If you’re heading to aged care, beware this common misconception

There’s a common misconception that once you reach the aged care lifetime cap, the bills stop. Sadly, that’s not quite true.

The lifetime cap limits how much you’ll pay toward your means-tested fees – in home care, that’s your income-tested care fee, and in residential aged care, it’s your means-tested care fee. The lifetime cap applies across both home care and residential aged care, acting as a safeguard so people don’t keep paying indefinitely for their care.

If you’ve received home care before moving into residential care, those contributions count toward your lifetime cap – so your “paid share” carries over. But the cap only applies to that one component of aged care costs – not the whole bill. For people currently receiving aged care, the lifetime cap is $84,600 (indexed).

From November 1, the lifetime cap will increase by $50,000 to $135,300. Once you’ve paid that amount – or lived in residential aged care for four years – you’ll no longer pay care contributions. In home care (called support at home), reaching the lifetime cap means you’ll no longer make contributions toward your package.

In residential aged care, reaching the lifetime cap will mean your non-clinical care contribution stops – but it doesn’t mean aged care becomes free. After reaching the cap, you’ll still pay:

• The basic daily fee and hotelling supplement, of $88 per day, towards meals, cleaning, utilities and laundry.
• Accommodation costs, whether as a refundable accommodation deposit (RAD), daily accommodation payment (DAP) or a combination of both.
• Any extra service fees, such as hairdressing, wine or entertainment.

Before you move in, crunch the numbers, ask how each fee is calculated and get good advice.

For example, 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’ll reach your lifetime cap in around 3.5 years. But even then, you’ll still be paying $32,100 per year (indexed) plus any extra service fees.

So while reaching the cap provides real relief – your ongoing costs are more than halved – it covers only one piece of the puzzle. For many residents, accommodation and living charges still make up a large share of their monthly expenses.

The key message? Know which costs stop and which continue. The lifetime cap protects you from paying endlessly towards your care, but daily living and accommodation fees keep ticking along.

Before you move in, crunch the numbers, ask how each fee is calculated and get good advice – because even with a $135,300 cap, understanding what doesn’t stop is what really helps you plan for the long haul.

Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.

• 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.

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