Australian government: The primary funding source
According to data from the Australian Institute of Health and Welfare (AIHW), the Australian Government is the primary funder of aged care services. In the 2023–24 period, governments spent $36.4 billion on aged care, with the vast majority contributed by the Australian Government. These funds are allocated to subsidise both residential and home-based aged care services, with the subsidies paid directly to the service providers.
Subsidies and supplements for care providers The government uses a system of subsidies and supplements to fund approved aged care providers. For residential care, the Australian National Aged Care Classification (AN-ACC) model is used to determine funding based on a resident's assessed care needs. Similarly, Home Care Packages receive government funding based on the individual's level of care.
Individual contributions: Based on financial capacity
While government subsidies form the bulk of the funding, older Australians are expected to contribute to the cost of their care if they have the financial capacity to do so. The amount an individual contributes is determined by a means assessment conducted by Services Australia. The financial components vary depending on the type of care received.
Residential aged care fees In a residential aged care home, the fees can include up to three components:
- Basic Daily Fee: Everyone in residential care pays this fee, which is a percentage of the single basic Age Pension. It covers daily living costs such as meals, cleaning, and laundry.
- Means-Tested Care Fee: This is an extra contribution some people pay towards the cost of their personal and clinical care. It is determined by an income and assets assessment and is capped annually and lifetime.
- Accommodation Payment: A means test also determines whether a resident needs to pay for their accommodation. Those with higher income and assets pay the full amount, while those with lower means receive government assistance. This can be paid as a lump sum (Refundable Accommodation Deposit, or RAD) or a daily payment (Daily Accommodation Payment, or DAP).
Home care package fees For those receiving support at home, contributions are also based on financial circumstances. Fees can include:
- Basic Daily Fee: Providers can ask clients to pay a basic daily fee, which is set as a percentage of the Age Pension, but not all providers choose to charge it.
- Income-Tested Care Fee: If an individual's income exceeds a certain amount, they will pay an income-tested fee. Like the residential care fee, this is capped annually and lifetime.
- Additional Service Fees: Any extra services not covered by the standard package budget may incur additional fees, which are not subsidised by the government.
The aged care financial safety net
For those who cannot afford to pay for their care, the government has a financial hardship assistance program. This ensures that people who need aged care can still receive it, with the government covering some or all of their costs. The hardship assistance covers the basic daily fee, means-tested care fee, and accommodation costs, but not extra service fees.
Comparison of funding sources
| Feature | Australian Government Funding | Individual Contributions | Private Funding |
|---|---|---|---|
| Primary Purpose | Subsidise essential care services | Contribute towards care, accommodation, and living costs | Cover extra services and non-subsidised care |
| Primary Recipient | Aged care service providers | Service providers or directly to the government | Service providers or third-party providers |
| Basis for Calculation | Care needs assessment (AN-ACC for residential), care level (Home Care Packages) | Income and assets assessment (means test) | Individual agreement with provider |
| Safety Net | Yes, provides financial hardship assistance | Income and assets thresholds protect low-means individuals | No, full cost is borne by the individual |
| Flexibility | Set by government policy and individual care needs | Based on personal financial circumstances | Varies greatly based on provider and individual preference |
The shifting landscape of aged care funding
The funding model for aged care in Australia is dynamic, with recent reforms and future changes already announced. The new Aged Care Act, starting November 1, 2025, introduces significant changes, particularly for home care and residential care contributions. The new Support at Home program will replace Home Care Packages, linking individual contributions to the age pension means test and basing costs on services used, rather than a fixed daily fee. Similarly, residential care will see changes, including means-testing of the hotelling supplement and a non-clinical care contribution, with caps in place.
These ongoing reforms reflect a move towards a more sustainable and person-centred system, with clear distinctions between government-funded clinical care and individual contributions towards living and personal support services. The government remains the central pillar of the aged care system, but the individual's role in co-contributing, where they can, is becoming more defined and targeted.
Conclusion
While the Australian Government pays for the bulk of aged care services through significant subsidies, the system relies on a mixed funding model. Eligible older Australians and their families are expected to contribute to the cost of their care, accommodation, and daily living expenses based on a means assessment. The government's role as the primary funder is supported by a robust financial safety net, including financial hardship assistance, to ensure that no one misses out on necessary care due to inability to pay. Upcoming reforms will further refine this co-contribution model to promote sustainability and individual choice.
