Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 258

Budget 2018 puts aged care at a tipping point

The Federal Budget in May 2018 was widely reported as the ‘Baby Boomer Budget’ with key elements including an additional 14,000 home care packages, expansion of the Pension Loans Scheme (PLS) and an increase to the pension work bonus. Of course, the headlines don’t tell the full story.

Home Care packages

The additional 14,000 Home Care packages over the next four years was welcome news. For the 105,000 people currently on the waiting list for a package based on their needs – a list that grew by almost 25,000 between February and December 2017 – the government seems to have forgotten them. The money to pay for these packages has come out of residential aged care funding, which appears set to see similar waiting lists to home care over the coming decade. The MUCHE Health Report 2018 estimates there is will be a “94,200 gap in residential aged care places by 2025”.

Pension Loan Scheme

The expansion of the PLS to provide payments of up to 150% of the age pension and extended eligibility to anyone of age pension age is great news, particularly for full pensioners that are self-funded retirees who currently cannot access the scheme. The interest rate applied to the PLS is a relatively low 5.25% p.a. or around 1% lower than the rates charged for a commercial reverse mortgage. Unlike a reverse mortgage, the PLS is considered income for aged care means testing, meaning that people who use the scheme to fund aged care costs could actually increase those costs by doing so.

Here’s an example: Jack and Jill are homeowners who receive the full age pension. They have $50,000 in bank accounts, $150,000 of shares and $30,000 of personal assets.

Jack has a home care package and pays the basic daily fee of $10.32 per day. Under the expanded PLS, Jack and Jill would be able to receive payments of up to $17,787 per year. If we assume they receive $17,787 per year of payments, because the PLS is included in Jack’s assessable income and pushes him over the $20,704 per year income threshold, his Home Care Package Income Tested Care Fee would go from zero to around $10 per day. So of the $17,787 per year of payments around $3,800 per year would be lost in additional fees.

If Jack moves into residential aged care, and Jill remains at home, Jack will qualify as a low means resident. Jack’s liability to contribute towards the cost of accommodation through a Daily Accommodation Contribution (DAC) will be calculated based on his assets and income. Assuming Jack and Jill are receiving $17,787 per year through the PLS, Jack’s DAC will be $42 per day and his equivalent lump sum refundable accommodation contribution (RAC) would be $268,468. However, if they didn’t receive payments through the PLS, Jack’s DAC would be $32 per day and his equivalent RAC would be around $66,000 less at $202,237.

Other budget measures, potentially worthier of headlines, included the government undertaking analysis to change the allocation of residential aged care beds away from aged care facilities and give them to consumers, combining residential aged care and home care from 1 July this year and creating a levy to secure the $23 billion of accommodation deposits currently being guaranteed by the federal government.

What wasn’t in the Budget?

Some highly anticipated changes to aged care were not included in the Budget but could still be announced, possibly in the Mid-Year Economic and Fiscal Outlook (MYEFO). The changes are expected as a result of the Legislated Review of Aged Care 2017 and the 38 recommendations contained within the report tabled to parliament last September, which include:

In Home Care, the key recommendation is to make the basic daily fee proportional to the value of the package and ensure that providers charge it. Currently the basic daily fee is set at 17.5% of the pension ($10 per day), with funding ranging between $22 and $180 per day. A number of home care providers choose not to charge the basic daily fee and instead just deliver the funded amount of care at a reduced price or free.

In residential aged care, there were several recommendations, including removing the current cap on the basic daily fee which is set at 85% of the pension, $50 per day with the proposed new cap being $100 per day. Aged care facilities would be able to charge more than the new cap with approval from the Aged Care Pricing Commissioner and there would be an exception for people who are financially disadvantaged.

Another recommendation is to increase the price threshold beyond which aged care facilities need to seek approval for their Refundable Accommodation Deposit (and equivalent daily payment). The current threshold is $550,000 and the recommendation is that this be increased by $200,000 to $750,000 and an automatic link created between the threshold and median house prices.

Other recommendations of the report have been publicly ruled out by the government but are not impossible. These include removing the current cap applied to the family home of $165,271, making the full value assessable for residential aged care means testing (except when a protected person is living there). And removing the annual and lifetime caps on income-tested care fees in home care and means-tested care fees in residential aged care.

The industry is now at a tipping point.

The Home Care package waiting list is at 105,000 people and growing, more than 40% of residential aged care facilities are expected to make a loss this year and the industry needs to build an additional 83,500 aged care beds over the next 10 years to meet demand. The industry has only built 35,000 new beds in the last decade. It’s no wonder the government wants to introduce a levy to help secure the $23 billion of accommodation deposits they are guaranteeing.

Change is inevitable, but effective change must do more than shift funding between Home Care and residential aged care. Watch this space.

 

Rachel Lane is the Principal of Aged Care Gurus and has co-authored a number of books including ‘Aged Care, Who Cares?’ with Noel Whittaker. This article is general information only. 

RELATED ARTICLES

We need hard conversations about frailty planning

Overdue overhaul of Australia’s aged care system

$17.7 billion aged care plan welcome but many will miss out

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Latest Updates

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Economy

Australia's economic report card heading into the polls

Our economy grew by a nominal rate of 7% per annum from 2017 to 2024, but it benefited from the largesse of fiscal and monetary policies, both of which are now fading. We need a new, credible economic growth agenda.

Preference votes matter

If the recent polls are anything to go by, we are headed for a hung parliament at the upcoming federal election. So more than ever, Australians need to give serious consideration to their preference votes.

SMSF strategies

Meg on SMSFs: Tips for the last member standing

It’s common for people as they age to seek more help in running their SMSF if their capacity declines. An alternate director may be a great solution for someone just planning for short-term help in the meantime.

Wilson Asset Management on markets and its new income fund

In this interview, Matthew Haupt from Wilson Asset Management discusses his outloook for the ASX, sectors such as REITs that he likes, and his firm's launch of a new income-oriented listed investment company.  

Planning

‘Life expectancy’ – and why I don’t like the expression

Life expectancy isn't just a number - it's a concept that changes with survival rates over time. This article breaks down how age, survival, and societal factors shape our understanding of life expectancy, especially post-Covid. 

The shine is back on gold, and gold miners

Gold mining stocks outperformed in 2024 and are expected to do well in 2025. At this point in the rally, it's worth considering what has driven gold prices higher and why miners could still have some catching up to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.