Nursing home fees- what is an accommodation bond?

This is an edited extract from Aged Care Homes - The Complete Australian Guide by Val Nigol and Anthea Wynn reproduced with the permission of Litehouse Books.

Accommodation bond

The bond is a lump sum (currently ranging from $150,000 up to $750,000) that becomes due on entry. The home is entitled to retain $299 per month for every month that Mum stays for up to five years. The home then invests the bond and is entitled to retain all the interest that it earns. (The bond must be invested in safe, interest-earning investments.)

If Mum pays the bond in instalments, then the home can charge interest on the unpaid amount at a rate set by the DHA (currently 7.3%). When Mum leaves or dies, the balance, less any interest, is repaid.
 
Of the whole fee structure, the bond is the only flexible component. Generally speaking, the funds that the home receives from government subsidies, plus Mum's fees are not enough to make the home financially viable. Apart from taking a bank loan, the only other source of funding a home has is the interest received and the retention from the bond.

A bond can only be requested when Mum is a partially supported resident or a non-supported resident, ie when her assets exceed $36,000. Provided the home is agreeable, Mum can choose which of the following four methods of payment suits her financial circumstances and needs:

•    as a lump sum,
•    paying by instalments
•    regular periodic payment, or
•    a combination of these.
 

Lump sum payment is what it sounds like. You pay the whole amount on entry and this includes the five years retention monies in advance. If Mum moves or dies before the five years are up, then the home must refund the balance, they will keep the retention amount which was included in the original lump sum which is calculated as $299 for every month of her stay. Most homes prefer this option because it generates interest income for them.


Paying by instalments is an option to consider if Mum has to sell assets to raise the cash for the bond. For example, let's say the bond is $300,000 and Mum can pay $100,000 when she moves in. She pays this as a deposit and agrees to pay off the rest at $1,100 per month for the next 18 months (with the final payment bringing the total paid up to the $200,000). The home will charge her interest at 7.3% on the reducing balance.

If Mum dies or leaves before all the payments have been made, you can expect to have returned to you the amounts paid to date representing the bond (not the interest) less the retention amount which will be calculated as the number of months she was in residence, multiplied by $299 (or the up-to-date figure).


Paying by periodic payments can be set up when Mum doesn't have enough cash to pay the full amount of the bond or even a deposit. Let's say the bond is the same $300,000. Mum pays $0 on entry and the home asks for a monthly payment. They will calculate an amount that will include the retention monies plus the interest.

When Mum leaves or dies, there will be no refund, because she has been paying the retention money each month and it is always up to date.  This option is not as attractive to a home as the earlier ones (since they do not receive the interest on the full amount of the bond) and we should remember that to get into high demand homes we need to make Mum’s application as attractive as necessary.

Which method?

If you are in a position to be able to choose, and if the home is agreeable, you might want to think about which is the most beneficial method of payment. Factors to consider include whether:

•    Mum has sufficient cash at the time to pay the bond,
•    investments or other assets have to be sold to raise the cash,
•    there will be any capital gains tax to pay if assets are sold,
•    Mum's existing income is high enough to cover the  instalments, or
•    Mum has sufficient time to raise the money before needing to move in.
 

If Mum expects to be in the home more than five years, then paying the bond at entry or by instalments could be cheaper, but if she expects to be in the home less than five years, then making periodic payments could be the better option, if the home will agree.


The amount of the bond

This is payable on entry but NEGOTIATE it. This is really important because you only get one chance to do this; once you have agreed a figure you can't go back later and renegotiate it even if Mum's financial circumstances change.

The bond must leave Mum with minimum assets of $36,000. Sometimes the payment of a higher accommodation bond can result in a resident receiving a higher Centrelink age pension.

Placement agencies can be helpful here – their local knowledge can also include realistic guidance about the extent to which the bond can be negotiated in any home. If you aren't comfortable doing the negotiations, then they may be willing to do this for you, for a fee.

Generally speaking, higher accommodation bonds are payable in inner city areas and more generously appointed homes.

A home may only use the interest earned from the bond and the retention amount to:

•    meet the costs of maintaining or improving the physical environment of the home,
•    repay any debts relating to the home, or improve the quality and range of services being offered.
 

Accommodation charge

This is a daily fee for non-supported, high-care residents whose assets exceed $90,910. It is calculated upon entry according to a DHA formula based on Mum's assets and once this is determined it is a permanent figure.


Extra-services fees

These are set individually by the home and will vary depending on what services are on offer. There are no maximum or minimum levels. You should expect to pay around $40 - $75 per day. You must negotiate these too because you only get one chance to get this right.

To see more details on this book and or order a copy, visit: www.nursinghomebook.com.au