On 12 September 2024 the federal government released further details on their proposed reforms to the aged care system, based upon the aged care taskforce recommendations released earlier in March. The changes, which have bipartisan support, will form part of the new Aged Care Act commencing on 1 July 2025. As a result, it is estimated that 50% of people entering residential care after this date will pay higher fees.

In summary the changes include:

• Increased means-testing of home care
  Presently there is no segregation of home care services and people contribute toward their home care costs at a single rate based upon their income level. Moving forward home care services will be divided into three categories with recipients contributing at different rates depending upon the service category and their level of income and assets.

	Clinical care (eg. Nursing, physio)	Independence support (eg. Bathing, transport, social support)	Everyday living expenses (eg. Cleaning, meal delivery, gardening)
Full pensioner	Nil	5%	17.5%
Part-pensioner & CSHC	Nil	5-50%	17.5-80%
Self-funded	Nil	50%	80%
		Lifetime cap $130,000

• Introduction of “use it or lose it” principal to home care funding.
  Annual package funding will be divided into four quarters and unspent funds can be carried forward into the next following quarter but not carried forward beyond this. Presently funding can be carried forward indefinitely.
  
  
• Introduction of means-testing of non-nursing costs in residential care.
  Residents will be asked to contribute up to $12.55 per day towards food, utilities, cleaning etc depending upon their level of income and assets.
  
  
• The means-tested care fee to be replaced with a means-tested contribution to non-clinical care.
  Residents will be asked to contribute up to $101.16 per day for non-clinical care which includes bathing, mobility assistance etc. This will be subject to a higher lifetime cap of $130,000 (or four years whichever is sooner) meaning people will contribute for longer than they currently contribute.
  
  
• Room costs increasing:
  - Aged care providers able to charge up to $750,000 for a room without approval from the aged care pricing commission. This has increased from $550,000. 
  - Residents will lose 2% per annum (deducted monthly) of any refundable accommodation deposit (RAD) they pay to the facility over a five-year period (10% in total). Presently RADs are fully refundable.
  - Currently residents that choose not to pay a RAD pay a daily accommodation payment (DAP) instead which is fixed. In the new system these DAPs will be indexed twice yearly.

What’s not changing?

• The home will be capped at an asset value of $206,039 for the means-testing of aged care fees.
• People classified as low means will continue to be supported by the Government.
• Everybody will be asked to pay the same basic daily care fee.
  The refundable accommodation deposits remain Government guaranteed.
• Co-contributions to home care count towards the overall lifetime co-contribution cap.

Who is most affected? 

The table below provides an example of how care fees will increase for full-pensioners, part-pensioners and self-funded retirees under the new system. Figures are based upon a single person entering residential aged care with a home. Room costs are not included.

	Full pensioner	Part-pensioner	Self-funded retiree
House	$ 650,000	$ 950,000	$ 1,500,000
Superannuation	$ 250,000	$ 450,000	$ 1,000,000
Centrelink pension	$ 29,754	$ 19,146	N/A
Annual increase in care fees in the new system*	$ 2,077	$ 10,395	$ 24,349

*Room costs are NOT included

Transition period

The new rules for residential care begin for all those entering permanent residential care on or after 1 July 2025.

For those currently receiving a home care package or on a waiting list for one:

If receiving Home Care package (or in queue) on:
12 September 2024	Pay same fees (under current rules) or lower If move to residential care – daily fees under current rules (unless opt-in), but new room payment rules apply
1 July 2025	Keep existing package budget & unspent funds. Can move to a higher package with approval.

Future considerations

• Home care will become the cornerstone of aged care in the future, and it is going to become more complex to navigate and difficult to budget for.
• People considering a move into residential aged care in the next 12 months should consider entering residential care prior to 1 July 2025 to reduce costs.
• People entering residential care will need to carefully consider whether they should pay a room deposit or not now that the facility is deducting 2% p.a. and the daily accommodation payment in no longer fixed.
• Higher aged care costs means that people entering aged care need to plan their liquidity carefully to ensure they have the funds available at the right time to cover these higher costs as they fall due.

Navigating aged care costs has always been complex but is now made even more so due to these aged care reforms. If you need help understanding your financial position with regards to aged care, please contact Luke Andrews on landrews@pwg.com.au 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.