Key funding measures for residential aged care

The Aged Care Bill 2024 introduces significant funding reforms aimed at improving financial viability across the residential aged care sector. The bill embeds user-pays elements, restructures fees, and introduces mechanisms to support long-term capital sustainability. If enacted, these changes will reshape revenue models for operators while defining new contribution settings for residents. Read the full report.

Key takeaways

• Re-introduction of RAD retention payments (2% p.a. for up to five years).
• New means-tested hotelling contributions for non-supported residents.
• New means-tested non-clinical care contribution.
• Higher standard maximum room price (lifted from $550k to $750k).
• Bi-annual indexation of DAPs from 1 July 2025.
• New Higher Everyday Living Fee (HELF) to streamline fees for additional services.
• Revised annual/lifetime caps with a single $130k lifetime cap across Support at Home+ residential non-clinical contributions.

Context

The residential aged care sector remains under pressure from rising operating costs, compliance requirements, and the upcoming transition to the new Aged Care Act. The Aged Care Bill 2024 provides new funding levers to improve sustainability, particularly for larger providers with higher RAD portfolios. These measures also expand user contributions, shifting a larger share of non-clinical and accommodation costs to residents with means.

Key developments

Return of RAD retention payments

Retention on RAD balances improves cashflow, supports valuations, and aligns with Aged Care Taskforce sustainability recommendations.

Bi‑annual indexation of DAPs

Regular indexation supports income streams and offsets cost escalation although DAPs may remain relatively less attractive unless the MPIR falls significantly.

Higher maximum room prices

Raising maximum room prices supports increased income and reduces administrative burden around seeking approvals above the $550k threshold.

User‑pays shift in everyday living and care

Means-tested hotelling and non-clinical care contributions create more resident co‑contributions outside clinical care.

Introduction of HELF

Streamlines discretionary services under one fee with improved transparency and consumer protections.

Lifetime cap reforms

• $130k lifetime cap across Support at Home and non‑clinical residential contributions limits long-term charges and protects long-stay residents.

Challenges & risks to watch

• Impact on resident affordability for non-supported residents.
• Indexation and MPIR settings may still disincentivise DAPs.
• Timing and clarity of rules governing RAD usage and retention.
• Sector transition burden under new Aged Care Act and Support at Home.
• Uncertainty around long-term shift toward rental model after 2029 review.

Outlook

The new funding structure aims to stabilise sector viability. Financial improvements will likely be strongest for metro operators with high RAD ratios, but all providers should benefit from expanded co-contributions and indexation reforms.

Strategic considerations

• Assessing capital strategy in light of higher room price limits.
• Modelling impacts of RAD retention and revised fee structures across portfolios.
• Preparing for expanded disclosure and transparency requirements under HELF.
• Planning for operations under the new Act and Support at Home.

Conclusion

The Aged Care Bill 2024 represents arguably the most significant reset of residential aged care funding since the introduction of RADs. While user-pays elements expand, the reforms provide meaningful uplift to sector viability and lay foundations for long-term sector stability.

Next steps

• Download the full version of ANZ Health’s Aged Care Bill First Impressions report.
• Explore more of our Health banking services.
• Talk to one of our specislists by requesting a call back.