Changes to Aged Care: Middle Income Earners Hit The Hardest
Massive reforms will come into effect for the Aged Care Industry as of July 1 2014. With all the noise around the recent federal budget many don’t know how these reforms will affect themselves and their families.
Eric Hiam, Principal of Balance Aged Care Specialists in Bella Vista is Australia’s leading expert on Aged Care and has been following the changes closely.
“The new reforms are necessary to ensure a viable care industry, where continued investment will provide the type of aged care facilities the public now demands,” said Eric Hiam, Principal, Balance Aged Care Specialists.
“Aged Care is an expensive service to provide, it is very labour intensive and requires a 24-hour-a-day delivery of service, 7-day- a-week, including public holidays. The bottom line is the Government wants the public to pay more of the actual cost, so they can pay less of it. Let’s not kid ourselves; this is what the reforms are about,” said Mr Hiam.
Under the current government rules, the cost of ongoing care is assessed by Centrelink and based on a person’s level of income and not on their assets, whereas the cost of the accommodation is driven by a person’s assets- this results in unusual anomalies.
From July 1, in addition to the Income tested amount Centrelink will also look at residents assets to determine the amount they pay towards their ongoing care, as well as the cost of their accommodation.
These changes are designed to streamline the cost of aged care for all residents in a bid to make payments fair for everyone as the reforms will address the current issue of many asset-rich, income-poor residents who are paying for accommodation but little for their care.
“While the endeavour is to make care fair, some people will pay the same in some cases, even less. However, many people entering care after the 1st July will pay more for their care, so they will probably not think it is fair. I anticipate it will hit middle income earners the hardest,” said Mr Hiam.
From July 1, the Means Testing Fee and avenues of payment will force asset holders to fund the full amount of the entry charge into care. Once they have paid as much as they can based on their assets and income, as a lump sum, the remaining part of the entry charge will be payable as a periodic payment daily rate.
With the current Basic daily care fee being around 85 percent of the age pension, this charge will come out of the residents remaining 15 percent plus whatever income they are making for from their investment assets.
The change will hit middle income earners the hardest if they have assets because it will push the cost of their care up significantly.
Under current rules, lower income earners pay a lower bond for care which is then cross-subsidized with another resident who can afford a higher bond. These people will still receive help and the capped cost of care means that higher income earners will probably not feel the blow. It’s the middle income earners whose assets may push them into a higher threshold that will carry the weight.
“Ultimately, in order for the Government to fund the Future growth of the Industry, the reforms are designed so that we’re paying more, we have a growing number of people needing aged care (as Australia ages), which will cost the government more, so these changes pass some of that cost on to the user,” said Mr Hiam.
Residents will have the option of the ongoing charge being deducted from their lump sum bond, however as the lump sum is reduced, the level amount of the ongoing charge will increase, which will see that lump sum erode quite quickly.
“Aged Care will be even more complicated than it was previously and no two people will have a similar situation. This is a specialist area, which requires a specialist who understands the aged care system and how best to navigate it. The outcomes can be quite radically different. It is not just financial advice future residents need it will be specialist aged care advice”, said Mr Hiam.
With an ageing population, achieving a sustainable aged care system is important. However, the impact of the reforms on residents without sufficient assets is concerning.
Posted: 10-Jun-2014. Author: Jordie Cox
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