The vast number of retirees want to remain at home for the rest of their lives, or until frailty and illness makes that consideration no longer suitable.
The Federal Government acknowledges this as the preferred option of older Australians, but also as a savings to Government’s contribution to the more expensive residential care.
The cost of care continues to escalate greater than most other Budget outlays and a growing ageing population will require an increase in future funding.
But as we have seen in the reforms in residential aged care, there will be a greater contribution by the user to pay a higher percentage of the increased cost of their home care.
And we should remind ourselves that personal and business taxes already contribute significant monies across all levels of aged care
- Home Support Program (CHSP)
- Home Care Program (HCP)
- Residential Care
Care at Home is available from two sources, the Government subsidised Home Care Program and the private “user pays” industry.
Just like the reform in residential care, the Home Care Program will launch into a program of change on Feb 27th 2017, when the control of monies and the source of supply will be (for the first time) controlled by the end user.
Whilst recipients of care will still need an assessment, once a package has been approved, the user will have the capacity to decide how the money will be spent and which supplier will be the source of those services.
Over the past 12 months we have seen a greater number of packages not meeting the needs of those being assisted. If this demand for extra time/services is to be supplied, it must be paid by the recipient at the full cost of that service.
There are three considerations when staying independently at home and requiring care services
- “Am I eligible a subsidised program”
- “Do I pay the “user pays” program”, or combine both and
- “How do I maintain my home suitable for my care needs”
For the majority of seniors who have spent considerable years in retirement, their self funded income or their savings will have been diluted or exhausted.
There is a cost to be borne, whether it be the government subsidised program or the private service, and users will need to have options. By Feb 2017, service providers will need to know the capacity of the recipient to pay for services, as has been experienced in residential care for the past 2 years.
Similarly to residential care, where residents and their families can access the equity in their home (or investment property/beach house), those living independently at home can use the same security for home purposes.
Releasing equity is generally sought when cash reserves have been diminished, or it is thought other assets should be retained.
The most popular form of Equity Release is a Reverse Mortgage. Previous concerns about the use and conditions of Reverse Mortgages have been addressed by Government with legislation and regulations now in place which provide borrowers more protections than any other home loan.
Over 40,000 older Australians currently use a Reverse Mortgage with the most popular primary purpose being repairs and maintenance to the family home.
Home Modifications
A 10 years study in Victoria has indicated 31% of seniors’ home have a “slip and trip” fault, which may lead to an admission to hospital.
A further 23% of homes had an electrical fault.
Whilst many older Australians live independently in an environment with safety issues, it is important for service providers to be aware of the occupational hazards that their employees may be experiencing.
Paying for Care
The illustration below shows how equity can be utilised in paying for the cost of care and how much equity would be retained. The funding has been calculated for a period of 4 years and the interest rate is averaged at 6.30% for the period.
|
Security |
Forecast |
Monthly |
Total |
End |
Projected |
|
Value |
Growth |
Funding |
Funding |
Debt |
Net Equity |
|
$600,000.00 |
3.50% |
$600.00 |
$28,000.00 |
$35,546.00 |
$652,968.00 |
|
$1,000,000.00 |
4.50% |
$1,500.00 |
$72,000.00 |
$87,708.00 |
$1,104,810.00 |
|
$2,000,000.00 |
5.50% |
$3,000.00 |
$144,000.00 |
$174,645.00 |
$2,303,004.00 |
If the borrower then proceeds to residential care, the loan can be repaid from the sale of the home or converted to an Aged Care loan.
Providers servicing this sector need to expand their offering and having an advice service from a specialist Credit Advisor in Equity Release will give them a significant advantage in awareness and better service provision.
Paul Dwyer – Aged Care Finance Solutions – provides advice to older Australians and their families for the funding of their aged care costs