Aged care reforms: Changes to services, increased costs

For residential aged care, the higher costs for users will come in the form of a higher Refundable Accommodation Deposit (RAD), which will no longer be fully refundable, as well as changes to the means-tested care fees and a higher cap on the lifetime cost of care.

Higher quality and reduced wait times

Funding a sustainable aged care system is important, but so too is an improvement in the quality of care. Clients of home care providers and residents in aged care will expect to see a higher level of services.

However, the challenge for providers in both areas of care will be finding enough suitable staff.

Other expected positive outcomes are reduced wait times for home care packages and a streamlining of services.

According to the government, the new Act focuses on older people’s rights, needs and personal choices with a strengthening of the existing Aged Care Quality Standards.

Home Care

The changes to home care have already started with the assessment process for the current services through a new Support at Home Program. 

To request government-subsidised help, you call My Aged Care. The answers you give to their initial questions will result in an assessment for services delivered under either the Commonwealth Home Support Program (CHSP) or by the Aged Care Assessment Team if you qualify for a Home Care Package (HCP).

A single assessment service will hopefully result in appropriate care, as well as faster delivery of services through the new Support at Home Program.

From 1 July 2027, the plan is to axe the CHSP and have it absorbed into Support at Home.

From 1 November 2025, instead of four home care package levels, there will be eight support at home package levels, plus two short-term packages. 

The indicative government funding for the new eight levels is expected to range from $11,000 per year to $78,000 per year.

Equipment and home modifications and end of life will be covered by separate schemes and budgets ($12,000 and $25,000, respectively), ending the need to save for the unexpected or desired.

The understanding is that clients receiving a package after 20 September 2024 (when the changes were announced) but before 1 November 2025 will be reclassified into one of the new eight packages. Under the ‘no detriment’ grandfathering rules, they will retain at least the existing package budget level and access to any accumulated funds within it.

Currently, funds can be accumulated year after year. The new arrangement will introduce a ‘use it or lose it’ approach each quarter.

The overall budget will be available quarterly, with the ability to roll over (the greater of) 10% or $1,000 of unspent funds.

Cost of home care to rise

A new way of classifying home care means that everyone can expect to pay for the services they receive. Self-funded retirees will pay the most.

Services will be classified in three categories:

• Clinical care, such as nursing and physiotherapy
• Support for independent living, such as showering, transport and social support
• Everyday living, such as cleaning, gardening and meal delivery.

Expect considerable debate on what services fall within the new categories of care, independent living and lifestyle costs. Also, the prices that providers are charging for the services offered.

A full pensioner will pay five per cent of their independence support costs and 17 per cent of their everyday living costs, while self-funded retirees could pay up to 50 per cent of their independence support costs and 80 per cent of their everyday living costs.

	Clinical care	Independence	Everyday living
Full pensioner	0%	5%	17.5%
Part pensioners and Commonwealth Seniors Health Card holders	0%	5–50% depending on income/assets	17.5–80% depending on income/assets
Self-funded retiree	0%	50%	80%

Source: Department of Health and Aged Care

Indicative prices for services like domestic assistance range from $83 to $109 per hour, while personal care services range from $85 to $115 per hour.

No one will pay for their clinical care, which includes nursing services and physiotherapy.

A significant change for those receiving home care services and paying a high-income tested fee is that the current $79,942 (indexed) lifetime cap will jump to $130,000. This essentially shifts the costs of staying home onto those who can afford it.

Residential aged care

The new Aged Care Act will address two major funding challenges for residential aged care:

• Generate enough revenue for existing providers to keep operating
• Encourage increased investment in the number of aged care beds to accommodate expected demand.

Following the reforms, it is anticipated that 50% of people moving into aged care will pay more.

The first price shock started on 1 January 2025, when residential aged care providers got the green light to increase their Refundable Accommodation Deposits (RADs) to $750,000 (from $550,000 currently) without seeking government approval. 

The government will continue to fund accommodation in full or part for supported residents, usually full or part Age Pensioners.

Currently, all residents pay a basic daily fee (based on 85% of the full Age Pension) and the government pays a ‘hotelling’ supplement for all residents of $13.46 per day (indexed).

Going forward, the hotel supplement will be means-tested for residents with assets above $238,000, annual income above $95,400, or a combination of the two. 

The current means-tested care fee will be abolished and a non-clinical care contribution introduced, while clinical care will be fully funded by the government. 

The non-clinical care contribution could be up to $101.16 per day. This fee is payable for the first four years of residential care or up to a cap of $130,000.

Impact of cost increases

In doing a comparison between someone moving into care before 1 November and after, it is quite possible a person could pay tens of thousands of dollars more under the new rules.

For example, a person receiving a part Age Pension plus superannuation who then sells their house to pay a RAD of $750,000 will pay more than double the contribution towards their care each year under the system.

Currently the RAD is fully refunded on departure.

From 1 November 2025, residents who choose to pay for their accommodation with a RAD will have 2% deducted each year for five years. The amount retained by the providers is supposed to ensure the quality of the facility is maintained.

The treatment of the family home will be unchanged, with only the first $206,663 (indexed) accessible for means-testing.

Residents living in residential aged care before 1 November 2025 will not see a change in their accommodation costs or contributions. Their contribution rates will be preserved and won’t change.

The bottom line

For many people, understanding what you are entitled to and how much you will be expected to pay is something that needs careful consideration before you actually need it.