The Government says it does not know what it will cost to pay families who care for disabled adult children - but it will have to be affordable.
Health Minister Tony Ryall announced on Tuesday that the Government will not appeal against earlier court rulings that it is discriminatory for it to refuse to pay family members who care for adult disabled children.
The decision ends years of appeals and litigation that have cost the Government at least $1.4 million.
Ten thousand people aged 18 and over receive services in their homes from caregivers paid by the Ministry of Health.
In May this year, the Court of Appeal ruled that the ministry's policy of excluding family members from payment for disability support services to children over 18 is discrimination.
Mr Ryall said on Tuesday the Government agrees, and it will not go to the Supreme Court.
He said it is the first time a New Zealand Government has been told by Crown Law that a policy is discriminatory and it has not appealed that decision.
At the time of the Appeal Court ruling, Mr Ryall warned that the cost to taxpayers of paying caregivers could reach $450 million a year.
The minister said on Tuesday the Government would now work on a new policy that balances the interests of the person being cared for, as well as families and taxpayers.
An affordable solution would be found, but he said it would depend on how many families who are not providing care for children at present choose to do so in future.
Mr Ryall said the new policy should be in place in early 2013. He said the Government would have to find the money to pay family caregivers, but it was too soon to say where this would come from. He said advisers would work out the details, but refused to rule out reducing current payments.
Families who took the case said they are delighted.
Meanwhile, the Human Rights Review Tribunal will consider what remedy is needed for the families that brought the case.
