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Aged Care Accommodation Costs

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 there is a reasonably simple relationship between the lump sum payments (RAD and RAC) and the daily payments (DAC and DAP) - and they are convertible based on a published interest rate, the Maximum Permissible Interest Rate (MPIR). This is best described using a couple of examples below.

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 Only

You 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 4.89% (April, 2020) and that is used for the examples below.

So, $450,000 x 4.89% = $22,005 per annum

Divide by 365 to obtain a daily rate: $22,005/365 = $60.29 per day which is not refundable

Option 2: 50% RAD and 50% DAP

You 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 4.89% = $11,003 per annum

Divide by 365 to obtain a daily rate: $11,003/365 = $30.15 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 RAC

You convert the DAC into a full RAC equivalent by dividing it by the Maximum Permissible Interest Rate (MPIR) which is regularly published by the Government - as at April 2020 it is 4.89% and that is the rate used for the examples below.

So, $25.70 per day x 365 = $9,381 per annum

Divide $9,380.50 by 4.89% (MIPR) = $191,830 which is fully refundable at the end of aged care

Option 2: 50% DAC and 50% RAC

You pay your accommodation costs by paying the aged care provider a DAC of $12.85 per day and a RAC of $95,915.13 - 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 4.89% (MIPR) = $95,915.13

 

If you would like to arrange professional advice in relation to the above matters, please complete the Inquiry form below providing details and you will be contacted accordingly. You will receive a fee quotation in advance of any advice or services being provided.