Common questions answered
Key Points
The Refundable Accomodation Deposit (RAD) represents the “bricks and mortar” cost of an aged care home.
Working out whether you have to pay it, and how you are going to pay for it is complicated.
Paying (or not paying) a RAD can also have very important means testing implications.
In this article I try to be brief in addressing common questions, and provide links to government websites with more information on various topics.
Do I have to pay a Refundable Accomodation Deposit?
No. Not all residents have to pay a RAD. There is a means test to determine whether a RAD is payable either in full by the resident, or whether a resident is “partially” supported. Like the test for the Centrelink Age Pension the test is based on income and assets - it can be complicated.
In round numbers - a resident with assets less than about $60k will not have to pay a RAD, and those with assets between $60k and about $200k can expect partial support.
Careful attention needs to be paid to the former home which has specific inclusions and reasons for exclusion from the means test for aged care.
You can read some examples here.
Will there by any rooms for me if I cannot afford to pay a RAD?
Yes. Aged care facilities need to have a ratio of beds for people who qualify for full or partial government support with accomodation costs.
You can find out more here.
Why is the Refundable Accommodation Deposit so expensive?
Paying the RAD is akin to securing a 'share' in the aged care facility. This includes your room and shared amenities. RADs will mirror local real estate prices. In pricier neighbourhoods, expect higher RADs.
Because most aged care residents fund their RAD by selling their homes, providers set RAD levels, anticipating this source of funding.
Remember that some components of aged care costs will be calculated in the same way no matter which aged care home you choose. The Basic Daily Fee is set by the government, and the Means Tested Care Fee is also a standard (and complex) calculation that is separate from the aged care home.
The RAD advertised by an aged care home is one component of your cost (accommodation) that you can easily use to compare one provider against another.
There may be other fees - like Extra Service Fees and fees for additional services.
Do higher RAD rooms have higher standards of care?
No. The Refundable Accommodation Deposit (RAD) is solely related to the cost of securing a place in an aged care facility and is reflective of property values, among other factors. It doesn't correspond to the quality or level of care one might receive.
Paying a premium for a room doesn't guarantee superior care. Instead, the quality of care is determined by the facility's adherence to standards and regulations, as well as its commitment to the well-being and health of its residents.
The Aged Care Quality and Safety Commission plays a pivotal role in this arena. They furnish Australians with essential tools that enable them to evaluate the calibre of aged care services through a detailed ratings system. It's this system, and not the RAD, that offers insights into the quality of care at a given facility.
How safe is my RAD? What is the aged care home goes bankrupt?
While there are specific scenarios allowing residents to nominate payments to be drawn from the RAD , it's vital to recognise that the RAD is protected by a Government guarantee scheme. This scheme was instituted to reinforce confidence in the security of these funds.
When a resident departs from an aged care facility, the release of the RAD funds hinges on the provider's assurance that the money is being returned to the rightful recipient. Strict rules govern the timing of these payments, and should there be any delays beyond 14 days, a penalty interest rate applies.
Can I pay the full RAD down the track?
Residents are given 28 days to determine how they'll pay for their accommodation.
Additionally, they have the option to increase or pay the full RAD at any point in the future.
Can I negotiate a RAD?
While aged care homes display their RAD rates, the published amount represents the maximum they can charge.
However, they do possess the flexibility to accept a reduced RAD (we'll delve into this in more detail shortly).
Is it a good idea to pay the RAD as a daily payment?
It depends.
The cost of not fully settling a RAD has surged in two years.
Calculating the daily payment for an outstanding RAD amount is simple: multiply the unpaid sum by an interest rate and then divide by 365. The government determines this interest rate, which has risen in line with general interest rates. As of October 1st, the prevailing rate stands at 8.15%—more than twice as high as its level in June 2021.
Should I try and negotiate a lower RAD?
This is where the decision becomes intricate, and a thorough analysis is invaluable. Let's delve into the Centrelink Age Pension asset test as an example. Under this test, the Age Pension decreases by $78 annually for every $1,000 in assets exceeding the threshold. Therefore, a $100k discount on the RAD might also lead to a $7,800 annual reduction in the Age Pension. This is because the reduced RAD results in higher assessable assets, given that the RAD isn't counted in the Centrelink asset test for the Age Pension. Simply put - a savings applied to a RAD are excluded from the Centrelink Test for the age pension, and the result could be some very useful age pension income.
You also need to weigh this against the potential returns from having that money in a bank, perhaps earning 5% interest. Furthermore, the way you handle the RAD could affect the Means Tested Care Fee, which varies depending on whether the RAD is held or if the funds are in cash. Several thresholds and calculations influence this scenario.
It could be the case that a $100k reduction is the RAD has an overall neutral outcome (when taking into account everything else), and other components of aged care cost could be structured for a better financial outcome.
Getting the picture? Navigating this is decidedly complex.
Should I pay for the RAD on mums behalf?
It depends. Financially - this can be a complex calculation, as while paying a RAD in full may save on paying the outstanding amount at a high interest rate, the RAD is also assessed for means tested care fees, so this impact needs to be taken into account. As an example if the funds were borrowed by a family member at a lower interest rate to pay a RAD on mum’s behalf, the higher means tested care fee outcome means higher aged care cost. If the funds were already sitting on deposit in a family members account - the (after tax) foregone interest needs to be taken into account. You can see how this can get very complicated.
There is another consideration - upon death, the refund of the RAD can go to the estate of the deceased. Recovering the loaned RAD funds from the estate may require loan documentation to be prepared. In other cases the direction of the estate may see the RAD funds allocated in a way that may be difficult to unwind. More complication.
Conclusion
At first glance, the RAD offers a straightforward means to compare the financial aspects of aged care homes. Yet, the nuances go beyond the surface. With potentially high costs associated with daily payments and the intricacies of means testing, how one chooses to finance aged care warrants meticulous examination.