A quiet revolution is underway in Australia’s care industry, with the traditional nursing home model being challenged by a new approach which emphasises hotel-style luxury and is more closely linked with upmarket retirement villages.
In this piece, Downsizing.com.au attempts to explain this new approach, to help readers who are considering making care decisions for their parents or themselves.
First up, it’s important to understand the nuts and bolts of the new older and newer models.
The older, traditional model is where an operator runs a residential aged care facility (RACF), which is regulated under national laws. RACFs used to be known as nursing homes or hostels, although both of these names still exist in common dialogue.
RACFs provide ongoing and in-house care for residents. Residents generally either pay a refundable accommodation deposit (RAD), or a daily accommodation payment (DAP), or a mixture of both.
A range of other fees apply, including compulsory and widely-varying ‘additional services’ daily fees which cover services such as activity programs, happy hours, gardening clubs, higher quality meals and drinks with dinner.
The new approach has an alternate regulatory and pricing structure.
It involves residents purchasing a dwelling in a retirement village (usually under a leasehold or licence agreement) and then accessing home care services from the village operator, or an external provider. These services can include both low and higher levels of care, including dementia and palliative care.
Retirement villages are regulated under State and Territory law, while home care is regulated under national law.
Sometimes this model is marketed as a ‘lifestyle care community’ or ‘care village’, or the word ‘care’ isn’t mentioned at all in the relevant project’s title. So our readers understand what we are talking about in this story, we’ll give them the title of ‘retirement care villages’.
So what are the consumer benefits, or indeed disadvantages, of the new approach? Well, it turns out there is a lot to talk about in this area.
More efficient home care delivery
Residents who are paying for home care, while living in their suburban home, may be attracted to the new approach. This is because, at home, they are paying for time taken for the home care worker to travel to their home.
In a retirement care village, the care staff are always on-hand so travel costs are not an issue, and care can be provided in as little as 15-minute increments, reducing time wastage. It’s argued that this can lead to cost savings.
Even though they may need care - and sometimes high levels of care - retirement care village residents are technically living independently and therefore have the ability to come and go as they please. There’s a perception - rightly or wrongly - that this gives them greater independence than aged care facility residents.
Potential for capital gain
While it’s not always the case, it is possible that residents in retirement care villages, or their families, may be able to benefit from the capital gain of their apartments when they leave (while noting it is also likely they’ll be required to pay a potentially chunky exit fee - see below).
This includes being able to haggle over the sale price of the apartment with a new buyer.
By the same token (and we’re not aware of any evidence of this happening), it may also be possible that the apartment price could fall below the incoming contribution paid.
This compares to a refundable accommodation deposit (RAD) approach in an aged care facility, where the incoming contribution is simply returned.
Potentially easier to move into
Because retirement villages are regulated at a State level, and aged care facilities at a national level, shifting between the two is not always seamless.
In fact, even if an aged care facility is on the same site as a retirement village, a resident may need to join a new waiting list and negotiate a new and different pricing model to move from the retirement village to the aged care facility.
However, someone living in a typical retirement village may find it easier to move into a new care apartment in the same village, because they are staying under the same State legislation and often dealing with the same operator.
This includes being able to use the accumulated equity in your existing retirement village dwelling to move into a care apartment, even before you’ve been able to sell this dwelling.
It should be noted that recent NSW legislation has attempted to bridge this regulatory gap, by requiring retirement village operators to pay the daily aged care costs of retirement village residents who’ve moved out but been unable to sell their dwelling.
It’s possible for residents to move into a retirement care village and be healthy enough to not have to pay for any care, or only a low level of care, while knowing they may need higher levels of care in the future.
This means residents can make full use of the lifestyle facilities in these care villages while they are still healthy and active.
This is different to a residential aged care facility, where it would be expected that all residents would require some level of care.
Partners can live together, even if one doesn’t need care
The above-mentioned level of flexibility also means that couples can continue to live together, even if one needs care and the other doesn’t.
This is obviously very important for many couples who’ve spent their entire lives together, and don’t want this to change in a care environment.
Choice of care provider
In a residential aged care facility, care services are provided in-house. However, in a retirement care village, you can either use the nominated in-house care provider or select an external provider to regularly come into the facility.
This is because, as mentioned above, residents are receiving what is technically home care, as distinct to institutional or hospital-like care.
Barrier to entry
Unlike in a residential aged care facility where you can pay for your accommodation via a daily payment (including this being fully funded by the government in some circumstances), in a retirement care village model you will be required to pay some form of an incoming contribution.
This does provide a barrier to entry and means the model tends to be better suited to people with existing assets or savings that they can use for their care and lifestyle needs.
Given this, retirement care villages tend to focus on more aspirational and cashed-up retirees, rather than retirees who are completely reliant on government funding.
Exit fees (also called deferred management fees)
While there are typically no exit fees in a residential aged care facility (RACF), it is possible you may need to pay an exit fee calculated as a percentage of your incoming contribution as an exit fee when leaving a retirement care village.
The operator uses this fee to support its business, including investing in new villages and village upgrades.
When it comes to exit fees, it’s worth keeping in mind some important matters:
- While no-one likes paying fees, it is the case that an exit fee tends to reduce the price of the incoming contribution - often below the upfront cost of paying a refundable accommodation deposit (RAD) in an aged care facility
- Many operators are willing to discuss options which don’t involve exit fees
- It’s vital you get financial advice about exit fees and any decision to move into a retirement village, particularly given that the way a village contract and fee approach is structured can have an impact on a range of personal financial issues, including the aged pension
- You need to compare the cost of a lump sum exit fee with the cost of ongoing daily fees in an aged care facility.
For more information about exit fees in retirement villages, see this explainer
Retirement care villages are relatively new on the scene, but growing.
The villages that are currently in place are seeking to support Baby Boomers who require care but want to do this in an environment which continues the type of lifestyle they have enjoyed for much of their life. These same Boomers are able to use their accumulated savings and home equity to fund this lifestyle.
Find out more: Inside Australia’s hotel-like luxury care villages catering for the demanding Baby Boomer generation