The scheme will mean that elderly people with health problems will no longer have to sell their houses to go into care, or deplete their savings to pay for nurse supervision. They will merely be asked to pay a "nominal" fee for board and lodging.
However, pensioners living in residential homes where nursing care is not provided, will still have to meet their accommodation and subsistence costs.
At present, those with savings or a house worth more than pounds 16,000 have to pay hundreds of pounds a week in fees if they require nursing care.
Ministers will also be advised by the commission that many of the charges imposed on old people for local authority care should be scaled down.
The royal commission, set up by the Government to review how long-term care for elderly people is paid for, will recommend that an extra pounds 290m be found to pay for nursing care in old people's homes. The total bill for the commission proposals, to be published next month, could exceed pounds 800m.
The plan was discussed with the Prime Minister last week when members of the commission briefed him on their draft report. Mr Blair is said to have been "enthusiastic" about the reforms.
The royal commission will call for legal safeguards to stop employers from discriminating against the elderly.
It also wants changes in building regulations to make them more "grey- friendly". Sockets in new houses should be positioned higher, so that people don't have to bend down and stairs - responsible for hundreds of falls - should have shorter risers.
The report calls for a "Grey Tsar" to champion older people's rights and proposes that all able, elderly people have access to training on the internet.
"The ideal is a very long, busy, active life," said Claire Rayner, the writer and agony aunt who is a member of the commission. "If you improve things, such as houses, for older people, you improve them for everyone."