New aged care rules will leave most of us worse off as costs rise

Following the biggest reforms in 30 years, aged care – and who pays for it – will be redefined in “once in a generation” changes to take effect next year.

The fundamental difference is that the government will pay for aged care for everyone, regardless of means – but those receiving care will have to fork out more for services defined as non-care, such as help with medications, showering and dressing, shopping and preparing meals.

Under the new rules, care is strictly defined as clinical care such as that provided by a nurse or therapist. This narrow definition means the list of non-care services becomes extensive.

Most aged care services are delivered at home.Credit: Mario Borg

Here’s what you need to know about the new aged care rules.

Home care

Many people hear “aged care” and think of nursing homes, even though most services are actually delivered in people’s homes. Of the $5.6 billion reform package, about $4.3 billion will go to at-home care.

Support at Home will bring together the home care package and short-term restorative care programs. It will also introduce guidelines for access to home modifications and assistive technologies (up to $15,000) and an “end-of-life pathway”, which can provide up to $25,000 in funding for palliative care.

Support at Home services will be designated as clinical care, independence or everyday living. The government will fund your clinical care and you will pay some of your independence and everyday living services based on your assets and income. The maximum funding for a Support at Home package will be $78,000 a year.

Here’s what at-home aged care recipients will have to pay under the new rules.

Aged care homes

The first change to the cost of aged care homes will come into effect on January 1, with the market price cap on refundable accommodation deposits (RADs) increasing from $550,000 to $750,000.

The cap is the price a nursing home can charge without government approval. From July 1, 2025, aged care homes will charge an exit fee of 2 per cent of your RAD per year for up to five years. If your RAD is $750,000 and you stay for five years, $75,000 will be deducted when you leave. People who pay by daily accommodation payment will have their fee indexed at CPI twice a year, rather than having a fixed rate.

The reforms don’t change who is eligible for support with aged care accommodation costs. People with assets above $206,039 will need to pay the market price. If most prices go up to $750,000, there will be a $500,000 gap between what people need to pay and what they can afford.

When it comes to the ongoing cost of your aged care, the government will pay for your clinical care. Everyone will pay the basic daily fee, set at 85 per cent of the age pension.

Beyond this you will pay a hotelling supplement and a non-clinical care contribution based on your assets and income, and a higher everyday living fee if you choose to get “extras”.

There is no change to the means-testing of the family home – it is included up to a capped value of $206,039 unless a protected person lives there, in which case it is exempt.

‘No worse off’ principle

The “no worse off” principle is designed to protect people already receiving aged care or waiting for a home care package. If you are receiving a home care package or have been assessed as eligible, this principle will mean your costs will be the same or less after the reforms.

If you move from home care to an aged care home after July 1, 2025, the changes to accommodation payments will apply, but you will have the choice of staying on the existing contribution arrangements or moving to the new ones. If you are already living in an aged care home, or move in before July 1, 2025, your contributions will not change while you live there.

The government estimates three in 10 full pensioners and three in four part-pensioners will pay more, and it’s easy to see why.

While the message has been “wealthy Australians will pay more for aged care”, the reality, it seems, will be most Australians will pay more – in some cases, much more.

Rachel Lane is the author of the bestselling book Aged Care. Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.

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.

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