If you have entered care and are required to pay an Entry Fee you can choose to pay this in one of three ways:
- A Lump sum payment called a ‘Refundable Accommodation Payment’ or RAD
- A Regular rental-type payment called a ‘Daily Accommodation Payment’ or DAP
- Combination of a RAD and a DAP
You will have 28 days from the day you enter care to decide on your payment method. It is important to note, however until you decide on your payment method, the DAP will be charged from day one.
So let us explain what these options mean….
When entering a care facility and following your Asset assessment you will be advised of what your room charge will be. Where your assets exceed $159,631 you will be liable for the advertised Entry Fee.
Refundable Accommodation Deposit (RAD)
If you choose to make your payment as a lump sum, this is called a ‘refundable accommodation deposit’ or RAD. A RAD works like an interest-free loan to an aged care facility. The amount is 100% refunded should you choose to leave the aged care home or payable to your Estate. Once the full RAD is paid it removes any additional DAP charges.
The Australian Government guarantees the repayment of your RAD balance if the aged care home becomes bankrupt or insolvent and is able to refund bond balances providing the Aged Care Facility is Government Regulated.
Daily Accommodation Payment (DAP)
Instead of paying for your accommodation as a RAD you can choose to pay it as a DAP. The amount you pay is based on the advertised entry fee and converted to a daily rate based on a Government set interest rate.
Your DAP payments are not refundable if you leave the aged care facility unless any payments have been paid in advance.
For example, if your advertised entry fee is $300,000, your DAP would be calculated as:
$300,000 x 5.76% / 365 = $47.34 per day
(The DAP is calculated using the maximum permitted interest rate which is set by the Department of Health and Ageing and is currently 5.76%.)
For many people, a form of DAP payment is required in the short term while liquidating assets or selling the family home.
Using a combination
You can choose to pay your Entry Fee as a part RAD and a part DAP. If you have paid a part RAD your DAP will be based on the outstanding Entry Fee.
For example if your Advertised Entry Fee is $300,000 you could pay;
A RAD of $100,000
A DAP of $200,000 * 5.76% / 365 = $31.56 per day
Where you have paid a RAD and still have a DAP payable you can arrange with the facility to have the DAP deducted from the RAD paid. Continuing on the example above this would mean the DAP of $31.56 per day would be deducted from the $100,000 rather than payable from personal cash flow. With the RAD reducing over time this, in turn, reduces the refundable amount back to the resident. This will be recalculated with the facility daily and with the reducing RAD the DAP will also slowly increase relevant to the outstanding amount. This may sound a confusing option however it can be useful where personal cash flow is limited.
The above is only in reference to the Entry fees. Residents will still have the mandatory daily care fee and individualised means tested fee.
*Interest rates are accurate as of 24 September 2016.