Last week the long awaited changes to the Aged Care sector were released. You could be forgiven for being confused, with headlines in Money magazine stating that ‘Pensioners pay more’ while the Australian Financial Review reported ‘Aged care taps rich retirees’.
What is the truth – who has been hit the hardest?
We sought the most authoritative summary and response from Louise Biti, principal of Aged Care Steps, who has many years’ experience in helping consumers, advisers and policy makers on how aged care works. The following is an edited summary of Aged Care Steps report on the proposed changes and how they will affect different retirees.
Reforms tabled in Parliament
The Aged Care Bill was tabled in Parliament last week, a belated response to the Royal Commission and the Aged Care Taskforce’s report on the growing demand for aged care services and the need for increased investment to address the financial challenges of Australia’s aged care sector.
The new reforms focus on creating a more sustainable system by balancing government funding and consumer contributions, especially in the context of an ageing population where the number of people aged over 85 is projected to triple over the next 40 years.
Whilst the proposals are not yet law, the Bill has been tabled with bipartisan support, so significant changes are unlikely. However, some details are yet to be clarified.
When will these changes start?
Most of the changes to fees are proposed to come into effect from 1 July 2025 and
Who will be affected?
The proposed increases will only apply to clients entering residential care from 1 July 2025. The situation of those already in care will not change.
For Support at Home, people accessing a home care package (or on the National Priority System) as at 12 September 2024 will also stay under the existing fee rules.
There are three main aspects to these changes:
- Residential care (accommodation),
- Residential care (daily fees) and
- Home care fees.
- Residential care – accommodation
More than 50% of providers are reportedly losing money on accommodation which is limiting investment into new development. Five changes are proposed:
- Increase the approval cap to $750,000 (from 1 Jan 2025).
- Apply a retention (non-refundable) amount to Refundable Accommodation Deposits (RADs) and Refundable Accommodation Contributions (RACs) up to 10% over the first five years.
- Index the Daily Accommodation Payment (DAP) in line with CPI.
- Consider eliminating new RADs from 2035.
- Increase room subsidies for low-means residents
- Residential care – daily fees
Care fees will be divided into three categories. The current means-testing system will be abolished and replaced with a new set of rules.
- Everyday living expenses – residents with assets over $238,000 or income over $95,400 (or combination) could pay up to $12.55 per day extra.
- Clinical care – this will be fully funded by the government.
- Non-clinical care – a new means-testing system will apply for assets over $502,981 or income over $131,279 (or combination) which may calculate a client contribution up to $101.16 per day.
- Lifetime cap – the non-clinical care contribution will only apply for the first four years or to a dollar limit of $130,000 (indexed). (It’s worth noting that the average stay in aged care is just two years).
- Home care fees
The new Support at Home program will start from 1 July 2025. The services will be divided into clinical care, independence support and everyday living costs.
Clinical care
- Care will be approved under 10 package levels. The highest level will have a higher budget than the current Level 4 package.
- Clinical care will be fully paid by the government.
Independence support and everyday living costs
- Full pensioners will pay 5% of independence support costs and 17.5% of everyday living costs.
- Self-funded retirees will pay 50% of independence support costs and 80% of everyday living costs.
- Part-pensioners will pay between these levels with means-testing (assets & income) that aligns with Age Pension means-testing rules.
- The lifetime cap (across both home care and residential care) will increase from the current level of $79,900 to $130,000.
- Clients who start a Home Care Package after 30 June 2025 will only be able to accumulate unspent funds of up to (the higher of) $1,000 or 10% of package budget across quarters.
Q&A: How Louise views these changes
Q. What problem do these changes try to address?
With an increasing number of older Australians, finding suitable aged care support (either at home or residential care) is increasingly difficult due to insufficient supply. Aged care providers have been facing financial difficulties which includes limited supply and investment, so we need to inject more money into the care system to help providers not only increase the number of people they can help, but also to improve the quality of the support provided so it better matches the expectations and needs of older Australians.
The changes are focused on providing the right amount of funding to aged care providers and finding a fair split between how much is funded by taxpayers and how much is funded by the person accessing care.
Q. Are they sufficient? Do you believe that these changes are a move in the right direction?
There is a lot of detail to unpack and further details are still to come. But it does look like a move in the right direction. The changes have not been made quickly and are in line with a review conducted in 2017 as well as the Aged Care Taskforce’s report completed in December last year. Some people will pay more, others will not but overall it seems to balance the needs of providers, government and older Australians.
Q. Is anything missing?
One of the biggest problems we have found is the inefficiencies in the Centrelink/Services Australia processing and administration. This has created much of the confusion and added unnecessary costs. We are hoping that some of the changes create improvements here … if not, that will continue to be a major problem.
Q. Can you share approximate maximum new costs for each of following three groups of retirees – full Age Pensioner, part Age Pensioner and self-funded retiree.
Residential care accommodation costs
The price paid will depend on the home you choose and your finances. The prices can be up to $3million, but generally range from $400,000 – $1million. We may start to see some homes increase their prices when approval caps increase from $550k to $750k in January.
If paid as a lump sum, this amount will not be fully refundable. You will lose 2% for each of the first five years. So the refundable amount is up to 10% less than you paid. But this might still be cheaper than paying the daily rental fee (which is going to be indexed in line with inflation).
People with assessable assets less than approximately $200,000 will still have subsidised accommodation and a cheaper price point which is matched to affordability.
Residential care costs
- Base fee is $63.57 per day – but providers that offer better quality of living standards may charge a higher fee.
- Contribution to living expenses – up to $12.55 per day (means-tested) so likely to be paid by some part-pensioners and self-funded retirees. This only applies if assessable assets over $238,000 or high levels of assessable income.
- Contribution to non-clinical care (entertainment, bathing, mobility assistance etc) – up to $101.16 per day (means-tested) for part-pensioners and self-funded retirees. This only applies if assessable assets are over $502,981 or you have very high levels of assessable income. This is up to a lifetime total of $130,000 or for the first four years.
Home care
- Pay a contribution towards living expenses or non-clinical care. Pensioners pay less than part-pensioners and self-funded retirees. This is means-tested, not just income-tested.
Q. Will changes give people more support or confidence to age at home now?
Yes. We will have 10 levels of home care packages instead of four and limits will apply to how much of unspent funds can be accumulated over time. This means that the money the government has available to spend will stretch further to help more people.
But it does mean people need to shop around, plan for cashflow and decide what they need help with.
Q. Do you believe staff will be available for increased at home services required, or is this the next challenge?
Better funding to providers will help them to afford more staff. But there is a lot more work needed to increase the number of workers.
Further detail can be found on the Aged Care Steps Personal Advice website.
Louise has previously explained the full detail on how aged care is charged for Retirement Essentials. You can read this article here.
Next steps
Do you need to do anything for your own long term care planning? The short answer is yes. These changes will affect everyone, regardless of their financial situation. While you are still able to make your own best decisions, it’s important to understand what lies ahead. Knowing how much capital you are likely to have at age 80 or 85 is helpful in determining what any out of pocket residential or at home care needs might need to be covered. Speaking to an adviser via a Retirement Forecasting appointment will help you work this out and perhaps reassure yourself that future care remains affordable.
Regarding residental care accomodation. The current system requires those who can afford it to pay the cost upfront. This can be anything from $750,000 to over $1,000,000. The aged care home collects the interest on that amount during the time the person is in aged care after which the principal amount is returned. Can not understand why the aged care home needs to retain a further sum on top of that very generous income on someone elses money.
To continue to build new facilities and make improvements.
Looks like a tent or a park bench for me in a few years’ time (even though I paid taxes from the age of 17), don’t own a home, and have meager assets.
David there are provisions for people on pensions with little assets and non home owners. You will not be required to pay a bond. Do not worry. Also remember that only a small percentage of people actually go into nursing homes. The. majority die suddenly at home or in hospital.
May want to check your facts:
Just over half of all deaths in Australia each year are in a hospital, according to the Australian Bureau of Statistics. A further 30 per cent are in residential aged care.
By contrast, the bureau estimates as few as one in 20 people die at home. That is despite around 70 per cent of people saying they would prefer that if they had the option, according to the Grattan Institute.
Article published by ABC 15th Sept 2024
Reply to Roy from Louise Biti:
Roy
The cost of a room in aged care does vary, with the average room price currently around $450,000.
While you are living in care, you don’t receive interest on the money you pay for your room as a lump sum RAD, but paying this amount will save you a lot in daily fees (as you won’t need to pay the daily ‘rent’) and in some cases, can increase your age pension. But importantly, it gives you the right to live in that aged care service. It is like “buying” a room with a guaranteed sale price when you leave.
We have a shortage of beds in Australia making it harder and harder to find a place. We need a lot more residential care beds in Australia and need to encourage care providers to invest money into buying land and building more places. These are not cheap buildings. RADs can help care providers with these costs but it has not been enough, with estimates that 46% of care providers are losing money on the property side of aged care. The retention amount (2% per year of the RAD paid, for a maximum of 5 years) is expected to help provide additional revenue to encourage investment.
thank you this item has help me a lot i am 77 with ongoing heart issies last 7 years 8 stents 7 hour oppp
my daughters are trying to get me to move to a retirement village i object owing that the 30% rip off after 5 years is a joke so i plan to Mayee in future locate to smaller villa as i live on a acre and now hard work i am beginning to understand that there is a maximum of payments to home care over 5 years does this increase again future years i currently only have a cleaner once a week from Australian unity which i have had for 6 years
i do not get a pension iam self-funded own house and $850000 in super of which i receive a %$52000 year pension own house worth $1100000 i have 75 % and 25% mixed shares not high risk and no cash investments
i understood the 4-type care but cannot find the 10-step care i wish to send this info on to my daughters
Peter, I live in an over 55’s residential village. I own my home, but lease the land. The Government recognises this as a rental agreement, and pays a rental allowance. I am free to sell my home and retain all funds as a result. I am on a full pension.
I would suggest this as a viable option for you. As a self funded retiree you could live very comfortably in such a village, have close neighbours, usually an active social club, and desirable on site facilities.
I would investigate villages which operate under a land lease system as a viable option for you to consider.
Hi Peter, to access the Support at Homecare you would need to request an assessment. Australian Unity can help you do this. The Assessors can then provide you with all information without obligation. It doesn’t hurt to get on the assessment ladder as the wait is long. The Govt have released the 10 levels of budgets but nothing is finalised yet. You might find you are better off paying for services privately at home rather than taking a package if you are self funded and being obliged to pay the fee towards the lifetime cap. Moving to a Retirement Village Independent unit is not a great investment once you are older and health declining. Although they advertise a lifestyle it often does not live up to expectations and they do not include services you need. If they offer Assisted living in a village it could be more suitable for your stage to go directly there. This offers care at a lower level for those who need a bit of help and support, but not a nursing home. They usually charge a weekly fee but no bond. If you are still fairly independent you may be better staying where you are, getting more services coming in as needed, and waiting to see if the time comes where you need to move to a residential care setting. This depends on all your personal circumstances such as whether your daughters are spending a lot of time supporting you, whether you are isolated and whether you are feeling lonely on your own. Are your daughters aware of the difference between what is offered in assisted living and what is offered in an independent living unit? The maximum payment you are talking about is for nursing home care. The nursing homes have charged a bond on entry and can keep an amount from the bond at so much per year determined by the Govt )to a maximum of 5 years, plus they keep the interest they make on the bond during the time the person is a resident.So if you enter a home and stay 2 years they keep two years out of the 5 If you stay ten years they can keep 5 years out of the 5. Its not that much- only a few thousand per year. For the Support at Home (Home care packages) from next year everyone will pay a means tested fee for services. This will go towards a ‘lifetime cap’ of fees for care of about$130,000.00. If you ever reach the cap you would not pay more 😉 Traditionally fees paid while receiving a home care package were transferred towards the lifetime cap for nursing homes. I think this is still the case.
Peter, what ever you decide to do I wish all the best.
I hope your daughters look into things before deciding what they think is best. And then double check all the reviews externally. I keep telling my husband I have never read a bad review on a wine bottle, yet I have had a lot of bad wine. Shiny marketing…
I’d keep well away from the residential village option of owning your own home, and having to leasing the land. These places are notoriously ripping off retired elderly. There are many hidden costs along with very step exit fees.
There is a very big one that runs over 90 villages around the country. Link below for you and anyone contemplating it. Hopefully the information will assist you in what not to do.
I believe it was also on four corners.
https://www.smh.com.au/interactive/2017/retirement-racket/the-price-of-freedom/
Christine’s advice sounds like a very good starting point.
Cheers
HI Peter, response from Louise Biti is: Peter Newton
Deciding where and how you will live as you age are complex decisions. The first step is to ensure the home you are living in is suitable for your needs and is somewhere that you can live safely with access to the support you need. Many people choose retirement communities but they don’t suit everyone.
Regardless of where you live, home care can be available. The first step to check your eligibility is to register and apply for help with MyAgedCare (myagedcare.gov.au). You already have some help, but if your needs are increasing you might want to get back in touch with MyAgedCare to see if you can be approved for more assistance.
Home Care is currently divided into the Commonwealth Home Support Program (CHSP) for simple needs or Home Care Packages for a more complex package of support. Home Care Packages are currently at 4 levels but are proposed to expand to 10 levels from 1 July 2025. Here is where you can find some more information https://www.health.gov.au/our-work/support-at-home
I have been involved with my Mother’s Home Care which she had received from the age of 74 to 90 years. The early years where non profit and she had to pay some money according to her finances. That worked well for her. But as she got older and needed more help the Federal Government took over. She was on a level 4 package. The prices that the provider charged where way above what I would call normal. She was limited with what she could use the money on so when she passed she had $17,000 left in her package. I made sure that we didn’t take advantage of the services, but they left a lot to be desired. Sometimes they could not provide her a shower which ment that they could not give her her medication, so I would have to organize that as this caused confusion wit her and she was know to have taken her medication twice in one day.. What people do not understand is that you need a family member to advocate for the person receiving the package. It left a lot to be desired. It caused me a lot of stress and constant phone calls to keep things on track. Each person that came to do her every day care had different ways of caring, some where good others where indifferent (it was just a job for sum) and for others it was important for the client to be kind and caring. Once the Federal Government changed it to a profit based business it was worse. I am happy to talk to anyone in regards to the years that I was helping my Mother as I have had nearly 20 years experience. What happens to a little old Lady that is living on her own at home and doesn’t have demetia. I cannot see things improving even with the 10 packages. When the packages changed I said to my Mother’s providers that they had two assets that they needed to look after and that was one the client who paid out of there package for the care and the workers that did the work. But that is not what happened. What you can access from the package and what you get are two different things. That is the reason why there was so much money left in my Mother’s package when she passed. I am still waiting 16months after her passing for the provider to collect her records. I have contacted them many times and each time they say someone will contact me and they never do. So I will be contacting someone higher up and if I don’t get any action I will destroy the records. I did make a submission when they had a commission into aged care and not much changed from that commission.
is the family home assessed as assets thanks
Hi Paul, no your primary place of residence is exempt from assessment.