Aged care the only service you can buy without knowing cost

Part of the problem is that many aged care homes only advertise the price of their accommodation, which is only one element.

The other part of the problem is that what you pay is subject to a means test which is often submitted after you have moved into care and can change monthly.

The cost of aged care has three components: your accommodation, your care and your personal expenses.

You can choose to pay for your accommodation by a lump sum, daily payment or a combination (including deducting your daily payment from your lump sum).

The daily charge is calculated on any unpaid lump sum at a government set interest rate, at April 1 it is 8.34 per cent per annum.

So if the lump sum amount is $550,000 you could pay that or pay a daily accommodation payment of $126 per day. Or you may decide to pay $200,000 by lump sum and $350,000 by daily payment of $80 per day, or anything in between, it is basically a sliding scale. Extending the example, you could choose to deduct the daily payment of $80 per day from your lump sum of $200,000.

It's worth noting that if you deduct the daily payment from the lump sum it will be recalculated each month, as your lump sum reduces your daily payment goes up.

When it comes to your cost of care there are two fees to be aware of.

The basic daily fee is paid by all residents, it covers daily expenses such as meals, laundry and utilities, it is set at 85 per cent of the single age pension, currently $61.96 per day.

The other fee is a means tested care fee which is used by the government to offset the funding for your care.

As the name suggests it is based on your assets and income, but that doesn't mean you can't be charged more than you can afford to pay.

The means tested care fee can be as high as $416 per day if your assets and income are high enough or if you choose not to disclose your means.

Whether you disclose your means or not there is an annual cap on your means tested care fee of $33,309 and a lifetime cap (which includes income tested fees paid towards a home care package) of $79,942.

The means tested care fee is reviewed monthly, any change to your circumstances will change the amount you need to pay.

If your means tested care fee goes up it won't be backdated, it simply starts from the review date. But if your means tested care fee goes down, the review will backdate the fee and you will receive a refund.

Changes to the means tested care fee can be substantial and catch people by surprise.

A good example is when people move into aged care and subsequently sell their home - a process which many people mistakenly believe is compulsory.

For example Pam moves into aged care today, she has a home worth $1 million, $200,000 of investments and $10,000 in personal assets. Pam's means tested care fee is $6 per day.

If Pam sells her home her means tested care fee will be $48 per day.

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A growing trend across the aged care industry is charging additional service fees, normally as a package.

For example $30 per day for a choice of meals, beer or wine with meals, streaming services, bus trips and resident activities.

These packages are often called things like "gold service package" or "premium service fee".

Beyond the additional services you pay for in the aged care home you will still have personal expenses such as medications, clothing and birthday presents for the grandkids.

Understanding what it is going to cost you live in aged care starts with knowing what the fees and charges are that you will need to pay to the aged care home for your accommodation, care and any additional services.

When it comes to working out your means tested fee a good starting point is the government's MyAgedCare Fee Estimator.

The trick here is to work out what you will pay today and what it will be when your circumstances change.

It's a good idea to seek advice from a specialist adviser who can discuss all of your options, work out what they will cost you now and in the future and help you avoid any nasty surprises.