check directly with a facility to determine the accommodation supplement amount which applies to that facility.

Can a low means resident pay a lump sum for their accommodation?

A low means resident can pay a lump sum for their accommodation, called a refundable accommodation contribution (RAC). The RAC amount is determined by the current DAC, calculated as follows:

RAC=(DAC x 365) ÷ MPIR

Where MPIR = maximum permissible interest rate (currently 5.77% for entry into care between 1 April 2018 – 30 June 2018).

For example, Ron moves into aged care and pays a DAC of $20 per day. His equivalent RAC would be:

RAC = ($20 x 365) ÷ 5.77% = $126,516

Ron is unlikely to be able to pay this in full, but he has the option to pay a partial lump sum RAC. This would reduce the DAC he has to pay.

For example, say Ron pays $50,000 as a RAC, his new DAC would be:

DAC = ($126,516 - $50,000) x 5.77% / 365 = $12.10 per day

If Ron pays a lump sum, then he has the option to pay the remaining DAC from his cash flow or deduct it from the lump sum he has paid.

Where the DAC has decreased at quarterly review, if the lump sum RAC which has been paid is found to be more than the amount that can be charged, a provider will be required to refund the overpaid amount to the resident.

It is also important to note that an amount paid as a lump sum RAC is exempt for Age Pension assessment but counts as an asset (not deemed) for aged care purposes.

What other considerations are there for clients on the ‘cusp’ of being low means?

There are two other considerations for potential low means resident clients.

Financial

The key difference between low means and accommodation payment residents is what they pay for accommodation. And whilst generally low means residents will pay less for their accommodation than accommodation payment residents, it is not always the case.

Consider Mary who has $170,000 in deemed financial assets and receives the full Age Pension. She has no other income or assets and is about to enter permanent residential aged care. She is looking at gifting $10,000 to her only child Matthew and wonders if she should do this before or after she enters permanent residential aged care. The advertised price for a room in the facility Mary has decided she wants to go into is $300,000.

If Mary gifted $10,000 before she enters care, her assessable assets would be $160,000 giving Mary a MTA of $53.66 per day, classifying her as a low means resident.

If Mary’s facility receives the MAS, Mary’s DAC would be $53.66 per day, as her DAC would be capped at $56.14 per day. The equivalent RAC is $339,443 (53.66 x 365 ÷ 5.77%). This is greater than $300,000, meaning that when Mary enters care she will initially pay more for her accommodation as a low means resident.

However, it is important to note that whilst the accommodation amount is locked in for an accommodation payment resident in their residential agreement, the DAC/RAC can change over time.

Lifestyle

It can be easy to focus on the financials for aged care clients because they are easy to articulate and measure. However, many clients in aged care want to lead a comfortable life, and their families want this for them also.

Low means residents may not have a choice with what room they occupy in a facility. Whilst some facilities will try and facilitate the wishes of residents, they may reserve single rooms or nicer rooms with better features for accommodation payment residents who can pay more for their accommodation. Low means residents may be forced to share a room with one, two, three or more other residents. Some clients may be comfortable with this arrangement, however some may not be.

Some facilities may also effectively vet potential residents before they accept them into permanent residential aged care. Whilst a person does not have to provide their income and assets to a facility, a facility does not need to provide a person a permanent residential aged care place either. Advisers should be aware that facilities may not accept low means residents which makes the selection process for prospective low means residents more limited.

Couples where one spouse is low means and one is not 

This scenario can occur where each spouse enters permanent residential care on different days. For the first member of a couple to move into aged care, the home is exempt for aged care as long as the other spouse remains in the home. However, when the second spouse moves into aged care the home would not be exempt unless another protected person2 remains living in the home.

Let’s look at couple clients Andre (89) and Natasha (86). Recently due to declining health they have both entered permanent residential aged care, with Andre entering a week before Natasha. Andre was assessed as a low means resident when he entered care and the accommodation supplement applicable to his facility is $36.59 per day.

When Natasha entered care she was assessed as an accommodation payment resident because their family home was no longer protected, meaning that her MTA was greater than the MAS at the time she entered care. With the help of their adviser, Andre and Natasha found a facility they liked and which accepted them into the same room together. The advertised price for their room which Natasha will pay is $300,000 and Andre’s DAC increased to $36.59 per day.

Andre and Natasha’s adviser discussed their options to help pay their aged care fees and improve their cash flow. Subsequently they decided to sell their home and had $1,000,000 remaining in the bank after the sale. They also have expenses of $200 per week on top of aged care fees to pay for things like haircuts, day trips and pharmaceuticals for both.

Table 2 - Andre and Natasha's year one cash flow after selling their home 



 Andre Natasha
Cash flow Age Pension  $7,354  $7,354
  Interesti  $12,500  $12,500

Total $39,708
     Andre  Natasha
Care fees   Basic daily fees  $18,308  $18,308

 Means-tested care fees  $4,373  $4,373

 Daily accommodation amount  $13,355   $17,310
  Total $76,027
 Living expense   $10,400
 Net cash flow   ($46,719)

i Interest earned is 2.5% p.a. 

Note that Andre and Natasha have the same MTCF, because they have the same MTA. This differs from their accommodation status which is determined at their respective entry dates.

To help reduce their daily aged care fees, Andre and Natasha’s adviser recommends they pay both accommodation lumps sums in full. After paying both Andre’s RAC of $231,462 ($36.59 x 365 ÷ 5.77%) and Natasha’s $300,000 accommodation lump sum, they have $468,538 left over in their bank account.

Table 3 – Andre and Natasha’s year one cash flow after paying accommodation lump sums

Andre Natasha
Cash flow Age Pension $22,054 $22,054
Interesti $5,856 $5,856

Total
$55,820
Andre Natasha
Care fees Basic daily fees $18,308 $18,308
Means-tested care fees $5,147 $5,147
Daily accommodation amount $0 $0

Total
$46,910
Living expenses
$10,400
Net cash flow
($1,490)

i Interest earned is 2.5% p.a. 

They both pay no daily accommodation amount now because they have paid their full lump sum amounts. Their Age Pension has increased by $14,700 each in year one due to the lump sum accommodation amounts being exempt for Age Pension. This has caused their MTA to increase, because Age Pension income is assessable for aged care, which has increased their MTCF by $774 each in the first year. Overall their cash flow improves by $45,229 in the first year.

How can Challenger CarePlus help low means residents when their situation changes?

CarePlus provides regular payments that last for a lifetime whilst allowing the investor to leave their estate or nominated beneficiaries a lump sum equal to 100% of the purchase price.

CarePlus also interacts efficiently with the Centrelink rules for Age Pension and aged care so can help to increase Age Pension and reduce aged care fees. Please see the Challenger CarePlus technical guide, available on AdviserOnline, for a detailed explanation of the assessment of CarePlus.

From the case above, Andre and Natasha’s adviser considers strategies to further assist them with their cash flow. Their adviser models an investment of $200,000 each in CarePlus using the Challenger Aged Care Calculator. This would leave $68,538 as a cash reserve for any lump sum expenses which may arise.

Table 4 – Andre and Natasha’s proposed year one cash flow after CarePlus investment 

Andre Natasha
Cash flow Age Pension $23,598 $23,598
Interesti $856 $856
   CarePlusii $6,228 $6,342

 Total  $61,478
Andre Natasha
Care fees Basic daily fees $18,308 $18,308
Means-tested care fees $3,869 $3,869
Daily accommodation amount $0 $0
  Total $44,354
Living expenses   $10,400
Net cash flow   $6,724

i interest earned is 2.5 p.a.
ii Challenger Careplus rates as at 28 May 2018. $200,000 investment for an 89yo female respectively, no adviser fees, monthly payments.

Andre and Natasha can improve their cash flow position by $8,214 in the first year. This includes an increase to their combined Age Pension of $1,544 each in the first year ($3,088 in total) and a reduction of their MTCF by $1,278 each ($2,556 in total).

Whilst low means resident cases can be complex, advisers can help these clients by helping them with their cash flow in addition to discussing accommodation and lifestyle options. Understanding what options low means residents have to pay for their accommodation costs, including how the DAC works, and recognising what future implications may be are key to achieving this. 

1 $26,660.40 for singles and $26,192.40 for couples (each) as at 20 March 2018
2 A protected person includes a spouse, a dependent child, a carer eligible for an income support payment who has been living in the home for the past two years or a close relative eligible for an income support payment who has been living in the home for the past five years.

The information contained in this update is current as at 7 June 2018 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 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.