Making sense of RAD and DAP

By on the Friday, May 16, 2014

A summary of the new accommodation pricing in residential aged care, which came into affect on July 1 2014.

Aged Care Financial Planning Support

As you may be aware, the accommodation bond, to which residents could nominate a particular value, is no longer.

In its place is the Refundable Accommodation Deposit (RAD), a standard bond price set by the respective aged care facility.

The previous ‘accommodation charge’ is now called a Daily Accommodation Payment (DAP), and is the RAD equivalent paid periodically.

The RAD and DAP is determined on the quality, location and features of the accommodation and can vary from bed to bed.

If a facility wants to charge more than $550,000 for their RAD, they need to seek approval from the Aged Care Pricing Commissioner.

The DAP is calculated by multiplying the determined RAD by the current government interest rate and divided by the number of days in a year.

Providers must advertise their accommodation prices in both RAD and DAP figures prior to charging their clients.

From the day of entering their care, the new resident has 28 days to work out whether they want to pay the facility a lump sum, daily payment or some combination of the two.

Under the Living Longer, Living Better reforms, the resident must be left with a minimum asset value of 2.25 times the basic age pension at the time of entry.

That sum is subject to quarterly change, but currently it means a resident must be left with at least $44,000 if they choose to pay for their accommodation in full.

The introduction of the RAD and DAP is predicted to increase marketplace competition and broaden consumer choice.

Principal of advisor network Aged Care Gurus Rachel Lane said consumers could meet issues when there is a lack of beds and they can no longer negotiate the bond they are subject to pay.

“A market price system is something that appeals to most people because it represents choice and value.

“But the reality is that residents only have a choice of a cheaper bed and a more expensive bed if both are available at the same time,” Ms Lane told The Age.

Alongside the introduction of the RAD and DAP, a new means test measuring a combination of assets and income will determine how much the government will contribute to a person’s accommodation.

The formula calculates half of every dollar earned over $22,701, 17.5 per cent of assets between $40,500 and $144,500, one per cent of assets between $144,500 and $353,500 and two per cent of assets above $353,500.

A person’s home is considered a part of their assets, unless a spouse or relative still lives there.

If the result from this test exceeds $50 a day, the resident is not eligible for any government supplement for the cost of accommodation.

If a resident is eligible for the maximum accommodation supplement, which currently means they have an income below $22,701 and assets below $40,500, then the implication of the RAD or DAP does not apply.

Everyone, regardless of whether they are liable to pay for accommodation, must pay the daily care fee, which is 85 per cent of the single pension.

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