No changes to aged care fees in the Budget - good news or bad news?

The 2024-25 Budget did not deliver the expected changes to aged care fees and funding. Is this good news or bad news, and what might be ahead?

Older Australians may have breathed a sigh of relief on Budget Night to hear that the 2024-25 Federal Budget did not increase aged care fees. But this relief is a two-edged sword and may only be a temporary relief.

The financial pressure faced by aged care providers has been a hot topic for several years and the impact has resulted in difficulty accessing care and in some cases,  substandard service standards.

The reality is that many aged care providers are continuing to struggle financially and face uncertain futures. Without more money, we may continue to see aged care providers close down (particularly in regional areas) and the quality of living standards decline.

People playing cards in a retirement home

Addressing the financial pressures

An Aged Care Taskforce was set up by Government last year to investigate and recommend solutions to address the financial viability of aged care in Australia.

The final report was handed to Government in December, with recommendations that would see more money for aged care providers and more of the cost paid through higher fees by the people accessing aged care.

Following this report, we had anticipated potential changes to fees in this year’s Budget – but the Budget was silent.

However, a new Aged Care Act is on the way (commencement has been deferred until 1 July 2025) and this presents another opportunity to change fees. Draft legislation for the new Act is likely to be introduced into Parliament later this year and that might be the end of the fee relief. Most commentators agree that fees paid by people accessing care as well as government subsidies both need to be higher.

The cost of someone in residential care is currently up to $174,000 per year, but the most any person pays towards this cost limited to just under $56,000 per year. Another round of wage increases is being considered by the Fair Work Commission for aged care workers, so expect the cost of care to increase.

Until the issue of funding and financial certainty is addressed, providers continue to be reluctant to invest in new beds. The government has estimated that we need around 8,000 new beds per year to meet the growth in demand from the Baby Boomers – it has been estimated that we need around 350,000 beds by 2024. However, in the last two years we have only seen around 2,120 new beds.

We are hearing from clients that vacancies are limited and it is harder and harder to find a bed in residential care.

Announcements that were made

It may be harder to find a place in aged care, but hopefully home care packages may become easier to obtain, with the Budget announcing an additional 24,100 packages to be released in 2024-25.

Over the last 10 years around 200,000 new packages have been released, but demand has grown faster than supply. The Budget announcement for new packages is aimed at reducing the waiting period, but even so, the expected wait time from approval to allocation of a package will still sit at around 6 months. And then you need to find a home care provider with capacity to provide the services to you.

Elderly person getting at home care

A large portion of the $2.2 billion allocated to aged care in the Budget will be directed to technology and infrastructure to deal with changes in the structure of aged care arising from the new Act, improvements in regulation and streamlining of home care services. Hopefully this will also help to improve the service standards and response times for MyAgedCare and Services Australia, which are completely unacceptable at the current time.

One piece of good news that has worried some pensioners is that deeming rates will continue to be frozen at 0.25% and 2.25% for another year until 30 June 2025. Anyone impacted by the income test will be able to benefit from higher interest on savings, without this reducing age pension payments or increasing aged care fees (for another year).

What’s ahead

We need to wait a bit longer to see what changes will be made to aged care fees.

If recommendations from the Taskforce (and previous aged care reviews) are adopted we might see higher daily care fees, changes to means-testing and retention amounts deducted from the accommodation payments. All of these changes are likely to increase fees where a person has capacity to pay but the aim is to maintain a good safety net for people who are less able to pay.

The future of aged care and how fees are impacted may become clearer later in the year.  What is evident now is that our retirement plans need to include planning for our frailty years if we want to maintain quality of life and access to choices for care no matter what challenges we face.

 Louise Biti, Director Aged Care Steps

Disclaimer: The information in this article is general and does not take into account your particular circumstances. We recommend specific financial tax or legal advice be sought before any action is taken to apply the rules to your specific circumstances. Refer to the relevant Product Disclosure Statement before investing in any product. Aged Care Steps ABN 42 156 656 843 is holder of AFSL 486723. Current as at 16 May  2024.

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