What’s changing about aged care?

Late last year the new Aged Care Bill was passed focusing on increasing the quality, accountability and long-term viability of the aged care system.  

The Royal Commission into Aged Care Quality and Safety highlighted problems with the standard of care residents were receiving in many aged care facilities – food, nursing care, and quality issues.  Underlying these issues was the lack of funding in the system. By the end of 2024 the majority of aged care facilities were losing money.  

Instead of an extra tax paid by younger workers, or a Medicare-style levy, the Government decided that new people entering the aged care sector would need to contribute more towards their care services. 

The Bill, which involved consultation with both political parties, comes into effect from 1 July 2025 was the Government’s response.  

The Government is still the major contributor to aged care but people are now being asked to contribute more to their own care if they have the ability to do so.  However, anyone already in the aged care system will be no worse off and not subject to new rules. 

 Residential care costs 

In 2014, the maximum cost of a room in an aged care facility was set at $550,000 – not indexed – without special approval.  From 1 January 2025 this amount increased to $750,000 and will be indexed annually in line with changes in the CPI.  The cost of a lot of rooms have increased already.  

Under the current regulations, this room cost was fully refundable at the end of the person’s stay in the facility.  For new entrants to care from 1 July, there is now a retention amount of 2% per year up to a maximum of 10% after five years. 

If you’re not able to pay the full room cost – the interest charged on the outstanding amount will no longer be fixed at the date of entry and will increase in line with CPI twice a year. 

New care fees also apply for new entrants from 1 July 2025. According to Aged Care Steps head of personal advice Jennifer Langton, everyone in aged care currently pays a basic daily fee of 85% of the aged pension (currently $61.96 per day). Plus, for some people, there is a means-tested fee which has an annual cap and a lifetime cap ($82,018), and for a lot of facilities there is an additional service fee.  

Under the new regulations, the basic daily fee remains – the new fees are a  “Hotelling Contribution” this payment can be up to $12.55 a day or $4,580.75 per year and will be paid by those above the applicable threshold.   

A ‘Non-Clinical Care Contribution’ of up to $101.16 per day ($36,294.40 per year) will also be applicable to cover everyday living expenses such as bathing, mobility assistance & lifestyle activities. This will be calculated as the resident’s mean tested amount.  There will be no annual cap and a lifetime cap will be applied of $130,000 – or four-years’ payments, whichever comes first.  

The current additional service fee set by the care facility will be replaced by a ‘Higher Everyday Living Fee’. 

Home care costs 

Home care is also changing and from 1 July, will be renamed the Support at Home Program. Previously, there were four levels of care 1, 2, 3 and 4. The new system has 10 levels, including a Restorative Care Pathway (a 12-week support program to build participants’ strength and capabilities) and End-of-Life Pathway (to give people with three months or less to live a higher level of services to enable them to remain at home as long as possible).   

The rules around service pricing and income testing of consumer contributions will change for most users. 

In all packages clinical (health) care is funded by the government but the everyday living costs of meals, transport, cleaning and gardening will need to be contributed to by those receiving it. 

The full details regarding costs and services have not yet been released, although what is known at this time is that the financial assessment and contributions paid by users will be closely linked to age pension and (Commonwealth Seniors Health Care Card recipient) status. 

There will be three categories of services – clinical care, independence support and everyday living.  

‘Clinical care’ will cover nursing, physiotherapy, and occupational therapy and will be 100% government funded. 

Consumers will contribute towards services in the following two categories based on means testing: 

‘Independence support’ will cover personal care, transport and social support. 

‘Everyday living’ will cover cleaning, meal delivery, gardening and home maintenance. 

‘Grandfathering rules” – Transitional arrangements 

The government estimated that 50% of new entrants to the care system will pay higher fees under the new rules.  To protect existing users, grandfathering rules have been put in place to ensure those already in the care system are ‘No worse off’. 

These grandfathering rules apply to users already in permanent aged care and there are transitional arrangements for consumers who were already using home care or approved for home care services as of 12 September 2024. 

The new fees and transitional arrangements are particularly complex, and can seem daunting and difficult to navigate 

“A financial adviser can make what seems complex and overwhelming simple,” Langton says. 

“People need to see aged care adviser who is accredited, experienced and up to date with the new regulations.” 

A lot of money can be lost if there are incorrect financial decisions made without understanding the consequences – and this is where an (FAAA accredited) aged care adviser can add a lot of value, Langton says.