Understanding how aged care funding works in Australia is crucial for planning your or your family’s future care needs. Australia’s aged care system involves a complex mix of government funding, individual contributions, and private payments. This comprehensive guide explains how aged care is funded, what the government pays for, your responsibilities, and how to navigate the financial aspects of aged care services.

Overview: How is Aged Care Funded in Australia?

Aged care funding in Australia operates on a shared-cost model between the Australian Government and care recipients. The system is designed to ensure that essential care is available to all older Australians while requiring those who can afford it to contribute to their care costs.

The Three-Tier Funding Model

1. Government Subsidies

  • The largest component of aged care funding
  • Covers basic care costs and facility operations
  • Paid directly to aged care providers
  • Based on assessed care needs and provider type

2. Individual Contributions

  • Basic daily fees (paid by all residents/clients)
  • Income-tested care fees (for higher-income earners)
  • Accommodation payments (for residential care)

3. Additional Services

  • Extra services beyond basic care
  • Private health insurance coverage
  • Personal expenses and lifestyle choices

Who Funds Aged Care in Australia?

Australian Government Responsibility

The Australian Government is the primary funder of aged care services, providing approximately 70-80% of total aged care funding through:

Department of Health and Aged Care:

  • Policy development and oversight
  • Funding allocation and distribution
  • Quality and safety regulation
  • Workforce development

Funding Mechanisms:

  • Aged Care Subsidies: Direct payments to providers
  • Supplements: Additional funding for specific needs
  • Capital Grants: Infrastructure and equipment funding
  • Viability Supplements: Support for regional/remote providers

Individual and Family Contributions

Care recipients contribute through:

  • Basic Daily Fees: Standard fee for all users
  • Income-Tested Care Fees: Based on income and assets
  • Accommodation Payments: For residential care places
  • Additional Service Fees: Optional extra services

State and Territory Government Role

Limited but Important Contributions:

  • Land and infrastructure: Some public aged care facilities
  • Health services: Hospital and community health integration
  • Housing: Social housing for older people
  • Transport: Community transport services

Government Aged Care Subsidies Explained

How Government Subsidies Work

Aged care subsidies are calculated based on:

  • Care recipient’s assessed needs (ACAT assessment)
  • Type of care service (home care, residential care)
  • Provider characteristics (location, size, services)
  • Government funding formulas (updated annually)

Types of Government Subsidies

1. Basic Subsidy

  • Purpose: Covers basic care and accommodation
  • Amount: Varies by care level and service type
  • Payment: Paid monthly to providers
  • 2024-25 rates: $50-$200+ per day depending on care level

2. Care Supplements

  • Dementia and Cognition Supplement: For dementia care
  • Transition Care Supplement: For post-hospital care
  • Oxygen Supplement: For oxygen therapy needs
  • Enteral Feeding Supplement: For specialized nutrition needs

3. Accommodation Supplements

  • Accommodation Supplement: For supported residents
  • Hardship Supplement: For financial difficulty
  • Respite Supplement: For respite care services

Funding Rate Determination

Annual Funding Reviews:

  • Government reviews and adjusts funding rates annually
  • Based on cost pressures, wage increases, and inflation
  • Consultation with aged care sector and stakeholders
  • Implementation on July 1 each year

Home Care Package Funding

How Home Care Packages are Funded

Government Contribution:

  • Provides the majority of package funding
  • Based on assessed care needs (Levels 1-4)
  • Paid monthly to chosen provider
  • Covers reasonable and necessary care

2024-25 Home Care Package Funding:

  • Level 1: $9,304 annually ($25.51 daily)
  • Level 2: $17,417 annually ($47.72 daily)
  • Level 3: $34,919 annually ($95.67 daily)
  • Level 4: $58,355 annually ($159.88 daily)

Client Contributions for Home Care

Basic Daily Fee (All Levels):

  • Amount: $10.69 per day (2024-25)
  • Total annually: $3,901.85
  • Indexed: Adjusted annually with pension rates

Income-Tested Care Fee:

  • Who pays: Higher-income clients
  • Calculation: Based on income and assets assessment
  • Maximum: 50% of package value
  • Assessment: Conducted by Services Australia

What Home Care Funding Covers

Included Services:

  • Personal care and nursing
  • Domestic assistance and cleaning
  • Allied health services (physio, OT, etc.)
  • Equipment and minor home modifications
  • Transport to appointments
  • Social support and companionship

Not Covered:

  • Accommodation and utility costs
  • Food and groceries (except meal preparation)
  • Medical expenses covered by Medicare
  • Pharmaceutical costs covered by PBS

Residential Aged Care Funding

Government Funding for Residential Care

Accommodation Payments: The government funds accommodation for supported residents who cannot afford accommodation costs:

  • Accommodation Supplement: Up to $68.02 per day (2024-25)
  • Hardship Provisions: Additional support for financial difficulty
  • Assets Assessment: Determines eligibility for support

Care Subsidies:

  • Basic Daily Care: Government pays majority of care costs
  • Dementia Care: Additional supplements for dementia residents
  • Complex Care: Higher subsidies for intensive needs

Resident Contributions

Basic Daily Fee:

  • Amount: $59.57 per day (2024-25)
  • Purpose: Covers living expenses (meals, cleaning, power)
  • Mandatory: All residents pay regardless of income

Means-Tested Care Fee:

  • Income-based: Higher-income residents pay additional fees
  • Range: $0 to $33,309 annually (2024-25 cap)
  • Assessment: Based on income and assets

Accommodation Payments: Two options for non-supported residents:

  • Refundable Accommodation Deposit (RAD): Lump sum payment
  • Daily Accommodation Payment (DAP): Daily payment
  • Combination: Part RAD, part DAP

Aged Care Means Testing and Assessments

How Income and Assets Testing Works

Services Australia Assessment:

  • Income Test: Assesses annual income from all sources
  • Assets Test: Values all assets except main residence (partially)
  • Combined Assessment: Determines care fee and accommodation support
  • Regular Reviews: Annual reassessment of financial circumstances

Income Assessment Components

Assessable Income:

  • Age Pension and other Centrelink payments
  • Superannuation income streams
  • Investment income (interest, dividends, rent)
  • Employment income
  • Deemed income from financial assets

Non-Assessable Income:

  • Refundable Accommodation Deposits
  • Some compensation payments
  • Hardship provisions

Assets Assessment Rules

Included Assets:

  • Financial investments and bank accounts
  • Income-producing assets
  • Personal assets over certain thresholds
  • 50% of main residence value (capped at $198,364 in 2024-25)

Excluded Assets:

  • Basic household contents and car
  • Accommodation bonds and RADs
  • Protected assets under hardship provisions

Commonwealth Home Support Programme (CHSP) Funding

Government CHSP Funding

Entry-Level Services:

  • No means testing: Available regardless of income
  • Government funded: Minimal client contributions
  • Basic services: Cleaning, social support, transport, meals
  • Provider subsidies: Government pays service providers directly

CHSP Client Contributions

Voluntary Contributions:

  • Suggested fees: Providers may request contributions
  • Ability to pay: Based on client’s financial capacity
  • No compulsion: Cannot refuse service for non-payment
  • Range: Typically $5-$25 per service

Support at Home Program (Starting 2025)

New Funding Model

From July 2025, the new Support at Home Program will replace home care packages and CHSP:

Enhanced Government Investment:

  • Increased funding: Additional $2.2 billion over 4 years
  • Uncapped services: No waiting lists for approved services
  • Flexible funding: Services based on need, not package levels
  • Improved subsidies: Higher government contribution rates

Reformed Client Contributions:

  • Simplified means testing: Clearer contribution calculations
  • Protected income: Minimum income guarantee for essentials
  • Graduated fees: Progressive contribution structure
  • Support for hardship: Enhanced financial assistance

Private Health Insurance and Aged Care

What Private Health Insurance Covers

Hospital Cover:

  • Rehabilitation: Post-acute care and therapy
  • Allied Health: Physiotherapy, occupational therapy
  • Medical Services: Specialist consultations
  • Equipment: Some medical equipment costs

Extras Cover:

  • Optical and dental: Not covered by Medicare
  • Physiotherapy: Additional sessions beyond Medicare
  • Home nursing: Private nursing services

What’s Not Covered

Excluded Services:

  • Accommodation costs: In residential aged care
  • Personal care: Basic daily assistance
  • Domestic services: Cleaning, meal preparation
  • Social support: Community participation activities

Regional and Remote Aged Care Funding

Additional Government Support

Viability Supplements:

  • Remote Area: Additional funding for isolated areas
  • Regional: Support for regional service provision
  • Cultural: Funding for culturally appropriate services
  • Capital: Infrastructure grants for rural facilities

Workforce Support:

  • Attraction: Incentives for workers in remote areas
  • Training: Additional education and development funding
  • Retention: Programs to keep staff in regional areas

Planning for Aged Care Costs

Estimating Your Costs

Tools and Resources:

  • My Aged Care Cost Calculator: Government online tool
  • Financial Advisors: Specialized aged care planning
  • Provider Information: Detailed cost breakdowns
  • Regular Reviews: Annual reassessment of costs

Financial Planning Strategies

Pre-Planning Steps:

  • Early Assessment: Understand potential costs before need
  • Asset Protection: Legal strategies for asset preservation
  • Insurance Review: Check private health and other coverage
  • Family Discussion: Plan with family members and support network

Funding Sources:

  • Superannuation: Access to super for aged care costs
  • Home Equity: Reverse mortgages or home sale
  • Centrelink: Age Pension and supplements
  • Veterans Affairs: DVA support for eligible veterans

Common Funding Questions and Answers

Can I lose my home to pay for aged care?

Your main residence is protected from aged care costs while you or your spouse lives there. Only 50% of the home value (capped at $198,364) is counted in the assets test, and this only affects care fees, not accommodation costs.

What if I can’t afford aged care costs?

Hardship provisions exist for people who cannot afford aged care costs. Contact Services Australia or your aged care provider to discuss:

  • Fee reductions or waivers
  • Temporary payment deferrals
  • Asset protection measures
  • Additional government support

How often are aged care fees reviewed?

Government rates are reviewed annually (July 1), while individual assessments are reviewed:

  • Annually by Services Australia
  • When circumstances change significantly
  • At your request if income or assets change
  • Following life events (spouse death, property sale)

Does the government pay for all medical costs in aged care?

Medicare continues to cover:

  • GP and specialist visits
  • Pharmaceutical Benefits Scheme (PBS) medications
  • Allied health services (with limits)
  • Hospital admissions

Not covered by government:

  • Personal care services
  • Accommodation costs (for some residents)
  • Additional services beyond basic care
  • Private medical services

Recent Changes and Future Reforms

2023-2024 Government Reforms

Royal Commission Recommendations:

  • Increased funding: Additional $17.7 billion over 5 years
  • Workforce improvements: Better wages and conditions
  • Quality standards: Enhanced regulation and oversight
  • Home care priority: Support for aging in place

New Rights and Standards:

  • Charter of Aged Care Rights: Clear statement of resident rights
  • Quality Standards: Updated care and service requirements
  • Serious Incident Response: Improved safety reporting

Support at Home Implementation

From July 1, 2025:

  • New assessment process: Streamlined and comprehensive
  • Foundation supports: Basic services for all eligible
  • Clinical care: Enhanced health and medical support
  • Independence supports: Equipment and home modifications

Getting Help with Aged Care Funding

Free Government Services

My Aged Care (1800 200 422):

  • Information about services and costs
  • Assessment arrangements
  • Provider referrals
  • Complaint resolution

Services Australia (1800 227 475):

  • Income and assets assessments
  • Fee calculations and reviews
  • Payment arrangements
  • Hardship assistance

Professional Support Services

Financial Advisors:

  • Specialized aged care financial planning
  • Asset protection strategies
  • Tax implications of aged care costs
  • Estate planning considerations

Aged Care Placement Services:

  • Help finding suitable services
  • Cost comparison and analysis
  • Application assistance
  • Ongoing support and advocacy

Conclusion

Understanding how aged care funding works in Australia empowers you to make informed decisions about future care needs. The system balances government support with individual contributions based on ability to pay, ensuring that essential care remains accessible while those who can afford it contribute appropriately.

Key takeaways:

  • The government provides the majority of aged care funding through subsidies and supplements
  • Individual contributions are based on means testing of income and assets
  • Various support mechanisms exist for those facing financial hardship
  • The new Support at Home Program from 2025 will provide more flexible and accessible funding

Whether you’re planning ahead or facing immediate aged care decisions, understanding the funding system helps you navigate options, estimate costs, and access appropriate support. For personalized advice about your specific situation, contact My Aged Care or consult with aged care financial specialists who can provide guidance tailored to your circumstances.

The aged care funding landscape continues to evolve, with ongoing reforms aimed at improving accessibility, quality, and sustainability of services for all older Australians. Staying informed about these changes ensures you can make the best decisions for your aged care journey.