Residential Accommodation Payments - RAD, DAP, RAC and DAC
Current funding for aged care requires individuals to pay for their accommodation in a residential aged care home based on a price set and published by the aged care provider. This price varies depending upon the location and quality of the accommodation, with a safety net in place for individuals with low or moderate means - respectively, they will pay no accommodation costs or make a partial contribution (through a RAC or DAC - see below).
Only individuals above a certain means tested thresholds will pay the full accommodation price or "Refundable Accommodation Deposit" (RAD) and/or its equivalent, the "Daily Accommodation Payment" (DAP).
In essence, an individual has the choice to pay for accommodation costs either as a lump sum (RAD or RAC), as a daily fee (DAP or DAC) or a combination of either - see the table below for a summary of all these (unfortunately confusing) acronyms.
| RAD Refundable Accommodation Deposit |
An individual's contribution to accommodation costs where they receive no Government support and they elect to pay as a lump sum rather than as a daily payment. This amount is fully refundable at the end of aged care |
| DAP Daily Accommodation Payment |
An individual's contribution to accommodation costs where they receive no Government support and they elect to make a daily payment |
| RAC Refundable Accommodation Contribution |
An individual's contribution to accommodation costs where they are partially supported by the Government and they elect to pay as a lump sum rather than as a daily payment. This amount is fully refundable at the end of aged care. |
| DAC Daily Accommodation Contribution |
An individual's contribution to accommodation costs where they are partially supported by the Government and they elect to make a daily payment. |
| Note that you will have 28 days from when you become a resident in an aged care facility to decide whether you pay a lump sum (RAD or RAC), daily payment (DAP or DAC) or a combination of both. If you choose to pay a RAD you will have 6 months in which to pay, with a DAP payable in the interim period. |
Converting between Daily Fees and Refundable (Lump Sum) Deposits, and Vice Versa
Converting a RAD to a DAP
Assume that you intend to reside in an aged care home that has the room that you want available for $450,000. You have the option of paying for that room with one lump sum payment of $450,000 (RAD), or its equivalent in terms of paying a daily fee (DAP), or a combination of RAD and DAP. Let's look at those latter two options;
Option 1: DAP OnlyYou convert the RAD into a full DAP equivalent by multiplying it by the Maximum Permissible Interest Rate (MPIR) which is regularly published by the Government - it is currently 8.15% (effective October 1, 2023) and that is the rate used in the examples below. So, $450,000 x 8.15% = $35,550 per annum Divide by 365 to obtain a daily rate: $36,675/365 = $100.48 per day which is not refundable Option 2: 50% RAD and 50% DAPYou pay your accommodation costs by paying the aged care provider a RAD of $225,000 which is fully refundable to you or your estate, as well as a daily payment (DAP) calculated as follows: So, $225,000 x 8.15% = $18,337.50 per annum Divide by 365 to obtain a daily rate: $18,337.50/365 = $50.24 per day which is not refundable |
Converting a DAC to a RAC
If you are informed that you must contribute a certain daily amount (DAC) to your accommodation costs you can opt to pay this fully as a Refundable Accommodation Contribution (RAC) or as a combination of RAC and DAC. In the examples below you have been notified that you must make a contribution of $25.70 as a DAC towards accommodation costs.
Option 1: DAC to RACYou convert the DAC into a full RAC equivalent by dividing it by the Maximum Permissible Interest Rate (MPIR) - it is currently 8.15% (effective October 1, 2023) and that is the rate used in the examples below. So, $25.70 per day x 365 = $9,380.50 per annum Divide $9,380.50 by 8.15% (MIPR) = $115,098.16 as a RAC which is fully refundable at the end of aged care Option 2: 50% DAC and 50% RACYou pay your accommodation costs by paying the aged care provider a DAC of $12.85 per day and a RAC of $59,370.25 - the latter of which is fully refundable. The RAC is calculated as follows: So, $12.85 per day x 365 = $4,690.25 per annum Divide $4,690.25 by 8.15% (MIPR) = $57,549.08 as a RAC which is fully refundable at the end of aged care |
When it comes to paying for accommodation, information suggests most individuals use DAPs or a combination of RADs and DAPs, as illustrated below in a chart drawn from the StewartBrown Aged Care Sector Report, March 2023. We think that the trend towards paying accommodation costs via DAPs has now probably go into reverse given the markedly higher recent interest rate environment (reflected in MPIR) and declining investment returns. We would expect to see a much greater use of RADs for funding unless there were specific mitigating circumstances.
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