The new aged-care rules you need to know about

Two weeks have passed since Australia's new aged-care reforms came into effect.

The changes put more onus on residents, particularly those with means, to contribute more for their care.

The new rules affect only those entering aged care after November 1. Those already in aged care were grandfathered into the old funding arrangements.

Until November 1, the Australian government picked up the tab for the vast majority of Australians' aged-care costs.

The government will continue to pay between 70-100% of a resident's cost of care, however residents will be required to chip in more.

Under the new rules, many self-funded retirees will end up paying between $20,000 and $50,000 more per year for their aged care compared to those already in aged care, depending on the quality of their room, the facility they choose and their means.

Three quarters of part pensioners will contribute more and 30% of full pensioners will contribute more.

Importantly, low-means residents will be no worse off under the new rules.

Why were the new rules introduced?

The changes came in with Parliamentary bi-partisan support.

They followed recommendations from the Royal Commission into Aged Care Quality and Safety, the final report of which was tabled in the Australian Parliament in 2021.

The November 1 changes were necessary for the future of the aged-care industry.

Under the old funding rules - which had been in place for 12 years - nearly half of Australia's residential aged-care providers were operating at a loss, with many going out of business in recent years (in recent times, four times more facilities have closed than have opened).

The new funding model was necessary to encourage facility owners to continue to invest in the sector and provide more beds for older Australians.

Over the next 25 years demand for aged-care beds in Australia is projected to grow more than 300%, from 180,000 beds to more than 750,000 beds.

What are the major changes?

The key changes to aged care fees from November 1 include:

Refundable Accommodation Deposits (RADs)

Under the old rules RADs (formerly known as bonds) were fully refunded when a resident left care.

Under the new rules, aged-care providers will retain 2% of the RAD each year for up to five years, meaning a total of 10% can be retained by the facility. For a $1 million RAD this equates to $100,000.

Daily Accommodation Payments (DAPs)

Interest rates on unpaid RADs, which used to be locked in at the time of admission, are now indexed to inflation (CPI) twice a year.

Hotelling supplement

Previously covered entirely by the government this daily fee, which will be up to $22.15, is now means-tested. Residents will contribute none, some, or all of it, based on their financial circumstances.

Higher Everyday Living Fee (HELF)

Replacing the old additional services fee - which ranged from $0-100 - this charge is now negotiated only after a resident has moved into care, with built-in cooling-off periods and regular reviews. It is also indexed to CPI.

Non-Clinical Care Contribution (NCCC)

The NCCC has replaced the old means-tested fee, which had an annual cap of $35,238 and a lifetime cap of $84,571.

While clinical care is now fully funded by the government, residents will pay up to $105.30 per day with no annual cap, but a higher lifetime cap of $135,000.

The Basic Daily Care Fee, which is set at 85% of the full pension, remains unchanged under the new rules.

The new rules add another layer of complexity, especially with the introduction of CPI-linked fees and the increased emphasis on means-testing.

What should people think about before going into aged care?

Australians considering entry to aged care should consider four things:

• Understand the Means-Test changes: Aged-care advisers can calculate how the new Means Testing and CPI-linked fees will affect your aged-care fees. Understanding how your means will be assessed can help you plan ahead and avoid surprises.
• Consider funding strategies for RADs or DAPs: Review whether paying a Refundable Accommodation Deposit (RAD), a Daily Accommodation Payment (DAP), or a combination of the two makes the most sense for your situation under the new rules, especially with new RAD retention rules and CPI-linked DAPs coming into effect.
• Plan ahead for ongoing fee increases: Understand how these fee increases will affect you and your family. Fees will continue to rise over time, and planning for indexed increases can prevent future financial stress.
• Talk to your family: When is it necessary to consider moving from home care to aged care, and do you have a plan in place for when the time comes?

Get stories like this in our newsletters.