Aged care is about to get more expensive. Here’s what you need to know

If you’re a self-funded retiree or choose not to disclose your income and assets, residential aged care is about to get a lot more expensive.

The government have announced that from October residential aged care facilities will be moving to a new funding model. The model is called the Australian National Aged Care Classification, or AN-ACC, and is designed to align funding with the costs of delivering care. Under the model funding consists of three components:

If you’re a self-funded retiree or choose not to disclose your income and assets, residential aged care is about to get a lot more expensive.Credit: iStock

• a one-off entry payment
• an individual care component (AN-ACC classification level) and;
• a fixed or shared care component (Base Care Tariff)

The one-off entry payment of around $1,150 recognises that there is a higher cost when someone first enters care, this will be paid by the government to the aged care home when you enter.

The care component is based on your AN-ACC classification, an independent assessor will assign you one of 13 classifications. Depending on your classification the amount of funding the aged care home will receive for your care will be between $41.19 and $216.80 per day.

The base care tariff depends on the characteristics of your aged care home such as its location, size and whether it is delivering specialised care, such as to Indigenous or homeless residents. BCT funding ranges between $106.23 and $390.24 per resident per day.

When you add it all up it puts the maximum daily funding under the new model at a staggering $607.04 per day. It’s important to note that funding at this level would only apply if the resident had high care needs and the aged care home specialises in providing care to Indigenous residents and is in a remote or very remote location.

The amount of aged care funding matters for two reasons. Firstly at a community level because as taxpayers we have an interest in how our taxes are being spent. The Government has allocated $5.4 billion to deliver an average of 200 minutes of care per resident per day, including 40 minutes of care delivered by a registered nurse. This additional funding will be distributed through the AN-ACC funding model.

Secondly, at an individual level it matters because the funding affects how much you can pay as a means-tested care fee. This fee is an offset of the government funding for your care, so if the funding goes up so can your fee. The means-tested care fee is just one component of your care costs, in addition to the basic daily fee, your accommodation costs and any additional or extra service fee.

The means-tested care fee is calculated based on your income and assets (if you choose to disclose) up to your cost of care. Currently, the maximum means-tested care fee is $264.81 per day. Under the new funding model, the maximum means-tested care fee will be an eye-watering $358.41 per day.

It’s important to note that there is an annual cap of $30,574, and a lifetime cap (which includes any income-tested care fee in home care) of $73,378.

The new funding model will affect existing and new residents of residential aged care, meaning those currently paying $265 per day in means-tested care fees could see a jump up to the new $358 per day amount from October.

For new residents, the maximum means-tested care fee is often charged while waiting for your assessment to be completed, which means the initial cash flow pressure is going to rise for many who don’t have the assets or income to meet the cost.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Rachel Lane is the principal of Aged Care Gurus and co-author of Aged Care, Who Cares?