Nursing Home fees explained: The true cost of aged care

10 August 2024 in Wills and Estates Law | 8 min read

This article explains the true cost of nursing home fees in NSW in 2024. For further information, see our related article, ‘Know your Legal Rights with Aged Care.

On July 1st 2014, significant changes were introduced to the fees charged by nursing homes or aged residential care. The fee structure is complex and information can be difficult to obtain. This article aims to simplify the structure of nursing home fees and explain how the amounts charged are calculated.

An individual in a residential care facility, commonly known as a nursing home, is provided with personal and nursing care. The facility provides accommodation, staff, meals, cleaning, furniture and some equipment required for care.

For this residential care, the individual pays a Resident Fee. This resident fee is made up of up to 5 separate fees.

       1. Basic Daily Fee.

This is also known as the Standard Resident Contribution. This is a set amount paid by all residents. It is calculated as 85% of the basic aged pension worked out on a per day basis. It is charged regardless of the whether the person receives a pension or not. The fee is currently $63.57 per day (December 2024). It is meant to cover the daily cost of living in residential care including meals, laundry and cleaning.

If an individual has an income below $33,027.80 as a single person (or $32,195.80 as the single rate for a couple living apart because of illness) and assets below $59,500, they will only be required to pay this basic daily fee. They also don’t pay the means tested care or the accomodation fee. They may still pay the service fees.

The basic daily fee will be covered by the aged care pension and therefore the care is almost entirely funded by the commonwealth government.

Unfortunately, there are a limited number of places in nursing homes that offer these fully government funded beds.

       2. Means Tested Care Fee.

This is calculated on the value of the person’s assets and income by Services Australia. The same values used for the basic daily fee are used. That is, if the person’s income is less than $33,027.80 as a single person (or $32,195.80 as the single rate for a couple living apart because of illness) and assets are below $59,500 the government pays this fee entirely. If the individual has a greater amount of income and or assets, they will contribute to the care fee. Services Australia’s calculations include the following as income and assets:

Income arising from

1. Pensions
2. Rental property
3. Superannuation
4. Annuities
5. Overseas pensions
6. Family trust dividends
7. Shares
8. Rental income from your previous home
9. Deemed income from excess gifting

Assets arising from

1. All cash
2. All bank accounts
3. Managed investments
4. Loans
5. Gold
6. Household contents
7. Foreign assets
8. Investment property
9. Special collections, such as art works
10. Superannuation balances
11. Trusts
12. The RAD paid to the aged care facility.  (The RAD is explained below as the third fee component, the accommodation fee).
13. The family home, (explained below).

How does Services Australia calculate the Means Tested Care Fee?

This is an extremely complex process, called the means assessment where there is an income test and an asset test. These amounts are added together and expressed as a daily fee.

In relation to income:

1. The person’s total income is calculated.
2. If the total is more than $32,819.80, (for a single person, or $32,195.80 for a couple living apart because of illness).
3. The difference is divided by 50%
4. This number is divided by 364 to give a daily figure.

In relation to assets:

1. The person’s total asset value is calculated.
2. If the total is more than $59,500, the difference is subjected to a mathematical formula based on 3 different thresholds.
3. 17.5% of the value between $59,000 and $201,231.20
4. 1% of the value between $201,231.20 and $484,693.60
5. 2% of the value over $484,693.60
6. These figures are added up and then divided by 364 to give a daily figure.

The final figure:

1. The daily income and daily assets figures are added together to give the means assessment value.
2. If this number exceeds the maximum government supplement of $68.14, the individual must pay the amount over the supplement.
3. If the maximum government supplement of $68.14 is subtracted from the means assessment number and the value is less than zero, the person doesn’t pay anything towards the daily care fee.
4. The maximum means tested care fee is currently $417.41 per day.

Is the Family home considered an Asset when calculating the Means Tested Care Fee?

The simple answer is sometimes, depending on the following:

1. If there is a Protected Person present in the family home

The family home is excluded as an asset completely 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 at least 2 years and be eligible to receive an income payment from Services Australia. With respect to a close relative, they must have lived in the home for at least 5 years and be eligible to receive an income support payment from Services Australia.

2. The 2 years Home Exemption Cap

The full value of the family home is not considered an asset for the first 2 years that a person is in aged care. It is capped at a value of $201,231.20 during this time. It is important to note that after 2 years, it is considered an asset and the full value of the home is factored into the calculation of the means tested care fee. This exemption of course assumes that there is no protected person, such as a husband or wife who remains living in the family home.

Is there a Cap on the Means Tested Care Fee?

Yes, there is currently a cap which is indexed on 20th March and 20th September each year.

The maximum amount of means tested care fee a residential care home can currently charge is $33,309.29 per year or $79,942.44 in a lifetime.

          3. The Accommodation Fee : DAP or RAD.

The accommodation fee is often the largest fee and can be paid in 3 ways:

• A Refundable Accommodation Deposit, known as the RAD
• Daily Accommodation Payments, known as DAP
• Any combination of both the RAD and DAP.

The Role of the Means Tested Care Fee in the RAD

The means tested income test and asset test conducted by Services Australia, which results in the means tested care fee also has an effect on the amount that a person pays toward the accommodation fee.

1. If the person has a means tested amount as assessed by Services Australia, lower than $68.14 per day they are eligible for government assistance.
2. If this means tested amount is greater than zero, the person must contribute towards the accommodation costs.  The RAD is therefore known as the RAC or Refundable Accommodation Contribution and the DAP as the DAC or Daily Accommodation Contribution.
3. If this means tested amount is less than zero, the person does not contribute towards the accommodation costs.  It is paid entirely by the government.
4. If the person has a means tested amount greater that $68.14 per day, they must pay the RAD or DAP.

What is the RAD and what should I know about it?

The RAD is a ‘refundable’ accommodation deposit that is charged by the aged care facility for a room in their complex. It is a significant amount of money and varies according to the nursing home and various rooms within the nursing home. As a guide in Sydney, currently the RAD mostly lies between $450,000 and $1,000,000. Although, in theory there is a maximum charge of $550,000, set by the Minister for Aged Care, this is easily increased if the nursing home applies to the Independent Health and Aged Care Pricing Authority. This explains why the RAD is commonly well over $550,000.

It is also important to note that although called a refundable deposit, and sometimes described by financial advisors as fully refundable, it is not unconditionally refundable. For instance, it is available and legally sanctioned to be freely used by the nursing home to pay other fees such as the basic daily and services fee. Currently, the amount that the aged care facility can remove from the RAD is capped at 35% by government legislation.

The amount paid towards the RAD is considered an asset by Services Australia when calculating the means tested care fee. This usually results in the individual paying a higher means tested care fee.

The nursing home is able to invest the RAD and collect interest. However, no interest is paid on the RAD to the person in the aged care facility or to their family when they pass away.

The RAD is not considered an asset by Services Australia when calculating the aged pension eligibility. The family home is also not considered an asset by Services Australia when calculating the aged pension eligibility. However, as the family home is frequently sold so that the RAD can be paid, any left over cash is considered an asset in both calculating the aged pension eligibility and also calculating the means tested care fee for the nursing home. Therefore, the person may pay more in daily means tested care fees and receive less aged pension income after selling the family home to pay the RAD.

What is the DAP and what should I know about it?

The DAP is the daily accommodation payment. The DAP is calculated as a percentage of the RAD. Specifically, using the value of the unpaid RAD and interest on the unpaid RAD. This figure is divide by 365 so the fees are presented as a daily charge.  The calculation is (RAD x MIPR)/365. The MIPR is the maximum permissible interest rate that the aged care facility can charge. At the time of writing this is 8.35%. For example, if the RAD is $850,000 and the person chooses to not pay the RAD upfront, they then pay the full DAP of $194 per day (850,000 x 8.35%) divided by 365.

None of the DAP or DAC is refundable.

The individual entering the residential facility can choose to pay the entire RAD, or to pay this money via the DAP or a mix of both RAD and DAP.

How are the RAC and DAC Calculated?

A RAC or DAC is payable by a person when their means tested care fee is over zero but less than $68.14 per day. The individual pays the lower amount of the means tested care fee and the government pays the difference up to a total of $68.14 per day.

The DAC is calculated in an identical manner as the DAP, as a percentage of the RAC using the same calculation of (RAC x MIPR)/365.  The MIPR is the maximum permissible interest rate that the nursing home can charge which at the time of writing is 8.35%.

         4. Extra Service Fee associated with some rooms

These are fees for services associated with some rooms that are said to go beyond the minimum care service requirements and provide better than average accommodation and higher quality food. It may also include personal care, organised outings and trips. The nursing home may have extra service status for all of their rooms or offer some rooms with an extra service fee.

Although theoretically optional, some aged care facilities charge a set service fee which all of their residents must pay. This may be automatically taken out of the RAD from the time of entry. This fee can be as high as $31.00 per day (December 2024).

          5. Additional Service Fees

There may also be an extra service fees if the individual agrees to buy additional services such as a specialised menu or higher quality linen or hairdressing services.

How can BSM Sydney Lawyers assist you?

The wills and estates lawyers at Brander Smith McKnight are familiar with the structure of nursing homes fees and experts in the review of residential care contracts. We recommend that you have one of our lawyers examine the legal agreement that you or your loved one has with the aged care facility to ensure that you are aware of the charges and legal consequences and and that there are no unusual clauses or hidden surprises. Our estate lawyers offer a free 20 minute consultation.

Brander Smith McKnight Lawyer Sydney has offices conveniently located in Sydney CBD, Sutherland, Parramatta, Shellharbour and Wollongong.