Aged care: rising cost, unresolved reform

Call her Joan. She is 84 and lives alone in the house she and her late husband bought in the 1970s. Until eighteen months ago she managed well enough with a cleaner once a fortnight. Then came a fall, a fractured wrist, and a hospital discharge nurse who told her family she needed a Home Care Package — government-funded help with showering, meals and getting to appointments — to keep living safely at home. Joan was assessed as eligible for a high-level package within weeks. She then waited roughly nine months for one to actually arrive, close to the average wait at the time, because tens of thousands of older Australians were ahead of her in the queue. Her daughter, who also works several mornings a week as a personal care worker in a nearby nursing home, covered the gap: a shower before her own shift, a meal left in the fridge, a phone call at lunchtime to check her mother hadn't fallen again.

Joan is a composite, not a named case study, but her wait is close to the median one, on a system both the government and its critics agree needed to change — and has changed, on paper, more than at any point in a generation. Whether the money and the workforce behind that change can keep up with a population ageing faster than at any point in the nation's history is the question this article sets out to answer.

What the government did

In February 2021 the Royal Commission into Aged Care Quality and Safety handed its final report, titled Care, Dignity and Respect, to the Governor-General; Parliament received it on 1 March 2021. Over 23 public hearings, 641 witnesses and more than 10,500 submissions, the two commissioners found that at least one in three people using residential or home care had experienced substandard care, and concluded the system was not fit for purpose. They made 148 recommendations covering funding, staffing, standards, regulation and the rights of older people.

The response, spanning two governments and accelerating from 2022 under the Albanese government, is the largest rebuild of aged care law and funding since the current system was created by the Aged Care Act 1997. Four changes matter most.

Funding. From 1 October 2022, the Australian National Aged Care Classification (AN-ACC) — an independently assessed, needs-based funding tool — replaced the Aged Care Funding Instrument, under which facilities had largely assessed their own residents' needs for more than a decade. AN-ACC pays each residential facility a base rate for every occupied place, plus a needs-based amount set by an external assessor for each resident's individual classification, plus a one-off adjustment when a resident's needs change sharply — intended to reward facilities for the complexity of the residents they actually care for, not for how well they could fill in a form.

Staffing. From 1 October 2023, every residential facility had to provide a sector average of 200 minutes of direct care per resident per day, including at least 40 minutes from a registered nurse, and to have a registered nurse on site at all times. From 1 October 2024 those minimums rose again, to 215 minutes overall and at least 44 from a registered nurse.

Wages. The Fair Work Commission's Aged Care Work Value Case found that award wages for direct care workers had been undervalued. An interim decision lifted them 15% from 30 June 2023; a further "Stage 3" decision set new benchmark rates for personal care workers, assistants in nursing and home care workers, between roughly 13% and 29% higher in total (including the first rise), phased in with a final tranche from 1 January 2025. Around 400,000 aged care workers were covered. Rather than leave providers to absorb the cost, the government funded it directly: about $11.3 billion in the October 2023 Budget for the first increase, and a further $3.8 billion over four years for the Stage 3 decision — a cumulative commitment the government has put at $17.7 billion (approx.) as at the 2025-26 Budget.

The law itself. The Aged Care Bill 2024 was introduced on 12 September 2024 with in-principle Coalition support, passed Parliament on 25 November 2024 and received royal assent on 2 December 2024. The new Aged Care Act 2024 replaces the 1997 Act's provider-focused model with a rights-based one: a legislated Statement of Rights for older people, replacing what had been a voluntary Charter of Aged Care Rights; a single set of quality standards in place of the separate standards that used to apply to home and residential care; a strengthened Aged Care Quality and Safety Commission, given new civil penalty and banning-order powers it did not previously hold; and a means-tested co-contribution framework requiring people who can afford it to pay more toward non-clinical support. Originally due to start on 1 July 2025, commencement was deferred four months, to 1 November 2025, after the sector said it was not ready. It took effect on that date alongside a new Support at Home program, which replaced Home Care Packages and Short-Term Restorative Care with an eight-tier, quarterly individual budget — recipients are assessed into one of eight funding levels rather than the old four-tier package system, with the budget reviewed every three months rather than reassessed only when a crisis forced the issue (a further program, the Commonwealth Home Support Programme, is due to fold into Support at Home no earlier than 1 July 2027).

The evidence

Two sets of numbers need to be read side by side: how fast the population needing aged care is growing, and how fast the money and the workforce behind it are growing. Treasury's 2023 Intergenerational Report (IGR), released in August 2023 and covering the 40 years to 2062-63, is the government's own long-range projection and the best common yardstick for both.

On demand: the number of Australians aged 65 and over is projected to more than double by 2062-63, and the number aged 85 and over — the group that drives most residential and high-intensity home care — is projected to more than triple, to over 3.5 million people (approx.). On funding: Commonwealth aged care spending is projected to rise from 1.1% of GDP in 2022-23 to around 2.5% by 2062-63 (approx.) — roughly 2.3 times its current share. Health, aged care and NDIS spending combined are projected to rise from 6.2% to 10.7% of GDP over the same period.

Aged care is not competing with itself for money. Independent budget analysis has repeatedly named it as one of a handful of spending pressures — alongside the NDIS, health, defence and interest on debt — that are growing faster than the economy and squeezing the rest of the budget as they compound (this site examines the other pressures elsewhere). That matters here because the capital gap and workforce shortfall below are not simply aged care's problem to solve on their own; every future budget will be asking a hospital system, a disability scheme and a defence build-up that are all also growing faster than GDP to share the same finite pool of taxpayer funding.

That percentage-point shift in aged care's GDP share understates the real dollar story. Treasury expects the national economy to be around two and a half times larger in 2062-63 than it is today, so a rising share of GDP compounds on top of a much bigger economic base. In money terms, all Australian governments together spent $36.4 billion on aged care services in 2023-24 (approx.; AIHW), split roughly $21.5 billion on residential care, $11.5 billion on home care and support, and the remainder on flexible care and assessment services. If spending simply tracks the IGR's GDP-share projection on an economy growing as Treasury expects, the nominal dollar figure four decades from now would be many times today's $36.4 billion — before allowing for the extra intensity of care a much larger 85-plus population will need. The point is not that the money disappears. It is that a percentage point of GDP sounds abstract; the extra dollars, beds and rostered shifts it has to translate into every year for forty years do not.

It helps to know how the building itself gets paid for, because that is where the coming shortfall bites hardest. Residential care is funded through two separate channels: the Commonwealth pays providers for care, through AN-ACC; residents pay for accommodation, either as a lump-sum refundable accommodation deposit (RAD) — capped, without special approval, at $750,000 as at January 2025 and indexed each year — or as an equivalent daily payment, or a mix of both. The RAD is refunded when a resident leaves care or dies, and the government guarantees that refund even if the provider collapses in the meantime. Providers use the pool of RAD money sitting on their books, in effect an interest-free loan from residents, to fund new construction and refurbishment. That model works only if enough people keep entering care with a home to sell and enough equity in it to pay a six-figure deposit; it also means the government carries a contingent liability — the guaranteed refund of every RAD in the system — that does not show up as an annual expense until a provider actually fails.

Scale helps make sense of what follows. As at 30 June 2024, there were 223,691 operational residential aged care places, delivered by 736 approved providers running 2,617 services, at an average occupancy of 88% (approx.; AIHW). A sceptical reader might reasonably ask: if one in eight beds sits empty, where is the shortage? The answer is that national occupancy hides local mismatch. Some regions and facilities run full with waiting lists; others — often older buildings in the wrong location, or facilities that cannot afford to staff every licensed room within their AN-ACC funding — sit under-occupied. A vacant bed three hours from where someone needs one, or a bed a provider cannot staff, is not spare capacity. It is evidence the existing stock is already mismatched to where and how people actually need care, before the population that needs it grows at all.

Read generously, that funding line roughly keeps pace with the 65-and-over population as a whole. Read carefully, it does not keep pace with the 85-and-over population — the group that fills most residential beds and draws on the most intensive home-care packages — which is projected to grow around a third faster than the funding share of GDP set aside for the whole system. That is Treasury's own projection, not a critic's, and it assumes the funding is delivered in full, on schedule, for four decades, through governments of both colours, in whatever fiscal circumstances the country finds itself in.

The nearer-term numbers are, if anything, harder to sit with. The Committee for Economic Development of Australia (CEDA) estimated in 2024 that the number of Australians aged 65 and over needing some form of aged care will rise from about 1.5 million now to about 2.5 million by 2050 (approx.) — growth of roughly two-thirds within a single generation. Meeting that at anything like today's staffing ratios would require the direct-care workforce — personal care workers, aged care nurses and allied health staff — to grow by at least 17,000 people a year for a decade, on the same analysis; on current trends, CEDA projects the shortfall could reach 110,000 workers within a decade and 400,000 by 2050 (approx.) if nothing changes.

Capital is the other half of the same problem. The government's own Aged Care Taskforce, reporting in March 2024, found the residential sector will need about $56 billion by 2050 (approx.) to refurbish existing rooms and build the new ones an ageing population will need — and that 46% of providers were already losing money on the accommodation side of their business in 2022-23, before that capital is found. Under the current model, most of that capital is expected to come not from government but from residents themselves, through the RAD system described above — in effect, betting the building program on a continued flow of resident capital, much of it drawn from the sale of family homes in a housing market this site examines elsewhere as itself under strain. Spread evenly over the twenty-five years to 2050, the $56 billion works out to roughly $2.2 billion a year in extra capital spending the sector says it needs just for buildings (approx.) — separate from, and on top of, the wages and care-minutes funding already committed.

The strain already shows up in two places most families never see on a budget statement. Provider finances: an aged care sector financial survey found 59% of residential facilities operating at a loss in the September 2024 quarter — after the funded wage rises had started but before the higher care-minutes funding had fully flowed through — with an average deficit of $8.45 per resident per day, against a small surplus in the same quarter a year earlier. And hospitals: the Australian Institute of Health and Welfare recorded the number of patients whose hospital discharge was delayed because no aged care or disability placement was available rising from 14,700 in 2014-15 to 29,600 in 2023-24 (approx.) — a hospital bed occupied, and a hospital budget spent, because the aged care system downstream had nowhere to put the patient.

The government funded the fix the Royal Commission ordered. It has not yet funded the population growth the Commission never had to reckon with.

Where the money has clearly landed

None of this means the reforms are unfunded across the board — wages and staffing compliance are the clearest counter-example. Government reporting shows most residential facilities meeting or exceeding the 215-minute care standard within two quarters of it taking effect, a marked improvement on compliance under the earlier 200-minute standard. Award wages for around 400,000 aged care workers rose by between roughly 15% and 29% between June 2023 and January 2025, funded by a cumulative government commitment of about $17.7 billion (approx.) rather than left for providers or residents to absorb. Spread across the roughly 400,000 workers it covers, that $17.7 billion works out to an average of about $44,000 per worker over two and a half years (approx.) — though on payslips it shows up as an hourly award-wage increase, not a lump sum. That is real money, delivered close to the promised timetable, directed at the single input — staff — that the Royal Commission identified as the system's core failure.

The critique

This is not the first time aged care has been declared fixed. The 2012 Living Longer Living Better reforms, and reviews before them, also promised a system on a sustainable footing; within a decade a Royal Commission was appointed because the promise had not held. That history does not make the current reforms worthless — it is a reason to test them against the arithmetic rather than against the announcement.

The money behind the parts of the system that were the most politically and legally unavoidable — wages, because a tribunal ordered them, and staffing minimums, because the Royal Commission's central finding was chronic understaffing — is real and mostly delivered. What is much less clear is whether the same seriousness has gone into the two problems that decide whether an ageing population can get a place in the system at all: beds, and the workforce to staff them.

Start with beds. Between 2020 and 2025, the number of operational residential aged care places grew by roughly 3%, while the population aged 85 and over — the group that fills most of those places — grew by more than 12% over the same five years (approx.; AIHW data). The government's planning ratio for residential places, which required 78.0 places per 1,000 people aged 70 and over for several years, was cut to 60.1 from 1 July 2024 — a deliberate shift toward funding home care instead of new beds, which the government can fairly defend as reflecting most older Australians' own preference to age at home. But that policy choice does not, by itself, resolve the capital problem the Aged Care Taskforce identified: roughly $56 billion needed by 2050 (approx.), against a sector where nearly half of providers were already losing money on accommodation. The 2026-27 Budget's answer was $1.7 billion to incentivise up to 5,000 new residential places a year — a genuine commitment, and a fraction of the sum the government's own taskforce said the sector needs by mid-century. It is also the reform most directly connected to the hospital numbers above: every place that isn't built is, eventually, a hospital bed occupied by someone who has nowhere else to go, and a contingent liability — the guaranteed refund of every resident's accommodation deposit — that keeps growing on the government's books whether or not new capacity is built to match it.

The workforce gap is the same story in a different column. The 24-hour registered-nurse rule and the 215-minute care standard are the right response to the Royal Commission's core finding — but they are legal obligations to provide a level of staffing the labour market is not currently producing. CEDA's 2024 analysis put the shortfall at up to 110,000 direct-care workers within a decade and 400,000 by 2050 if nothing changes (approx.), driven by annual staff turnover reported as high as 27% to 31% in parts of the sector, and by pay and conditions that, even after the Fair Work Commission's rises, are still catching up to comparable disability and community-sector roles. The workforce is also unevenly spread: aged care staffing density is markedly lower outside the cities, and analysis by the National Rural Health Alliance found regional and remote Australia would need on the order of 95,000 additional care workers to match metropolitan staffing ratios (approx.) — in the parts of the country where recruiting any health workforce is already hardest. And the sector has long relied on migration to fill the gap: roughly one in three residential aged care workers were born overseas, on national workforce survey data (approx.), and a further share hold a visa tied to their employment — which means the workforce projections implicitly assume migration settings that are set, and can be changed, by policy areas well outside aged care.

A government can legislate a staffing minimum. It cannot legislate the nurse who is meant to fill it into existence.

The government's own watchdog has made a version of this critique already. The Inspector-General of Aged Care's 2025 progress report on implementing the Royal Commission's recommendations found that, while the new Act is the most significant single achievement, much of the wider reform agenda has consisted of separate, disconnected changes targeting specific problems, without evidence of an overarching plan for how they fit together — and concluded that what has been delivered so far falls short of the systemic transformation the Royal Commission envisaged. The report also flagged a specific and immediate risk in the reform's own design: that means-tested co-contributions under Support at Home could lead older people who need care the most to delay or decline it, or to be pushed into residential care they could otherwise have avoided, because they cannot afford the home-care alternative. It raised separate concerns that folding Aboriginal and Torres Strait Islander aged care into the mainstream system risks losing the culturally specific, community-controlled services the Royal Commission asked to be protected, and that people in aged care with disability still do not get the same tailored support the NDIS provides to people of working age with the same needs. None of this is a critique from outside the system. It is the assessment of the office Parliament created, at the Royal Commission's own request, specifically to check the government's homework.

There is a subtler cost question inside the reform itself. Not all of the new Act's funding is new government money — some of it is a redesigned bill sent to a different address. The Act's means-tested co-contribution framework requires older people who can afford it to pay more toward non-clinical support, such as domestic assistance, under Support at Home, with hardship provisions for those who cannot; the "no worse off" guarantee protects everyone already in the system as at 12 September 2024. Means-testing is a defensible, ordinary design choice, consistent with the rest of the welfare system. But it means part of what is billed as historic reform is funded by asking residents and families with assets to contribute more, not solely by new taxpayer money — a distinction the political framing of "the government funded historic reform" tends to blur. The government's own decision in the 2026-27 Budget to reclassify personal care, such as showering and continence support, as clinical care and remove its co-contribution from October 2026, at a cost of $1 billion, is itself a quiet admission that the original contribution settings had gone further than the public would accept.

Finally, the pattern of the funding is itself a warning about its durability. Aged care has needed a fresh budget top-up in successive years — $2.9 billion in the 2025-26 Budget, $3.7 billion in 2026-27 — stacked on top of the multi-year wage and reform packages already legislated. Each top-up is evidence of ongoing commitment, and it is genuinely that. It is also evidence that the funding envelope set at the time of the Royal Commission response was not sufficient to cover what has emerged since, and that the government is funding this reform one budget at a time rather than through a single settlement built to run for the length of the demographic wave it is meant to survive.

What they got right

Credit belongs in specific places. The wage funding is real, delivered close to the promised timetable, and reaches around 400,000 workers with rises of between roughly 15% and 29% — the largest direct intervention in aged care pay in the sector's history, and one that would not have happened without the government choosing to fund a Fair Work Commission decision in full rather than litigate or delay it. Bipartisan support for the new Act — a rarity in this Parliament, and rarer still on a structural reform rather than a one-off payment — gives it a better chance of surviving a change of government than most of the policies this site examines, which matters for older Australians and providers who need certainty measured in years, not electoral terms. The Inspector-General of Aged Care, established under legislation that received royal assent in 2023, gives the system an independent statutory watchdog that reports on whether the Royal Commission's 148 recommendations are actually being delivered — itself a Commission recommendation, implemented, and the same office whose critical findings are quoted above; a government that funded its own harshest independent critic into existence deserves some credit for that. So does the willingness to correct course in public: reclassifying personal care as clinical support in the 2026-27 Budget, after evidence emerged that the original co-contribution settings were pushing some people away from care they needed, is the kind of adjustment a government only makes if it is actually watching what its own reform is doing, not just announcing it and moving on. And the decision to defer the Act's commencement from July to November 2025, while it delayed the reform's benefits by four months, was the right call: starting a rights-based Act before the detailed rules and provider systems behind it were ready would have repeated exactly the pattern the Royal Commission criticised, of good intentions arriving faster than the operational capacity to deliver them.

The caveat that matters most is one of timing, not intent. Judged against the Royal Commission's diagnosis — understaffing, low pay, weak regulation, no enforceable rights — the reforms are a genuine, substantially funded response, and a more serious one than any government has attempted in the twenty-five years the current Act has existed. Judged against the demographic trajectory Treasury itself has published, they are a response calibrated to the system as it stood in 2021, not to the system as it will need to look in 2040 or 2050. Those are two different tests. So far, the government has only been marked against the first one.