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Know your Legal Rights with Aged Care.

This article attempts to shed some light on the highly complex, rapidly changing and sometimes emotionally fraught area of aged care, particularly the complicated and potentially very expensive costs associated with entry into residential aged care, commonly known as a nursing home.  We present the government legislation that covers this area and attempt to simplify the extremely complex legal and government department systems that control the pricing system.

Introduction

Deciding on aged care services can be a daunting decision.  It has become more expensive to the individual and family since changes brought in from July 1st 2014.  The aged care industry is complex and since the Royal Commission’s Report into aged care quality and safety in February 2021 there has been a number of changes, such as systems that aim to improve quality and safety.  One of the changes implemented was the banning of exit fees in 2022.

Nevertheless, it remains a significant challenge to understand the different charges and total cost associated with entering residential care. Residential care is also referred to as an aged care home or nursing home. It is a place where predominantly older people can live when they need ongoing assistance or health care and are unable to live at home. It is also offered to younger people who have a disability, dementia or other special care needs not met through other services.

Having a loved one or yourself requiring nursing home care is often a stressful and emotionally charged time, which may occur suddenly, for instance following a fall at home.  This exacerbates the difficulty in understanding what is a complicated pricing system.

Navigating the different terminology and rules used by aged care facilities, commonly known as nursing homes, and government legislation can be confusing and very daunting. This article will provide an overview of the law governing entry into aged care generally and provide some advice on how to negotiate this process.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

There is a substantial body of legislation, supporting principles and guidelines governing this area. For our purposes, the most relevant ones are:

  • Aged Care Act 1997 (Cth) 
  • Australian Aged Care Quality Agency Act 2013 (Cth)
  • Quality of Care Principles 2014 (QOC Principles)
  • Fees and Payments Principles 2014 (No. 2) 

Types of Care

There are three different types of care recognised by the law.  These are residential care, home care and flexible care.  The associated legislation is found in Part 2.4 of the Aged Care Act, regarding classification of the care recipient and section 22.1 regarding approval of the care recipient.

Residential care is defined in the Aged Care Act in s41.3(1) as personal care or nursing care or both that is provided to a person in a facility that includes accommodation, staff, meals, cleaning, and any furniture and equipment. This includes facilities such as an aged care home, otherwise known as a nursing home or residential aged care facility.  A significant proportion of aged care homes are subsidised by the commonwealth government and regulated by the Aged Care Quality and Safety Commission (ACQSC).  There are some private residential aged care facilities that are not subsidised.

Home care is defined in the Aged Care Act in s45.3 as a package of personal care services and assistance provided to a person not in residential care. This covers arrangements where a person is receiving care in their own or another person’s home. The person is generally assessed by specialist nurses and doctors to determine the level of need and determine the appropriate provision of services that will enable the person to remain in their home.  They are allocated a financial package which is graded from 1 to 4 depending on their need.  This financial package is funded by the commonwealth government.  The package is managed by registered care providers who charge the person a fee to organise and pay the service providers and generally manage the funds. This is usually a percentage of the government funding which can be as high as 30%.  The care package must be managed by a care provider, not the individual recipient.  If the person moves into residential care, any remaining money in their care package is returned to the government.

Flexible care is defined in the Aged Care Act in s49.3 as a care service that addresses the needs of a person in alternative ways, in a residential or community setting. This includes services which preserve the independence of older people by providing assistance such as preparing meals, cleaning and organising activities. It also covers aged care services which function as a transitional service before entry into a more involved type of care such as residential care. This is known as respite care.

Fees and Payments:

The Aged Care Act and F&P Principles outline the fees that a provider can charge for aged care, and payment options available to pay those fees.  The Act contains a formula that provides a maximum daily amount that can be charged for resident fees. The fee structure is calculated slightly differently across residential, home and flexible care.

Residential Care

For residential care, the cost of daily living is expressed as a daily fee, called a Resident Fee, which is made up of several fees:

1. Standard Resident Contribution, also called a Basic Daily Fee.

This is a predetermined amount that covers the daily cost of living in residential care, such as meals, laundry and cleaning. It is 85% of the basic aged pension worked out on a per day basis (s52C.4), and charged regardless of whether the person receives a pension or not.  The maximum fee is currently $60.86 per day.

2. Means-Tested Care Fee.

This is essentially a fee based on a person’s income, if they have one, and assets minus the subsidy payable for the care they are receiving. The Aged Care Act contains a formula for calculating this amount in Part 3.1 and section 52C.3.  The maximum that can be paid by an individual is currently $416.05 per day.  The full value of the family home is not considered an asset for the first 2 years that a person is in aged care.  During the first 2 years the family home is capped at a value of $193,219.20.  After 2 years it is considered an asset and the value of the home is factored into the calculation of the means tested care fee.  The family home is also not considered an asset if a protected person remains living in the home.  A protected person is a partner, dependent child, carer or close relative.  In relation to a carer, they must have lived in the home for a minimum of 2 years and be eligible to receive an income support payment from Services Australia.  With respect to a close relative, they must have lived in the home for a minimum of 5 years and be eligible to receive an income support payment from Services Australia.

3. Accommodation Costs, also called a DAP or Daily Accommodation Payment of RAD or Refundable Accommodation Deposit.

This fee is usually the largest and can be paid by either a ‘refundable’ deposit, also known as the RAD (Refundable Accommodation Deposit) or Daily Accommodation Payments (DAP) or a combination of both the RAD and DAP.  The rules regarding accommodation costs are set out in Division 52G of the Aged Care Act.  The rules regarding refundable deposits are set out in Division 52J of the Aged Care Act.

The RAD is a significant amount of money and varies according to both the aged care facility and individual rooms within that aged care facility.  As a rough guide, in Sydney it ranges from half a million to a million dollars.  The daily accommodation payments (DAP) are calculated as a percentage of the RAD.  The DAP is calculated using the value of the unpaid RAD and interest on the unpaid RAD. This figure is divided by 365 so fees are presented as a daily charge.  The exact calculation is  (RAD x MPIR)/365.  The MIPR is the maximum permissible interest rate that the aged care facility can charge. At the time of writing this was 8.35%.

For example, if the RAD is $850,000 and the person doesn’t pay the RAD upfront, they then pay the full DAP of $194 per day, which is calculated as (850,000 x 8.35%) divided by 365.  None of the DAP is refundable.

The person or family can choose to pay this accommodation cost as a combination of both RAD and DAP.

Although the government, specifically the Minister for Aged Care sets a maximum charge on the RAD, which is currently $550,000 as set on 11/12/2023, the aged care facility can apply to a government body, the Pricing Authority to charge more.  This occurs frequently and explains why many RADs are much higher than $550,000.  The legislation relevant to this information is in 52G.4 and 52G.3 of the Aged Care Act.

It is important to note that although the RAD is said to be a fully refundable fee, it may be reduced if the person runs out of money during their time in residential care.  This is because the other fees such as the basic daily fee and services fee continue and if they are not paid the aged care facility are able to deduct those fees from the RAD, as outlined in s52J.7 of the Aged Care Act.

In our experience, this is often the cause of conflict between the surviving family and the nursing home when the person dies.  The family assume that the ‘fully refundable’ RAD will be available via the person’s will.  Unfortunately as the contract has been signed prior to the person entering the nursing home, the family is unable to make a legal claim to receive the entire RAD.

Currently the amount that the aged care facility can remove from the RAD is capped at 35%.

It is therefore highly advisable to seek legal advice prior to signing the residential agreement supplied by the nursing home.  The person entering the residential home or their nominated representatives have 28 days to sign the agreement once the person enters permanent (as compared to respite) residential care.  We strongly recommend that a lawyer familiar with aged care residential contracts reviews this contract and explains any legal consequences or points out any problems.

Another consideration is that although the aged care facility will gain interest on the RAD if invested, there is no interest paid to the person or their estate at any time.

It is important to note that if a RAD is paid, the value of the RAD paid counts when calculating aged care fees, such as the daily means tested fee.  However, the RAD is an exempt asset in relation to the age pension asset test.

Unfortunately, as is often the case, if the family home is sold to pay the RAD, the person may receive a reduced pension as currently the family home is not included in the age pension asset test.

4. Additional or Extra Service Fee.

These are fees for services that go beyond the minimum care service requirements. If a person chooses to avail themselves of extra services such as personal care, organised outings and trips, these will be charged as additional or extra service fees. This service fee must be set out in an extra service agreement. This agreement may be included in the accommodation or resident agreement.

It is important to note that this may not be an optional fee, some aged care facilities charge a set service fee which all of their residents must pay.  This fee may be automatically taken out of the RAD from the time of entry into the aged care facility.  This can be another service of conflict between the family and the nursing home when the resident passes away, as the amount of the RAD is unexpectedly decreased.

There can also be an Extra Service Fee if the person agrees to enter an extra service room, which may include additional services such as a specialised menu or higher quality linen.

Means Testing

Both the means tested care (number 2 in the above list) and accommodation fee (number 3 in the above list) are means tested.  Services Australia assesses this via the Residential Aged Care Property details form (SA485) if you are on a means tested income support payment, such as the age pension and you own or part own your home.  The Residential Aged Care Calculation of your costs form (SA 457) is required if you don’t receive a means tested income support payment.  Finally, if you don’t own your home and are on a means tested income support payment, you don’t need to complete one of these forms as Services Australia has enough information to complete the assessment.

It is possible to only pay the basic daily fee (number 1 in the above list).  This occurs when Services Australia assesses that the person has an income below $32,331 and assets  below $58,500.  When assessing income, Services Australia includes income from pensions, rental property, superannuation, annuities, overseas pensions, family trust dividends, shares, rental income from your former home and deemed income from excess gifting.  In terms of assessing assets, it includes cash, all bank accounts, managed investments, loans, gold, household contents, foreign assets, investment property, special collections such as art works, superannuation balances, trusts and notably the RAD paid to the aged care facility.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

Home Care

The cost of home care, called Home Care Fees, is calculated in a similar manner to residential care but does not include the additional fees associated with residential care, such as the accommodation payment as the person receiving care is living in their own home. It can be broken down into:

  • The basic daily care fee. This is a fee reflecting the actual cost of their care service. It is 17.5% of the basic aged pension on a per day basis.
  • The compensation payment fee. This reflects whether a person is receiving compensation pursuant to a judgement or arrangement with a court. The Aged Care Act contains a method of calculating this amount in s48.5. 
  • The income tested care fee. This, as with residential care, is a fee based on whether a person’s assets or income exceed the subsidy payable by the government in respect of home care. The Aged Care Act contains a method of calculating this amount in s48.7.  The fee is assessed by Services Australia via the Home Care Package Calculation of your cost of care form (SA456)
  • Any additional services the receiver of care may choose to avail themselves of under the plan offered by their Home Care provider. 

Flexible Care

Because flexible care covers many different types of alternative aged care, there is no specific fee scheme in the Aged Care Act. There is a flexible care subsidy, which is determined by the relevant government minister and is payable in respect of individual receivers of care to a registered provider of flexible care. This helps subsidize the cost of flexible care. We would recommend scrutinizing the terms of any flexible care agreement and negotiating methods of payment that suit your needs.

For all types of aged care, there is a maximum daily amount that can be charged.  This is calculated by a formula in s52C.3 in the Aged Care Act. Additionally, a person cannot be required to pay more than a month in advance and cannot be required to pay any fees prior to entry into care. 

Quality Standards in Aged Care

The QOC Principles set out the mandatory standards of care that apply to all types of aged care, and certain specific services that must be provided. These operate like a safety net to ensure a high quality of care is provided to all recipients. These are contained in Parts 2, 3,4 and 5 of the QOC Principles. Some examples of specific services and standards that must be provided include the following.  The relevant details can be found in the QOC Principles Schedule 1 Part 2 (2) and Schedule 2 (1). 

Services

  • personal assistance with hygiene and grooming, 
  • three meals per day with a standard of variety, quality and quantity,
  • movement e.g. using a wheelchair, 
  • rehabilitation therapy, 
  • emotional support and supervision, and
  • assistance in obtaining health practitioner services.

Standards

  • that every person is treated with dignity and respect,
  • that every person is supported to exercise choice and independence, and
  • that every person’s privacy is respected, and their personal information kept confidential. 

Accommodation or Residential Agreement for Aged Care

Section 52F.1 of Aged Care Act provides that the provider of the service must provide an accommodation agreement to the care recipient before the care recipient enters a residential care service and Section 52F.2 of the Act provides states that this must be agreed on with the care recipient or their legal representative no later than 28 days from the date of entering the provider’s service.  This period excludes any respite care which may precede the permanent care.

The accommodation agreement is a contract stating how much the service will cost, how it will be paid, what is included in the service, when the service will be entered, and other important information. The Aged Care Act also mandates that accommodation agreements contain a detailed description of the room, its features, other services offered by the provider, and so on, to ensure transparency.

The accommodation agreement can be negotiated and it is important that the agreement is thoroughly reviewed by a lawyer.  The accommodation agreement includes important clauses, significant fees and details regarding the return of the RAD.  It is in your best interests to have this contract carefully reviewed by a lawyer experienced in aged care.

The Future

There will be a new Aged Care Act introduced into legislation some time during 2024.  This stems from the Royal Commission into aged care quality and safety in February 2021.  It will include 50 of the 148 recommendations made by the Commission.

Conclusions and the need for Legal review of Agreements and Contracts

The law governing aged care, and the entry into aged care is designed to set standards for the types of care that will be provided, the calculation of fees and to oblige providers to disclose information so that consumers can make an informed choice.  However, as set out in this article, navigating the aged care system, in particular the fees associated with residential care can be extremely challenging and confusing.  In addition, having a loved one or yourself requiring nursing home care is often a very stressful and emotionally charged time which may occur suddenly, for instance following a fall at home.  This exacerbates the difficulty in understanding what is an extremely complicated pricing system.

It is therefore recommended that you consider all the information provided by a prospective provider to fully understand what they are offering and the costs involved.

We strongly recommend that the accommodation agreement  is reviewed by an experienced lawyer prior to signing so that you fully understand the aged care services offered, the costs of the services and the transparency of these costs.  A competent lawyer with experience in aged care residential agreements can highlight areas of concern in the contract and negotiate with the provider on your behalf to have clauses excluded or modified.

The lawyers at Brander Smith McKnight have experience in this area of aged care law and are ready to act on you or your loved ones behalf to ensure that entry into aged care is as satisfying and cost effective as possible.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

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