Providers say the federal government’s new residential aged care price amounts to a cut despite incorporating this year’s 4.75% wage rise, reigniting questions about whether the funding model can keep pace with the current cost of care.
Aged care providers have accused the federal government of delivering a real-terms funding cut after increasing the main residential aged care price by just 2.55% in a year when award wages have risen 4.75%.
The Australian National Aged Care Classification (AN-ACC) price will increase from $295.64 to $303.19 per national weighted activity unit from 1 October.
The government says the increase includes funding for the Fair Work Commission’s 4.75% Annual Wage Review decision, gender undervaluation, and aged care work value cases, as well as non-labour cost growth.
But providers and sector groups argue the resulting 2.55% increase still falls well short of their current cost increases.
Anglicare Sydney chief executive Simon Miller said the increase was “a cut in everything but name”.
“In real terms this means less money for the care of older people, not more,” Mr Miller said.
“If aged care isn’t funded properly, you don’t save money, you just move the cost to our hospitals. There’s a direct line between this decision and ambulances ramping outside emergency departments next winter, with older people caught in the middle.
“This is being called an increase, but when wages are climbing 4.75% and costs are rising faster than the funding, it’s a cut in everything but name.”
The apparent discrepancy stems partly from how the Independent Health and Aged Care Pricing Authority calculates its recommended AN-ACC price.
Rather than applying an annual index to the existing $295.64 price, IHACPA reconstructed the price using an average cost of $252.14 per national weighted activity unit in 2023-24.
That historical cost was adjusted for mandatory care minutes and indexed by 19.6% to estimate costs for October 2026 to September 2027.
The 19.6% adjustment comprises 5.8% for Fair Work Commission work value decisions, 0.8% for superannuation increases and 12.2% for inflation and wage rises. A further $1.56 was added for outbreak management costs.
IHACPA told HSD the new price was not directly comparable with the existing $295.64 price because the two were calculated from different cost bases and incorporated different assumptions and methodologies.
“The recommended AN-ACC price is informed by the average cost per national weighted activity unit as reported in the Aged Care Financial Report 2023–24, which at the time of modelling was the most recent source of cost data for the full population,” an IHACPA spokesperson said.
“The cost is adjusted to account for known cost increases, then indexed to estimate the cost of care from 1 October 2026 to 30 September 2027.”
IHACPA said its 2025–26 advice had instead been based on 2022–23 cost data.
However, it did not directly answer HSD’s question about whether using 2023–24 cost data could leave the resulting price behind providers’ current-year costs.
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Ageing Australia chief executive Tom Symondson said the increase was “unacceptable” and failed to reflect the financial pressures facing residential aged care providers.
The peak body said 62% of residential aged care homes were operating at a loss and argued the increase did not adequately cover the 4.75% wage rise that took effect from 1 July.
The hotelling supplement, which contributes to food, cleaning, laundry and energy costs, will meanwhile remain unchanged at $22.15 per resident per day while the Government reviews its adequacy.
IHACPA’s own pricing advice estimates that, across all residential care homes nationally, everyday living revenue will exceed costs by just 18 cents per occupied bed day.
For a subset of homes that did not receive additional or extra service fee revenue in 2023–24, it estimates an average $5.81 daily deficit, although IHACPA explicitly cautions that this subset is not nationally representative.
IHACPA told HSD the deficit reflected lower revenue than costs for those services and said individual provider results could differ significantly from the average.
It is examining the drivers of the deficit as part of its feasibility study into tiering the hotelling supplement.
Catholic Health Australia’s head of policy and advocacy Alex Lynch said on LinkedIn the methodology meant the resulting price could be disconnected from providers’ current budgets.
“Technically, IHACPA does not ‘index’ the price from last year,” he wrote.
“It takes the most recent validated year of data (2023-24) and builds the price from scratch then ‘indexes’ for notable changes since that year.”
Mr Lynch said that if wages represented a conservative 85% of direct care costs, applying the 4.75% wage increase to labour alone would equate to a 4.04% increase, even if all other costs were unchanged.
“None of this is a criticism of IHACPA’s arithmetic, which I am sure is right,” he said.
“But these factors aside, the nature of the cost model is such that it isn’t capturing real cost increases in the years the sector is trying to deliver care.”
Medical & Aged Care Group chief executive Cameron McPherson said including the wage decision in the calculation was not the same as adequately funding it.
“Our aged care workers deserve every dollar of their wage increases,” Mr McPherson said.
“The problem is not paying people more. The problem is the government setting higher wage, care, compliance and reporting expectations, and then leaving providers to finance the difference.”
Because the new AN-ACC price does not take effect until 1 October, MACG estimated its effective increase across the full 2026-27 financial year at about 1.91%.
“There is no discretionary version of aged care,” Mr McPherson said.
“Registered nurses, personal care workers, meals, cleaning, laundry, electricity, infection prevention, clinical systems and safe buildings are not optional expenses.”
Shadow health and ageing minister Anne Ruston said the government was asking providers to absorb rising costs while simultaneously expecting the sector to expand capacity.
“You cannot solve the crisis in our hospitals while making it harder for residential aged care providers to stay viable and build the beds Australia needs,” she said.
Federal aged care minister Sam Rae said average per resident, per day care funding was now about 65% higher than in September 2022 and pointed to the government’s $1.7 billion budget investment aimed at supporting construction of 5000 additional aged care beds a year.
“This announcement means more funding for aged care homes, supporting workers and better care for our loved ones,” Mr Rae said.
Read the full IHACPA report here.