On 12 September, the Australian Government's announced the long-awaited new funding deal and reforms model for the aged care sector.
Supported by a $5.6b investment, these changes aim to improve the quality, viability, and accessibility of aged care services across the country. The Government will soon introduce new legislation to Parliament, which will form the backbone of these reforms and ensure their successful implementation. As these reforms are set to take effect within the next year, we’ve summarised the key implications .
New means-testing and funding models
One of the major changes is the introduction of larger Age Pension means-tested contributions for new residents who can afford to pay more for their accommodation and care. While the Government's aim to ensure that those who have the financial capacity contribute more towards their care, alleviating some of the financial pressure on the system, this could impact the financial planning of our ageing population. In addition, the Government has proposed higher maximum room prices to align more closely with the quality and amenities provided by aged care facilities. For providers, this can translate to higher revenue opportunities, but can also create a risk if operators are constrained in terms of what standard of accommodation they can afford to offer.
Another key financial reform is the introduction of a retention amount for providers receiving refundable accommodation deposits (RADs). This retention, estimated at 2 per cent annually for up to five years, is intended to help providers cover the cost of capital. For operators, retaining a small percentage of RADs as a permanent funding contribution is a positive step. However, given other current cost hikes and those likely to be imposed, this may not be a significant amount to ease financial pressures.
From an investment perspective, while these changes might improve profitability to some extent, they may not be enough to make the sector more attractive to investors, particularly private equity. While the returns would have improved, they are unlikely to move the dial in a way that makes aged care a more compelling investment option.
Expansion of in-home care services
In a move to support more older Australians to age in place, the maximum support available for in-home care will increase from $61,000 to $78,000 per year, along with a broader range of services provided. This aligns with the growing preference among older Australians to remain in their homes as they age, and creates a considerable opportunity for businesses offering in-home care services. Providers should consider how to scale their operations to meet this growing demand while maintaining high standards of care.
Alongside this, the introduction of a new Support at Home program set to start on 1 July 2025 will deliver more customised support to approximately 1.4m older Australians by 2035. To adapt to these new frameworks, aged care businesses should consider the range of services they offer to cater to the diverse needs of their clients.
Improved quality standards and accountability
The Government is implementing new quality standards and accreditation processes to ensure that residents receive high-quality care and services. Compliance with these standards will be critical to maintaining accreditation and securing funding. In addition, the creation of an independent statutory complaints commissioner will add a new level of accountability within the sector. This commissioner will handle and resolve complaints about aged care services, requiring businesses to have strong internal procedures in place to manage and address any issues efficiently. For operators, this adds another layer of oversight, though the removal of criminal penalties for directors in cases of breaches of care standards is a positive shift that might ease some of the governance and leadership pressures within the sector.
Strategic planning to prepare for the changes ahead
These reforms create an opportunity for aged care businesses to enhance their services and align with the Government's vision for high-quality, sustainable aged care. However, they also require strategic planning to navigate the evolving regulatory landscape. For investors and financiers, while the reforms offer improvements, the overall impact may be minimal, suggesting that aged care may not become a more attractive investment opportunity.
We can help you adapt to these changes by providing advice around business, financial and tax planning in the unique context of your business. By preparing now, you can set your business up to thrive in the evolving aged care sector, benefiting both your operations and the older Australians you support.
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