Aged care accommodation interest rate increases to 11-year high

The aged care sector’s maximum permissible interest rate (MPIR) will rise for the sixth consecutive quarter, reaching an 11-year high of 7.46% for new residents from April 1.

The MPIR, which is used to calculate accommodation payments and contributions, will also be applicable to any existing residents who move and agree to a new room price or require a lump sum refund.

While the MPIR is nowhere near the all-time high of 11.75% in 2008, the latest increase of .40% means it has jumped by 3.45% over the past 18 months.

The rate rise is important because it could impact any existing negotiations with incoming residents, while it may alter how some people choose to pay for their accommodation.

What is the MPIR used for?

The MPIR is used to calculate accommodation payments and contributions, including:

• Daily accommodation payments (DAP)
• Maximum refundable accommodation contributions (RAC)
• Combination payments including a part refundable accommodation deposit (RAD) and reduced DAP
• Reduced daily accommodation contributions (DAC) that are paid by residents who have also paid a RAC

Existing residents will not be impacted by MPIR changes as it’s only used to calculate pricing based on the figure for the day a resident agreed to a room price (for accommodation payments) or the day they enter your care (for accommodation contributions). The only exception is if they voluntarily move rooms and agree on a new price.

The MPIR is also applicable to lump sum refunds if a resident leaves your care, and the rate current on the day after a resident should have received their refund is applicable.

Has the base interest rate (BIR) changed?

No, the BIR remains steady at 2.25%. It has not changed since dropping from 3% in mid-2020.

How do these changes look over time?

With 18 months of growth, incoming residents will potentially be paying more than their neighbours. Asset and income tests will likely protect those with low means, however, price jumps could impact some more seriously.

Rachel Lane, Principal of Aged Care Gurus, explained the difference between the April 1 interest rate hike and the interest rate from October 2021.

“The increase means that an aged care bed with a RAD of $550,000 had an equivalent daily payment of $60/day ($22,055/year) in October 2021,” Ms Lane said.

“From April, that same bed will have a daily payment of $112/day ($41,030/year). 

Ms Lane also provided a pair of examples, highlighting how an individual and a couple could face differing costs.

“Let’s look at Shirley. She has a home worth $950,000, $100,000 in investments and $10,000 in personal assets,” Ms Lane said.

“Her personal expenses are $25 per day, she receives $27,664 a year in Age Pension and $3,000 a year in interest. The aged care home has a RAD price of $500,000.

“If Shirley pays by daily payment her cost of care will be $189 per day ($69,054/year), of which $102 is her accommodation payment. 

“Shirley’s costs exceed her income by $38,390/year.”

However, through combination payments, a couple with shared assets could ultimately be paying vastly different amounts if they enter aged care at separate times.

“Let’s look at Jack and Shirley, a couple who entered aged care separately. They both receive the full Age Pension and have combined assets of $200,000,” she explained. 

“Jack entered aged care in November 2021, based on his assets and income Jack’s DAC is $20.67/day and his equivalent lump sum is $187,656.

“Shirley is moving into aged care next week, her DAC is the same as Jack’s ($20.67/day) because her income and assets are the same. But her equivalent lump sum is almost $87,000 less at $100,856.”

Providers are expected to have accurate and up-to-date accommodation prices on their website, in printed materials, and on any official website that also shares their accommodation prices.

The next rate rise will come into effect on July 1. More information is available at the Department of Health and Aged Care.