There is a widespread belief that once you reach the aged care lifetime cap, your financial obligations cease. Unfortunately, this is not entirely accurate. The lifetime cap is designed to limit the amount you pay toward your means-tested fees—specifically, the income-tested care fee for home care and the means-tested care fee for residential aged care. This cap serves as a safeguard, ensuring that individuals do not pay indefinitely for their care.
Importantly, if you have received home care before transitioning to residential care, your contributions count toward your lifetime cap. This means your “paid share” carries over. However, the cap only applies to one component of aged care costs, not the entire bill. For those currently receiving aged care, the lifetime cap is set at $84,600, indexed annually. From November 1, this cap will increase by $50,000 to $135,300. Once you have paid this amount or have lived in residential aged care for four years, you will no longer pay care contributions.
Understanding the Limitations of the Lifetime Cap
While reaching the lifetime cap in home care—referred to as support at home—means you will no longer contribute to your package, the situation differs in residential aged care. Here, reaching the cap means your non-clinical care contribution ceases, but aged care does not become free. After reaching the cap, you will still be responsible for:
- The basic daily fee and hotelling supplement: $88 per day, covering meals, cleaning, utilities, and laundry.
- Accommodation costs: This can be a refundable accommodation deposit (RAD), daily accommodation payment (DAP), or a combination of both.
- Extra service fees: These can include services such as hairdressing, wine, or entertainment.
Before moving into residential aged care, it is crucial to calculate the numbers, understand how each fee is determined, and seek sound advice. For instance, if you move into residential aged care in November and pay a RAD of $750,000, with the basic daily fee and hotelling supplement at $88 per day ($32,100 per year) and your non-clinical care contribution at $105 per day ($38,300 per year), you will reach your lifetime cap in approximately 3.5 years. However, even then, you will still be paying $32,100 per year (indexed), plus any extra service fees.
The Real Impact of Reaching the Lifetime Cap
Reaching the cap provides significant financial relief, as ongoing costs are more than halved. Yet, it only addresses one aspect of the financial puzzle. For many residents, accommodation and living charges still constitute a substantial portion of their monthly expenses. The key takeaway is understanding which costs cease and which continue. The lifetime cap protects you from endless payments toward care, but daily living and accommodation fees persist.
Rachel Lane, author of Downsizing Made Simple, emphasizes the importance of thorough financial planning. “Before you move in, crunch the numbers, ask how each fee is calculated, and get good advice,” she advises. Even with a $135,300 cap, understanding what does not stop is crucial for long-term financial planning.
Looking Ahead: Planning for Aged Care Costs
The upcoming increase in the lifetime cap represents a significant shift in the landscape of aged care financing. It underscores the necessity for individuals and families to be proactive in planning for these expenses. As the population ages, understanding the intricacies of aged care costs becomes increasingly vital.
Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
As the aged care sector evolves, staying informed about policy changes and financial implications will be essential for navigating the complexities of care costs. With the right information and guidance, individuals can make informed decisions that align with their financial capabilities and care needs.
