In many ways, it has been a great leveller. People whose entire lives may have been lived on either side of a social divide can end up living out their final days side by side.
And one may be paying for their care themselves, while the other is receiving the same care thanks to the Fair Deal scheme.
Since the introduction of the Fair Deal almost 10 years ago, how we pay for nursing home care has changed substantially. But is the Fair Deal always the best option? And how does it work?
Introduced in 2009, Fair Deal replaced the old subvention scheme. At its heart, the Fair Deal requires a contribution from each person looking to avail of support in the State system, in line with what they can afford.
As part of this, applicants must undergo a financial assessment to establish just how much they need to contribute. Typically, the scheme requires those availing of it to give up 80 per cent of all their after-tax income, as well as 7.5 per cent of their assets – a figure that has risen from 5 per cent in 2013.
However, there are some exceptions. The first €36,000 of a person’s savings, or assets is not included in the assessment. That rises to €72,000 for a couple.
A three-year cap applies to the family home, a contribution that can be deferred through the nursing home loan, until the person dies.
So, for example, someone with an income after tax of €15,000 and no home or assets, will make a contribution of €12,000 a year towards their nursing home care – care which can cost in excess of €50,000 a year.
Who isn’t it suitable for?
But, depending on your family's financial circumstances, the Fair Deal may not be your best option. Fair Deal adviser and consultant Tom Murray of www.fairdealadvice.ie says that probably between 10 and 20 per cent of the population fit into the category where the Fair Deal can be more expensive than funding the cost of care themselves.
“It is a very select group; it wouldn’t be the norm,” he says.
However, with property prices recovering, Fair Deal Advisors director Fred Hickey says that whether to opt for Fair Deal or now is becoming more of an issue, particularly for families in Dublin.
Families need to take some time to consider their options, and not simply run straight into the Fair Deal programme.
“Applicants need to be advised on the significant implications of selling property [illiquid assets] vis à vis holding on to the same and availing of the supplementary nursing home loan scheme,” Hickey says.
His firm offers advice to individuals and families considering the Fair Deal. It charges €250 (plus VAT) for a limited telephone-based advice service or €1,000 (plus VAT) for a full service.
While each case will be unique, Murray suggests people with assets of between €1.5 million and €2 million, and a net pension of €75,000 (of which 80 per cent or €60,000 would go to Fair Deal) might get no benefit from the scheme.
For example, someone with assets worth €2 million would be giving up €150,000 over the first three years of the scheme, plus 80 per cent of their net income.
The length of care likely to be needed might also be a determining factor. Families need to consider how long they think their parent(s) will live in a nursing home as this can also impact on decisions.
If it is for a short time, families might wish to “self fund and claim tax relief, as the Fair Deal can be a lot more expensive on the estate” suggests Hickey. On the other hand, if care is prolonged, the Fair Deal will likely make sense.
Even if you have a net pension of about €75,000 a year, you might still need another €5,000-€10,000 a year for private nursing home care
Consider a couple living in Dublin in a home worth €1.2 million. In entering the Fair Deal scheme, they’ll have to give up 3.75 per cent of the value of the family home over three years if one of the spouses go into a nursing home (€42,300 for the first three years). But the contribution on the family home is restricted to three years. So, while the initial hit may be significant, if you spend 10 years in a nursing home, you’ll be onto a winner.
“After three years, the house is excluded, so you’re actually saving a lot of money,” advises Murray. “The real benefit of the Fair Deal kicks in after year three.”
On the other hand, if this couple’s wealth was outside of a family home, and the €1.2 million was in cash, the Fair Deal may not make sense at all, as the 3.75 per cent annual contribution would be deducted from your assets every year until you died.
Paying privately
If you opt to pay for nursing home care privately, you will be entitled to claim tax relief on the costs. This can be claimed by either yourself or a relative. You will need income in excess of the tax exemption limits for this to be of use to you – ie you need to be paying tax, ideally at the higher rate, in order to be able to claim it back.
“You may have potential tax relief, but have you actually got the tax to offset it against?” asks Murray.
Figures from the Revenue show that, in 2016, some 6,800 claims on nursing home expenses were made at a cost to the exchequer of €32.8 million – an average benefit of €4,823 per claim.
Paying for care yourself might make sense, due to the charge on your assets, but you may not have the cash to pay for it.
“There are very few people who have the income, or the cash reserves, to pay for private care,” says Murray, adding that, for many, wealth is largely tied up in an asset such as the family home.
And even if you have a net pension of about €75,000 a year, you might still need another €5,000-€10,000 a year for private nursing home care.
“If you live for 10 years, that’s a lot of money people may not have,” he says.
But paying for care yourself can make sense where assets are held outside of the family home. Hickey gives the example of one client, whose father had moved into a nursing home and whose mother was looking to downsize from a home worth €900,000 to one worth €400,000.
While the 3.75 per cent annual charge would apply on the new home for up to three years, it would apply to the “cash” released of some €500,000 for as long as the father needed nursing home care. As a result, the nest egg would be depleted as a result of the decision to downsize.
Another point to consider is that in paying for nursing home care privately, you won’t be in a position to avail of the National Treatment Purchase Fund’s bargaining power, which has managed to drive down the cost of nursing home beds across the State.
“The Fair Deal rate you’re paying can be substantially less than the private rate,” says Murray. After all, about 80 per cent of patients opt for the Fair Deal, which means that “very few nursing homes can afford not to be part of it”.
“That can be quite a dramatic factor in making a decision,” he says. “It could be the difference between paying €75,000 and €100,000”.
Do the sums – now
Preparing for nursing home care – even if it is never needed – is something families need to consider well ahead of time, experts say. “One of the most frustrating situations that I would come across for families is where parents or partners haven’t thought about this,” says Murray.
Many people leave it until there’s a medical event, such as a stroke, which necessitates immediate nursing home care. And if the person is incapacitated, the Fair Deal scheme can’t be entered into without getting a care representative. And that can take even more time.
If nursing home care is looking likely in the short to medium term, Murray suggests you consider locking into the Fair Deal, if that’s your chosen option.
“People don’t realise they can apply for the Fair Deal today. They don’t have to avail of it [immediately] as they have six months once it’s granted to take up the funding.”
If a family doesn’t have a plan in place, they could be looking at the situation where they are faced with discharging someone from hospital where they’re paying nothing, and putting them into a nursing home where the cheapest rate could be between €1,300 and €1,400 a week.
“Until the Fair Deal is approved, they’ll be a private resident and the family will have to fund that. You could be talking 16/17 weeks if you were unlucky,” says Murray.
Early transfer?
Some people try to get around the charge on their assets by transferring the family home and/or other assets to their children ahead of availing of the scheme. But assets must be transferred five years ahead of a Fair Deal application to avoid being included in the financial assessment.
“Anyone who starts to play clever and gift assets and income in anticipation of nursing home requirements, that is not going to work,” Hickey says. “Applicants need to understand the consequences of making a false or deliberately inaccurate submission to the HSE for the Fair Deal subvention – ie fines and/or imprisonment”.
People can also get caught out on how the nursing home loan works.
“It isn’t the HSE that collects the money; it’s the Revenue. And they demand the repayment of the nursing home loan within 12 months of probate being issued,” says Hickey, adding that the executor of the will is personally responsible for making this payment. “And 99 per cent of people don’t realise all of this,” he adds.
Remember, if you opt to pay for care yourself, you can later switch to the Fair Deal. However, as Hickey notes, all of the rules will still apply at that stage.
“So anything gifted in the previous five years will come back into the calculation,” he says.
You also need to bear in mind that the Fair Deal only works for people going into a home. While the Government is looking to extend the Fair Deal to homecare, it is likely to take at least until 2020 or beyond to be up and running.
