Why are people inflating their wealth for better aged care?

Your cost of aged care is means tested so it defies logic that you would artificially inflate your wealth, but it is happening all around the country. Why? Mostly because people want a higher standard of aged care accommodation.

Under the aged care means test, if you are classified as a low-means resident, you cannot be charged the market price for your accommodation. Rather, you pay a contribution with the government paying a “top-up” of up to $68 a day.

It is a relatively low price for aged care accommodation, representing around half of the market price for many homes. As a result, low-means residents are often offered a shared room, or the less attractive single rooms in the home.

The problem is: the means test uses a single formula to work out how much you can pay towards your accommodation and care. So, if you opt out of the means-testing arrangements, not only do you pay the market price for your accommodation, but you can be faced with a means-tested care fee of $416 a day on top.

Let’s look at an example.

Jim and Betty are pensioners, they have a home worth $1 million, $300,000 of investments and $10,000 of personal assets. Jim needs to move into aged care. Under the aged care means test, Jim’s assessable assets are $155,000, making him a low-means resident (he has $0 liability under the income test). Jim’s cost of aged care would be $108 a day, made up of a basic daily fee of $62 and an accommodation contribution of $46 a day.

Jim wants to move into the aged care home, but he doesn’t want a shared room. The market price rooms are $550,000 by Refundable Accommodation Deposit (RAD) or $126 by Daily Accommodation Payment (DAP). If he opts out of the means testing, his cost of care could be $604 per day until he reaches the annual cap of $33,309, after which he will pay $188, being his basic daily fee and accommodation payment.

It’s a dilemma for many residents and their families. They are happy to pay the extra $68 a day for the accommodation they want, but they don’t want to trigger a means-tested care fee of $33,039 a year. As a result, people are artificially inflating the value of their assets, in numerous instances borrowing money to get the accommodation of their choice.