Last week the long anticipated changes to the Aged Care sector were released. The new reforms are an attempt to create a more sustainable system by balancing government funding and consumer contributions, especially in the context of an ageing population where the number of people aged over 85 is projected to triple over the next 40 years.

Whilst the proposals are not yet law, the Bill has bipartisan support, so significant changes are unlikely, with some details yet to be clarified.

When will these changes start?

Most of the changes to fees are proposed to come into effect from 1 July 2025.

Who will be affected?

The proposed increases will only apply to clients entering residential care from 1 July 2025. The situation of those already in care will not change.

For ‘Support at Home’, people accessing a home care package (or on the National Priority System) as at 12 September 2024 will also stay under the existing fee rules.

There are three main aspects to these changes:

Residential care (accommodation),
Residential care (daily fees) and
Home care fees.

Residential care - accomodation…

More than 50% of providers are reportedly losing money on accommodation which is limiting investment into new development. Five changes are proposed:

Increase the approval cap to $750,000 (from 1 Jan 2025).
Apply a retention (non-refundable) amount to Refundable Accommodation Deposits (RADs) and Refundable Accommodation Contributions (RACs) up to 10% over the first five years.
Index the Daily Accommodation Payment (DAP) in line with CPI.
Consider eliminating new RADs from 2035.
Increase room subsidies for low-means residents

Residential care - daily fees…

Care fees will be divided into three categories. The current means-testing system will be abolished and replaced with a new set of rules.

Everyday living expenses – residents with assets over $238,000 or income over $95,400 (or combination) could pay up to $12.55 per day extra.
Clinical care – this will be fully funded by the government.
Non-clinical care – a new means-testing system will apply for assets over $502,981 or income over $131,279 (or combination) which may calculate a client contribution up to $101.16 per day.
Lifetime cap – the non-clinical care contribution will only apply for the first four years or to a dollar limit of $130,000 (indexed). (It’s worth noting that the average stay in aged care is just two years).

Home care fees…

The new Support at Home program will start from 1 July 2025. The services will be divided into clinical care, independence support and everyday living costs.

Clinical care…

Care will be approved under 10 package levels. The highest level will have a higher budget than the current Level 4 package.
Clinical care will be fully paid by the government.

Independence support and everyday living costs…

Full pensioners will pay 5% of independence support costs and 17.5% of everyday living costs.
Self-funded retirees will pay 50% of independence support costs and 80% of everyday living costs.
Part-pensioners will pay between these levels with means-testing (assets & income) that aligns with Age Pension means-testing rules.
The lifetime cap (across both home care and residential care) will increase from the current level of $79,900 to $130,000.
Clients who start a Home Care Package after 30 June 2025 will only be able to accumulate unspent funds of up to (the higher of) $1,000 or 10% of package budget across quarters.

Observations…

Residential care accommodation costs…

We may start to see some homes increase their prices when approval caps increase from $550k to $750k in January.
If paid as a lump sum, this amount will not be fully refundable. You will lose 2% for each of the first five years. So the refundable amount is up to 10% less than you paid.
People with assessable assets less than approximately $200,000 will still have subsidised accommodation and a cheaper price point which is matched to affordability.

Residential care costs…

Base fee is $63.57 per day – but providers that offer better quality of living standards may charge a higher fee.
Contribution to living expenses – up to $12.55 per day (means-tested) so likely to be paid by some part-pensioners and self-funded retirees. This only applies if assessable assets over $238,000 or high levels of assessable income.
Contribution to non-clinical care (entertainment, bathing, mobility assistance etc) – up to $101.16 per day (means-tested) for part-pensioners and self-funded retirees. This only applies if assessable assets are over $502,981 or you have very high levels of assessable income. This is up to a lifetime total of $130,000 or for the first four years.

Home care…

Base fee plus contribution towards living expenses or non-clinical care. Pensioners pay less than part-pensioners and self-funded retirees. This is means-tested, not just income-tested.

Rick Maggi CFP