How Does Aged Care Funding Work in Australia?

Key Points

• The Australian Government funds approximately 75% of all aged care costs, with the total budget exceeding $35 billion per year
• Care recipients contribute through basic daily fees, income-tested or means-tested fees, and accommodation payments based on their financial circumstances
• Home Care Packages are funded at four levels ranging from approximately $9,500 to $61,000 per year in government subsidies
• The Commonwealth Home Support Programme (CHSP) provides entry-level services with minimal client contributions
• The Support at Home program is replacing HCP and CHSP from July 2025 with eight classification levels and a revised contribution framework
• Hardship provisions exist for people who cannot afford their assessed contributions

How Australian Aged Care Is Funded

Aged care funding in Australia is built on a shared responsibility model. The Australian Government provides the majority of funding through the Department of Health and Aged Care, while care recipients contribute based on their capacity to pay. This approach is designed to make sure that everyone who needs aged care can access it, regardless of their financial position.

The government does not pay providers a single flat rate. Instead, aged care funding is calculated through a combination of subsidies, supplements, and grants that reflect the assessed needs of each individual, the type of service being delivered, and the characteristics of the provider (such as location and size).

Care recipients contribute through a structured fee framework. Everyone pays a basic daily fee. People with higher incomes or greater assets pay additional amounts through income-tested fees (for home care) or means-tested care fees (for residential care). Residential care recipients may also pay accommodation costs, depending on their financial assessment.

State and territory governments play a smaller but still meaningful role. They contribute through public hospital services that support older Australians transitioning between hospital and aged care, community health programs, social housing, and community transport services.

The Scale of Government Investment

The Australian Government’s investment in aged care has grown significantly over the past decade. The 2025-26 federal budget allocates approximately $36 billion to aged care, making it one of the largest areas of government spending outside of health and social security.

This investment covers:

• Subsidies for residential aged care facilities
• Funding for Home Care Packages at all four levels
• The Commonwealth Home Support Programme
• The new Support at Home program
• Aged care workforce programs and wage supplements
• Quality and safety regulation through the Aged Care Quality and Safety Commission
• Capital grants for infrastructure in regional and remote areas
• Research and innovation in aged care service delivery

The Royal Commission into Aged Care Quality and Safety, which reported in 2021, recommended substantial increases in government funding. The government responded with commitments totalling more than $17 billion in additional investment over subsequent years, focused on workforce improvements, quality standards, and expanded home care capacity.

Home Care Package Funding by Level

Home Care Packages (HCPs) are funded by the government at four levels. Each level provides a set annual budget that is paid directly to the approved provider managing the package on behalf of the care recipient. The care recipient then works with their provider to decide how that budget is spent on services.

Level 1: Basic Care Needs

Level 1 packages are designed for people with basic care needs. The government subsidy is approximately $9,500 per year. This level typically covers a small number of hours of support each week, such as help with housework, basic personal care, or social support.

Level 1 is suited to someone who is largely independent but needs a small amount of regular assistance to remain safely at home.

Level 2: Low-Level Care Needs

Level 2 packages provide approximately $17,500 per year in government funding. This level supports people who need more regular assistance, potentially including a combination of domestic help, personal care, nursing visits, and allied health services.

Most people entering the home care system for the first time are assessed for Level 2.

Level 3: Intermediate Care Needs

Level 3 packages receive approximately $38,000 per year. This level is designed for people with intermediate care needs who require more frequent or more complex services. It can fund regular nursing, physiotherapy, occupational therapy, more extensive personal care, and equipment.

Level 4: High-Level Care Needs

Level 4 packages provide approximately $61,000 per year. This is the highest level of home care funding and supports people with high and complex care needs. Level 4 can fund daily personal care, regular nursing, allied health, case management, and other services that allow someone with significant needs to remain at home rather than moving into residential care.

What HCP Funding Covers

Home Care Package funding can be used for a wide range of services, including:

• Personal care such as bathing, dressing, and grooming assistance
• Nursing care including wound management, medication administration, and health monitoring
• Allied health services like physiotherapy, occupational therapy, podiatry, and dietetics
• Domestic assistance including cleaning, laundry, and meal preparation
• Home maintenance and minor modifications such as grab rails and ramp installation
• Transport to medical appointments and community activities
• Social support and community participation
• Assistive technology and equipment
• Respite care to give carers a break

HCP funding cannot be used for food and groceries (other than the cost of meal preparation services), rent or mortgage payments, medical costs already covered by Medicare, pharmaceuticals covered by the PBS, gambling, entertainment, or travel for holidays.

For a detailed breakdown of what you might pay under a Home Care Package, see our aged care fees calculator.

Client Contributions for Home Care

All Home Care Package recipients pay a basic daily fee, which is set at 17.5% of the single basic Age Pension. As of March 2026, this is approximately $11 per day or around $4,000 per year.

People with higher incomes may also pay an income-tested care fee. Services Australia conducts the income assessment and determines the amount. The income-tested care fee has both annual and lifetime caps to protect people from excessive costs. The annual cap is approximately $16,500, and the lifetime cap is approximately $80,000 (indexed annually).

If you are on a full Age Pension with no other significant income, you will pay only the basic daily fee. If you have private income, superannuation income streams, or investment earnings, your income-tested care fee will be higher.

Residential Aged Care Funding

Residential aged care (nursing home care) involves a different funding structure from home care. The government pays a care subsidy directly to the facility based on each resident’s assessed care needs, and the resident pays fees that cover daily living costs, care contributions, and accommodation.

Government Care Subsidies

The government’s care subsidy for residential aged care is calculated using the Australian National Aged Care Classification (AN-ACC) funding model. AN-ACC replaced the previous Aged Care Funding Instrument (ACFI) in October 2022.

Under AN-ACC, each resident is assessed and classified into one of 13 classes based on their care needs. The government then pays the facility a daily subsidy that includes:

• A fixed component that reflects the overall cost of running the facility
• A variable component based on the individual resident’s assessed care needs
• An adjustment for the resident’s AN-ACC classification

The total government subsidy varies widely depending on care needs. For residents with straightforward care needs, the daily subsidy might be around $80 to $120. For residents with complex care needs, including advanced dementia, significant behavioural support needs, or complex medical conditions, the subsidy can exceed $250 per day.

Care Supplements

The government pays additional supplements on top of the base subsidy for specific circumstances:

• Oxygen supplement for residents who require ongoing oxygen therapy
• Enteral feeding supplement for residents receiving nutrition through a feeding tube
• Respite supplement for residents in short-term respite care
• Veterans supplement for eligible Department of Veterans’ Affairs clients
• Homeless supplement for residents who were experiencing homelessness before admission
• Viability supplement for facilities in regional, rural, and remote areas where operating costs are higher

What Residents Pay

Residential aged care residents pay up to three types of fees:

Basic daily fee. All residents pay this fee regardless of income or assets. It is set at 85% of the single basic Age Pension and covers daily living costs such as meals, cleaning, laundry, heating, and cooling. As of March 2026, this fee is approximately $61 per day.

Means-tested care fee. Residents with income and assets above certain thresholds pay an additional care fee. Services Australia conducts the means test and calculates the amount. The means-tested care fee has annual and lifetime caps. The annual cap is approximately $33,500, and the lifetime cap is approximately $80,000 (these amounts are indexed on 20 March and 20 September each year).

Not everyone pays the means-tested care fee. If your income is limited to the full Age Pension and your assets are below the threshold (approximately $56,000 for a homeowner or $175,000 for a non-homeowner), you will not pay this fee.

Accommodation payment. Residents who are assessed as being able to pay for their accommodation will need to make an accommodation payment. This can be paid as:

• A Refundable Accommodation Deposit (RAD), which is a lump sum that is fully refundable when the resident leaves the facility
• A Daily Accommodation Payment (DAP), which is a daily rental-style payment
• A combination of both

Accommodation prices vary significantly between facilities and locations. In metropolitan areas, RADs can range from $300,000 to over $1 million. In regional areas, RADs are typically lower.

Residents who are assessed as “supported” (meaning they cannot afford accommodation costs) receive an accommodation supplement from the government, and the facility cannot charge them an accommodation payment.

For more information on how fees are calculated, visit our aged care fees calculator.

Commonwealth Home Support Programme (CHSP)

The Commonwealth Home Support Programme is the entry-level tier of home care. It provides individual services rather than a coordinated package, and it is designed for people who need a small amount of help to stay independent at home.

How CHSP Is Funded

The government funds CHSP by paying subsidies directly to approved service providers. Unlike Home Care Packages, there is no individual budget allocated to each client. Instead, the government funds providers to deliver a set volume of services across their client base.

CHSP covers a range of services including:

• Domestic assistance (cleaning, laundry)
• Personal care (help with bathing, dressing)
• Meals and food services (delivered meals, assistance with meal preparation)
• Social support (group activities, one-on-one companionship)
• Transport (to medical appointments, shopping, social activities)
• Home maintenance (minor repairs, garden maintenance)
• Allied health and therapy services
• Nursing care
• Respite care

Client Contributions Under CHSP

CHSP operates on a co-contribution model. Clients are asked to make a contribution towards the cost of services, but the amount is based on their capacity to pay. Typical contributions range from $5 to $15 per service session.

Importantly, CHSP providers cannot refuse to provide services because a client is unable to make a co-contribution. The government’s policy is that no one should miss out on services due to financial hardship.

There is no formal means test for CHSP. The co-contribution is determined by the provider based on a conversation with the client about their financial circumstances.

CHSP Transition to Support at Home

CHSP is being phased into the new Support at Home program from July 2025. Existing CHSP clients will transition to the new program with their current services maintained. The transition is designed to be seamless, with no gap in service delivery.

The Support at Home Program

The Support at Home program is the most significant reform to home-based aged care funding in Australia’s history. It replaces both Home Care Packages and the Commonwealth Home Support Programme with a single, unified program.

How Support at Home Funding Works

Support at Home uses eight classification levels instead of the four HCP levels. Each level corresponds to a different intensity of care and a different annual budget. The classification levels are:

• Levels 1 to 3: For people with lower care needs, replacing what was previously covered by CHSP and HCP Levels 1 and 2
• Levels 4 to 6: For people with intermediate care needs, roughly corresponding to HCP Levels 2 to 4
• Levels 7 and 8: For people with high and complex care needs, providing more funding than the previous HCP Level 4

This expanded classification system allows for more precise matching between a person’s care needs and their funding level. Under the previous system, there was a large gap between Level 2 ($17,500) and Level 3 ($38,000), which meant some people were either underfunded or overfunded for their actual needs.

For a full breakdown of each classification level, see our Support at Home program complete guide.

Three Service Categories

Support at Home organises services into three categories, each with different contribution requirements:

Clinical care. This includes nursing, allied health, and other clinical services. The government fully subsidises clinical care for all participants, regardless of income. No client contribution is required for clinical services.

Independence services. This includes personal care, domestic assistance, meal preparation, and other services that support daily living. Client contributions for independence services are based on a means test.

Everyday living services. This includes services like gardening, home maintenance, and transport. Clients pay a higher proportion of the cost for everyday living services, as these are considered less clinically essential.

Client Contributions Under Support at Home

The Support at Home contribution framework is more structured than the previous system. Contributions are determined by:

• The type of service (clinical, independence, or everyday living)
• The person’s income and assets (assessed by Services Australia)
• Whether the person receives a full, part, or no Age Pension

People on a full Age Pension pay no contribution for clinical care, a small contribution for independence services, and a moderate contribution for everyday living services. People with higher incomes and assets pay progressively more, up to a cap.

The lifetime contribution cap and annual contribution cap continue to apply under Support at Home, providing a ceiling on total out-of-pocket costs.

Consumer vs Government Contributions: Who Pays What

Understanding the balance between what the government pays and what individuals pay is essential for financial planning.

Government Share

Across the aged care system as a whole, the government funds approximately 75% of total costs. This includes:

• Care subsidies for residential and home care
• Accommodation supplements for supported residents
• Workforce supplements and grants
• Quality regulation and oversight
• Capital grants for facility construction and upgrades

The government’s share is higher for people with lower incomes and fewer assets. For someone on a full Age Pension with minimal assets, the government may fund more than 90% of their care costs.

Individual Share

Care recipients contribute approximately 25% of total aged care costs nationally, though this varies significantly between individuals.

A person on a full Age Pension entering a Level 2 Home Care Package would pay approximately $4,000 per year in basic daily fees, with the government contributing approximately $17,500.

A self-funded retiree entering residential care might pay $22,000 per year in basic daily fees, up to $33,500 in means-tested care fees, and a significant accommodation payment, while the government provides a care subsidy of $30,000 to $90,000 per year depending on care needs.

Lifetime Caps

The government has implemented lifetime caps to protect people from excessive out-of-pocket costs:

• The annual cap on means-tested or income-tested care fees is approximately $33,500 (residential) or $16,500 (home care)
• The lifetime cap across all aged care services is approximately $80,000
• Once the lifetime cap is reached, the government covers the full cost of care (beyond the basic daily fee)

These caps are indexed twice per year to keep pace with cost increases.

Budget Allocations and Government Spending

Where the Money Goes

The aged care budget is divided across several major areas:

Residential care receives the largest share, accounting for approximately 60% of total aged care spending. This reflects the high cost of providing 24-hour care in a facility setting, including staffing, accommodation, meals, and clinical services.

Home care receives approximately 25% of total spending, a proportion that has been growing as the government prioritises supporting people to remain at home. The expansion of home care funding has been a key recommendation of the Royal Commission.

CHSP and entry-level services account for approximately 10% of spending, covering the large number of older Australians who need only minimal support.

Workforce, regulation, and other programs make up the remaining 5%, including the Aged Care Quality and Safety Commission, workforce training and retention programs, and aged care research.

Workforce Funding

A significant portion of recent funding increases has been directed at the aged care workforce. The government has funded:

• A 15% interim pay increase for aged care workers, followed by further increases
• Mandatory minimum care minutes per resident per day in residential care (200 minutes, including 40 minutes of registered nurse time)
• Workforce training and professional development programs
• Registration and regulation of the aged care workforce

These workforce investments are reflected in higher subsidy rates paid to providers.

Means Testing and Financial Assessments

How the Assessment Works

Services Australia conducts the financial assessment for aged care fees. When you enter aged care (either home care or residential care), you can choose to complete an income and assets assessment. If you do not complete the assessment, you will be charged the maximum means-tested or income-tested fee.

The assessment looks at:

Income from all sources:

• Age Pension and other Centrelink payments
• Superannuation income streams
• Investment income (interest, dividends, rental income)
• Employment income
• Deemed income from financial assets (using deeming rates set by the government)

Assets:

• Bank accounts and term deposits
• Shares, managed funds, and other investments
• Investment properties
• Personal assets above a threshold
• The family home (assessed differently depending on whether a partner still lives there)

Home Assessment Rules

Your family home is treated differently depending on your circumstances:

• If your spouse or dependent child still lives in your home, the home is excluded from the assets test entirely
• If no one is living in the home, the value is included in the assets test but capped at approximately $200,000 (indexed)
• You will never be forced to sell your home to pay for aged care

Hardship Provisions

If you are assessed as needing to pay fees but genuinely cannot afford them, hardship provisions are available. You can apply to Services Australia for a determination that reduces or waives your fees.

Hardship provisions may apply if:

• Paying fees would leave you unable to meet basic living expenses
• Your assets are tied up in a form that cannot easily be converted to cash (such as a farm or business)
• You have experienced a significant change in financial circumstances
• Selling your home would cause unreasonable hardship to you or your family

Planning for Aged Care Costs

Steps to Take Now

Regardless of whether you or a family member needs aged care now or in the future, there are practical steps you can take:

1. Understand the system. Read about how aged care is funded, what services are available, and what you might need to pay. This guide is a starting point.

2. Get an assessment. Contact My Aged Care on 1800 200 422 to arrange an aged care assessment. This determines your eligibility and the level of care you need.

3. Complete the financial assessment. Submit an income and assets assessment to Services Australia. This determines your fee contributions. Completing this assessment usually results in lower fees than the default maximum.

4. Consider financial advice. A financial adviser who specialises in aged care can help you understand the implications for your pension, assets, and estate. Look for advisers accredited with the Aged Care Financial Advice Network.

5. Compare providers. Use the My Aged Care website to compare approved providers, their fees, services, and quality ratings.

Where to Get Help

If you need help understanding aged care funding or navigating the system, these resources are available:

• My Aged Care: 1800 200 422 for information, assessments, and referrals
• Services Australia: 1800 227 475 for income and assets assessments and fee calculations
• Older Persons Advocacy Network (OPAN): 1800 700 600 for free, independent advocacy
• Financial Information Service (FIS): Free seminars and appointments through Services Australia

You can also explore our aged care services page for information about providers and support options in your area.

How MD Home Care Can Help

Navigating aged care funding can feel overwhelming. MD Home Care is a connection platform that helps older Australians and their families find the right aged care providers and understand their funding options.

We can help you:

• Understand what funding you may be eligible for
• Connect with approved aged care providers in your area
• Compare services, fees, and quality across multiple providers
• Get answers to your questions about the aged care system

Call 1800 953 253 to find the right aged care provider through MD Home Care. We connect you with trusted providers who can answer your funding questions.

March 2026: Ministerial Investigation Into Premium Service Fees

On 16 March 2026, the Aged Care Minister announced an investigation into claims that some aged care providers are charging premium fees for basic services that should be covered under standard government-funded care arrangements. The Minister specifically named Opal Healthcare as one provider under scrutiny, calling the practice “disgusting sidestepping” of aged care regulations.

This investigation is critical for understanding aged care funding. Government subsidies are designed to cover the cost of care services required to meet assessed needs. Providers should not be charging separately for basic care activities that are already funded through government subsidies and resident contributions (basic daily fee and means-tested care fee).

When reviewing aged care funding arrangements with providers, ensure you understand which services are covered by government funding and your assessed contributions, and which (if any) are legitimate optional extras. If you believe you are being charged inappropriately for services that should be government-funded, lodge a complaint with the Aged Care Quality and Safety Commission on 1800 951 822.

Source: ABC News, 16 March 2026

Frequently Asked Questions

Can I lose my home to pay for aged care?

No. You cannot be forced to sell your home to pay for aged care. If your spouse or dependant still lives in your home, it is excluded from the assets test entirely. If no one is living there, only a capped portion of the value is counted in the assessment. Hardship provisions provide additional protection if selling would cause unreasonable difficulty.

What if I cannot afford the assessed fees?

Contact Services Australia to apply for a financial hardship determination. Your fees may be reduced or waived. Providers cannot refuse to deliver care because you cannot pay the income-tested or means-tested component. You will still need to pay the basic daily fee, but even this can be reduced in genuine hardship cases.

How often do aged care funding rates change?

Government subsidy rates and fee thresholds are indexed on 20 March and 20 September each year. Major funding changes (such as new programs or structural reforms) are announced in the federal budget (usually May) and typically take effect on 1 July.

Does Medicare cover aged care costs?

Medicare continues to cover GP visits, specialist consultations, PBS medications, and hospital care for aged care recipients. However, Medicare does not cover the cost of aged care services themselves (personal care, domestic assistance, accommodation). These are funded through the aged care system described in this guide.

What happens to my Age Pension if I enter aged care?

Your Age Pension is not automatically cancelled when you enter aged care. It continues to be paid, and it is counted as income in your aged care financial assessment. If you enter residential care and rent out your home, the rental income will be assessed, and the home value may be included in the assets test, which could affect your pension rate.

Is aged care funding the same in every state?

Yes. Aged care is funded by the Australian Government (Commonwealth) and operates under national legislation. The funding rules, fee structures, and assessment processes are the same in every state and territory. However, the cost of accommodation (particularly RADs) varies by location, with metropolitan areas generally more expensive than regional areas.