Overview of Cost Types
Understanding aged care costs can feel daunting, but it helps to know that the total cost is made up of several distinct components. Not everyone pays all of them, and the amounts vary depending on the facility, the level of care needed, and your financial circumstances.
The main cost categories in residential aged care are:
- Basic daily fee (everyone pays this)
- Means-tested care fee (based on your income and assets)
- Accommodation costs (RAD, DAP, or a combination)
- Extra or additional services fees (optional)
The government subsidises the majority of care costs. What you pay out of pocket depends on your assessed means.
Basic Daily Fee
The basic daily fee is paid by all residents, regardless of their financial situation. It contributes towards everyday living costs such as meals, cleaning, laundry, heating and cooling, and general facility maintenance.
The maximum basic daily fee is set by the government and is linked to the Age Pension. It is typically equivalent to 85% of the single basic Age Pension. This amount is updated on 20 March and 20 September each year in line with pension indexation.
This fee applies to everyone entering residential aged care, and it is a non-negotiable, standard charge across all facilities.
Means-Tested Care Fee
Some residents are asked to contribute towards the cost of their care through a means-tested care fee. This fee is calculated by Services Australia based on an assessment of the resident's income and assets.
Key points about the means-tested fee:
- Not everyone pays it. If your income and assets are below certain thresholds, you may pay a reduced amount or nothing at all.
- Annual and lifetime caps apply. There are government-set limits on the total means-tested fees you can be asked to pay in a year and over your lifetime. Once you reach the cap, you stop paying this fee.
- The family home is treated specially. If a protected person (such as a spouse or dependent) is still living in the family home, it may be excluded from the assets assessment.
- Assessment is personalised. Your fee is based on your individual circumstances. Two residents in the same facility may pay very different amounts.
You can request a means assessment from Services Australia before choosing a facility, which can help with financial planning.
Accommodation Costs (RAD/DAP)
Accommodation costs cover the cost of your room and the facility's physical infrastructure. These are separate from care costs and are paid directly to the facility.
You have three options for paying accommodation:
- Refundable Accommodation Deposit (RAD): A lump sum payment that is fully refunded when you leave. Amounts vary widely by facility and location.
- Daily Accommodation Payment (DAP): A daily rental-style payment calculated from the RAD using the government's Maximum Permissible Interest Rate (MPIR).
- Combination: Pay part as a lump sum and the rest as a daily payment.
For a detailed comparison of these options, read our RAD vs DAP guide.
Important: If your means assessment determines that you are a "low means" resident, the government will assist with your accommodation costs. You will not be required to pay more than you can reasonably afford.
Extra Services Fees
Some facilities offer extra or additional services beyond the standard level of care. These are optional and come at an additional cost. Examples include:
- Premium meal options or a la carte dining
- Larger or better-appointed rooms
- Pay television or premium internet access
- Hairdressing, beauty treatments, or massage
- Special outings or entertainment programs
- Private en-suite or superior furnishings
Extra services fees vary significantly between facilities. Always ask for a clear written schedule of extra service charges before agreeing, so you know exactly what you are paying for and what is included in the standard fee.
Government Subsidies
The Australian Government subsidises the majority of aged care costs. The subsidy is paid directly to the care provider, not to the resident. The amount of the subsidy depends on the resident's assessed care needs -- those requiring more complex care attract higher subsidies.
Government funding covers:
- The bulk of clinical and personal care costs
- Accommodation assistance for low-means residents
- Supplements for specific care needs (e.g., oxygen, enteral feeding)
- Viability supplements for facilities in rural and remote areas
The practical effect is that residents typically pay only a portion of the true cost of their care. The subsidy system ensures that residential aged care remains accessible regardless of financial circumstances.
Financial Hardship Assistance
If you are concerned about affording aged care, there are protections in place:
- Financial hardship provisions. If paying accommodation costs or the means-tested fee would cause financial hardship, you can apply for assistance through the Department of Health and Aged Care.
- Low-means residents. Residents assessed as having low means may pay a reduced or no accommodation contribution. The government makes up the difference to the provider.
- Fee caps. Annual and lifetime caps on means-tested care fees protect against cumulative costs becoming unmanageable.
- No one is turned away. Approved providers cannot refuse a resident solely on the basis that they cannot afford accommodation payments. Everyone assessed as needing residential care has a right to access it.
If you are unsure about your financial position, a financial adviser specialising in aged care or the Services Australia Financial Information Service (free) can help you understand your options.
Further Reading
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