How is Aged Care Funded in Australia? (2026 Guide)
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Understanding how aged care is funded in Australia matters for every family planning future care needs. The Australian aged care system is one of the most complex social programs in the country, combining Federal Government taxation revenue, individual contributions, and state and territory support to deliver care to more than 1.3 million older Australians each year.
This guide explains where the money comes from, how it reaches providers, what you will pay, and how funding has changed after the Royal Commission into Aged Care Quality and Safety.
Looking for a breakdown of individual fees? See our aged care fees calculator for a personalised estimate of what you may pay.
How the Australian aged care funding model works
Australia’s aged care funding model is a shared-cost system. The Australian Government provides the majority of funding through general taxation revenue, while care recipients contribute based on their financial means.
This model differs from a universal free-at-point-of-use system (like the NHS in the United Kingdom) and from a predominantly private-pay system (like the United States). Australia sits in a middle ground where the government underwrites most of the cost, but asks individuals who can afford it to contribute.
The core funding split
In practice, the funding split looks like this:
| Funding source | Approximate share | Role |
|---|---|---|
| Australian Government (Federal) | 70-75% | Primary funder through subsidies paid to providers |
| Care recipients | 20-25% | Contributions based on means testing |
| State and territory governments | 3-5% | Infrastructure, social housing, community transport |
| Private and charitable sources | 1-3% | Philanthropic contributions, provider reserves |
The Federal Government provides its funding through the Department of Health and Aged Care. Subsidies flow directly to approved aged care providers, not to individuals. This means you never see the government’s contribution in your bank account. Instead, providers receive a subsidy for each person in their care, with the rate determined by assessed care needs.
For a detailed explanation of how subsidies reach providers, see our guide on how aged care funding works in practice.
Government funding sources and budget allocations
Federal Budget allocations for aged care
Aged care is one of the fastest-growing areas of Federal Government spending. Here is how budget allocations have increased over recent years:
| Financial year | Total aged care budget | Annual increase |
|---|---|---|
| 2019-20 | $21.1 billion | - |
| 2020-21 | $23.6 billion | +11.9% |
| 2021-22 | $26.3 billion | +11.4% |
| 2022-23 | $29.8 billion | +13.3% |
| 2023-24 | $33.2 billion | +11.4% |
| 2024-25 | ~$36 billion (estimated) | +8.4% |
These figures include residential care subsidies, home care packages, the Commonwealth Home Support Programme (CHSP), workforce supplements, and capital grants.
Where the money goes
The Federal Government distributes its aged care funding across several major programs:
Residential aged care receives the largest share, approximately 60% of the total budget. This covers:
- Basic care subsidies (AN-ACC funding model since October 2022)
- Accommodation supplements for residents who cannot afford to pay
- Dementia, cognition, and complex care supplements
- Workforce retention and pay supplements
Home care receives approximately 25% of the total budget, covering:
- Home Care Package subsidies across Levels 1 to 4
- Commonwealth Home Support Programme (CHSP) block funding
- Short-term restorative care and transition care
System support accounts for the remaining 15%, including:
- Aged Care Quality and Safety Commission operations
- Workforce development, training, and education
- Capital grants and infrastructure support
- Research, data collection, and system improvement
Funding per resident
In 2024-25, the approximate government subsidy per person varies significantly by care type:
- Residential aged care: approximately $76,000 per resident per year (average across all care levels)
- Home Care Package Level 4: $58,355 per year
- Home Care Package Level 3: $34,919 per year
- Home Care Package Level 2: $17,417 per year
- Home Care Package Level 1: $9,304 per year
- CHSP services: varies widely, typically $3,000 to $8,000 per person per year
These subsidies are paid directly to approved providers. The provider then delivers care and services, supplemented by any fees the individual pays.
The Royal Commission and its impact on funding
The Royal Commission into Aged Care Quality and Safety (2018-2021) was a watershed moment for aged care funding in Australia. Commissioners Tony Pagone and Lynelle Briggs described the system as one marked by “neglect” and called for a fundamental restructure.
Key funding recommendations
The Royal Commission made 148 recommendations. Those most relevant to funding included:
- A new Aged Care Act to replace the outdated Aged Care Act 1997, establishing care as a right rather than a rationed entitlement
- Increased government funding to meet actual costs of delivering quality care
- Mandatory minimum care minutes in residential aged care (200 minutes per resident per day, including 40 minutes of registered nurse time)
- An aged care workforce strategy with improved pay and conditions to attract and retain workers
- A new home care program to replace the fragmented system of CHSP and Home Care Packages with a single, unified program
- An independent pricing authority to set sustainable funding rates based on the true cost of care
Government response and budget commitments
The Australian Government responded with significant funding increases:
- 2021-22 Budget: $17.7 billion in additional aged care funding over five years
- 2022-23 Budget: additional funding for the 15% pay rise for aged care workers (Fair Work Commission decision)
- 2023-24 Budget: further investment in the Support at Home Program and transition costs
- 2024-25 Budget: continued investment in mandatory care minutes compliance and workforce growth
These commitments represented the largest single increase in aged care funding in Australian history.
Historical changes in aged care funding
The evolution of aged care funding in Australia
Australia’s approach to funding aged care has changed substantially over the past four decades:
1980s and before: Aged care was primarily a state government responsibility, delivered through state-run nursing homes and hostels. Federal involvement was limited.
1997: The Aged Care Act 1997 established the modern framework. It created the distinction between high care (nursing homes) and low care (hostels), introduced Aged Care Assessment Teams (ACATs), and established the system of government subsidies paid to approved providers.
2012-2013: The Living Longer Living Better reforms merged high and low care into a single residential care category, introduced Consumer Directed Care for home care, and created the four-level Home Care Package structure.
2014: Means testing was expanded significantly, with higher-income residents contributing more toward their care costs through the means-tested care fee.
2021-2023: The Royal Commission response brought historic funding increases, the AN-ACC funding model for residential care, mandatory care minutes, and the aged care worker pay rise.
2025 onwards: The Support at Home Program replaces both the CHSP and Home Care Packages with a single, streamlined program.
The AN-ACC funding model
Since October 2022, residential aged care funding has been determined by the Australian National Aged Care Classification (AN-ACC). This replaced the older Aged Care Funding Instrument (ACFI).
Under AN-ACC, funding is calculated based on:
- A facility-level component reflecting the general costs of running a residential facility
- A resident-level component based on individual assessed care needs (13 care classes)
- Adjustments for factors like Indigenous status, homelessness, and geographic remoteness
This model aims to fund care based on what residents actually need rather than what providers claim, reducing the gaming and inconsistencies that plagued the old ACFI system.
What you pay for aged care
While the government covers the majority of aged care costs, individuals are expected to contribute based on their means. The fee structure differs between home care and residential care.
Home care fees
Everyone receiving a Home Care Package pays a basic daily fee of $10.69 per day ($3,901.85 per year at 2024-25 rates). This applies regardless of your income or assets.
If your income exceeds certain thresholds, you may also pay an income-tested care fee. This is calculated by Services Australia and is capped at 50% of the total package value. For more detail on this fee, see our means-tested care fee guide.
Residential aged care fees
Residential care has a more complex fee structure:
| Fee | 2024-25 rate | Who pays |
|---|---|---|
| Basic daily fee | $59.57/day ($21,743/year) | Everyone |
| Means-tested care fee | Up to $33,309/year (annual cap) | Higher-income residents |
| Accommodation payment (RAD/DAP) | Varies by facility and room | Residents not eligible for accommodation support |
The basic daily fee covers meals, cleaning, laundry, and utilities. The means-tested care fee is an additional contribution based on your income and assets assessment. Accommodation payments cover the cost of your room and can be paid as a lump sum (Refundable Accommodation Deposit), a daily payment, or a combination.
Not sure what fees apply to you? Try our aged care fees calculator for an estimate based on your situation.
How Australia compares internationally
Australia’s aged care funding model is broadly similar to systems in other OECD countries, but there are important differences.
Spending as a percentage of GDP
| Country | Aged care spending (% of GDP) | Funding model |
|---|---|---|
| Netherlands | 3.7% | Social insurance (mandatory contributions) |
| Sweden | 3.2% | Tax-funded (municipal responsibility) |
| Japan | 2.0% | Social insurance (age 40+ contributions) |
| Australia | 1.2% | Tax-funded with means-tested co-payments |
| United Kingdom | 1.0% | Tax-funded with significant private pay |
| United States | 0.5% | Predominantly private pay, Medicaid for low-income |
Australia spends a lower proportion of GDP on aged care than many comparable countries. The Royal Commission noted this gap and recommended that spending would need to increase to meet the needs of an ageing population.
Key differences from other systems
Japan introduced a mandatory long-term care insurance system in 2000. All residents aged 40 and over pay premiums, and everyone aged 65 and over is entitled to services based on assessed need. This provides a dedicated, ring-fenced funding stream that Australia does not have.
The Netherlands uses a similar social insurance model, with mandatory contributions funding a comprehensive aged care entitlement. The Dutch system is widely regarded as one of the best funded in the world.
The United Kingdom has historically relied on local council funding supplemented by private pay. Recent reforms under the Care Act 2014 and subsequent proposals have attempted to cap individual costs, though implementation has been repeatedly delayed.
Australia’s reliance on general taxation revenue means aged care competes with other budget priorities like health, education, and defence. This has contributed to periods of underfunding, particularly in the years before the Royal Commission.
Commonwealth Home Support Programme (CHSP)
The CHSP provides entry-level aged care services to older Australians who need some support to remain living independently at home. It is fully government-funded through block grants to service providers.
Key features of CHSP funding:
- No formal means testing required for access
- Government pays providers directly through block funding arrangements
- Clients are asked for small voluntary contributions (typically $5 to $25 per service)
- Services include domestic assistance, personal care, meals, transport, nursing, and social support
- No one can be refused service for inability to make a contribution
The CHSP is being integrated into the new Support at Home Program from July 2025.
The Support at Home Program
The Support at Home Program replaces both the CHSP and Home Care Packages from July 2025, creating a single entry point for all home-based aged care services.
Funding changes under Support at Home
The government has committed an additional $2.2 billion over four years for this transition. Key funding changes include:
- No waiting lists for approved services (a major improvement over the old Home Care Package waitlist system)
- Eight classification levels replacing the previous four Home Care Package levels and CHSP
- Quarterly budgets rather than annual package allocations, giving more flexibility
- Simplified means testing with clearer rules about what you will pay
- Enhanced hardship provisions to protect people with limited means
- Restorative care pathways funded separately to support recovery and independence
What this means for individuals
If you are currently on a Home Care Package, your funding will transition to the new system. The government has committed to “no disadvantage” protections, meaning you should not receive less support than you currently have.
If you are entering the aged care system for the first time after July 2025, you will go directly into the Support at Home Program rather than being assessed for a Home Care Package level.
Regional and remote funding support
Delivering aged care in regional and remote Australia costs significantly more than in metropolitan areas. The government provides additional funding to support access in these locations.
Viability supplements provide extra funding to providers in areas where the small population makes services financially unviable without additional support.
The National Aboriginal and Torres Strait Islander Flexible Aged Care Program provides culturally appropriate aged care services in remote Indigenous communities, with funding models adapted to community-controlled delivery.
Workforce incentives aim to attract and retain aged care workers in regional and remote areas through salary supplements, relocation assistance, and professional development funding.
Means testing and financial assessments
Your individual contribution to aged care costs is determined by a financial assessment conducted by Services Australia (formerly Centrelink).
What is assessed
Income assessment includes:
- Age Pension and other government payments
- Superannuation income streams
- Investment returns (including deemed returns on financial assets)
- Employment income
- Rental income from investment properties
Assets assessment includes:
- Financial investments and savings
- Investment properties
- Personal assets above thresholds
- 50% of the value of your home (capped at $198,364 in 2024-25), but only if no protected person (spouse or dependent) still lives there
What is protected
The following assets are not included in the assessment:
- Basic household contents and personal effects
- One motor vehicle for personal use
- Refundable Accommodation Deposits held by aged care providers
- Certain compensation and insurance payments
- Your home, if your spouse or dependent still lives there (fully exempt)
Financial planning for aged care
Planning ahead for aged care costs is one of the most important financial decisions Australian families face. Key considerations include:
Understanding your potential fees: Use available tools and professional advice to estimate what you might pay. Our aged care fees calculator can give you a starting estimate.
Superannuation strategies: Consider how your super will be treated under means testing and whether drawing down a lump sum or taking an income stream is more advantageous.
Home equity: Your home may or may not be counted in the assets test depending on whether a protected person still lives there. Understanding this is critical for accommodation payment decisions.
Professional advice: Aged care financial advisors who specialise in this area can help you navigate the complex interaction between Centrelink, the aged care fee structure, and your personal finances.
Getting help with aged care funding
Navigating aged care funding can feel overwhelming, but you do not have to do it alone.
My Aged Care (1800 200 422) is the starting point for all aged care services. They can provide information about services and costs, arrange assessments, and connect you with providers.
Services Australia (1800 227 475) handles income and assets assessments, fee calculations, and hardship assistance.
MD Home Care connects families with aged care providers across Australia. If you need help understanding your funding options or finding a provider that suits your needs and budget, call us on 1800 953 253. We are a connection platform that helps you find the right care, with no cost for our service.
Explore our full range of aged care resources and guides for more information on navigating the system.
Frequently asked questions
How much of aged care does the government actually pay for?
The Australian Government funds approximately 70-75% of total aged care costs. The exact proportion varies depending on the type of care. For residential aged care, the government covers about 75% of costs through subsidies. For home care, the government’s share ranges from about 60% (for people paying income-tested fees) to nearly 100% (for people on the full Age Pension with minimal assets).
Will I lose my home to pay for aged care?
Your main residence is protected while you or your spouse lives there. It is fully exempt from the assets test in that situation. If no protected person lives in the home, 50% of the value (capped at $198,364 in 2024-25) is counted. You are never forced to sell your home, although some families choose to sell to fund accommodation payments in residential care.
What if I cannot afford aged care costs?
The Australian Government guarantees that no one will be denied essential aged care due to inability to pay. Hardship provisions include fee reductions, payment deferrals, and additional government support. Contact Services Australia on 1800 227 475 or speak with your provider about options.
How often are aged care fees reviewed?
Government subsidy rates and fee thresholds are reviewed and updated annually on 1 July. Your individual income and assets assessment is reviewed annually or when your circumstances change significantly. You can request a reassessment at any time if your financial situation changes.
Is aged care funding sustainable long term?
This is one of the biggest policy questions facing Australia. With the population aged 85 and over projected to more than double by 2050, aged care costs will continue to rise. The Intergenerational Report projects that aged care spending will increase from around 1.2% of GDP to approximately 2.1% of GDP by 2060-61. The government will need to find additional revenue sources or increase the share paid by individuals, or both.
Does Medicare cover medical costs while in aged care?
Yes. Medicare continues to cover GP visits, specialist consultations, PBS medications, pathology, imaging, and hospital admissions for people receiving aged care. The aged care system covers personal care, nursing, and accommodation costs separately from Medicare.
This guide is for general information only and does not constitute financial or legal advice. Aged care fees and thresholds are updated annually. For advice specific to your situation, consult a qualified aged care financial advisor or contact Services Australia. Last reviewed March 2026.
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