The Government has today released its response to the Dilnot Commission capped cost model of long-term care. The Coalition supports the idea of capping an individual's liability to care costs in principle, but seems unwilling at the current time to discuss how this will eventually be paid for.
Tomorrow's annual OBR fiscal sustainability report will show the Government must find up to £50bn of further spending cuts or tax rises to stop public debts spiralling out of control by 2060 – due primarily to the effects of an ageing population on health and care costs. Is committing, in principle, to a transfer of the funding burden from private to public really appropriate given this context?
I don't tend to agree with the principle the Government supports. The capped cost model would replace a genuine safety net (based on assets) with a public insurance mechanism for all beyond the first £35,000 of social care costs. The principle therefore implies that it's the role of the state to care for us in old age and to protect us from having to use our accumulated assets to care for ourselves. Yet by 2008 the average house price would pay for 8.8 years of care, compared to just 3.7 years in 1971. Families naturally want to protect inheritances where possible, but it's unclear why this should become the role of the taxpayer.
Nevertheless, Dilnot's cap was claimed to be less about the result of protecting inheritances and more about providing certainty to families, enabling them to plan for care needs. It remains unclear whether this additional planning will take place - the financial services industries concerned seem to doubt whether this will lead to bigger markets for financial products for the capped component.
In terms of certainty it's clear that if this does go ahead, it’s essential that the cap is better explained. There are two reasons why the cap still leaves significant uncertainty to families, and why the cap is not – in fact – a cap at all.
First, as indicated in the media, the Dilnot proposal caps the individual’s contribution to the social care cost at £35,000, meaning individuals would still contribute to their own living costs. This is sound in principle – after all, pensioners not in the social care system also have to fund their own food and accommodation. But it should be clearly understood that individuals would still need to finance their own living costs.
Second, the cost cap proposed by Dilnot is not a cap on what is actually spent on an individual’s long term social care. Rather, it is based on what a local authority would spend if the individual was eligible for support in the means-test. This means that a self-funder staying in a more expensive care home will only see their ‘cost-clock’ increase each week by the amount that the local authority would spend on them. Therefore they might in fact spend significantly more than £35,000 before the limit is reached.
To see how the cap would work in practice, consider this example provided by Partnership (the largest long-term care annuities provider in the UK).
On average it costs £817 per week for a single nursing care room in southern England (including hotel costs). For a four year stay, it would therefore cost £42,500 per year, or £170,000 overall. Under the Dilnot proposals (a £35,000 cap on social care costs but with an additional £10,000 per year hotel costs to be paid by the individual), the person in care would be eligible for the state weekly contribution after £35,000 had been clocked up on the care cost-clock. The average local authority rate is £461 per week including hotel costs. Take away the self-funded hotel costs of £190 a week (or £10,000 per year), the state cost-clock for social care would therefore increase by £271 per week until the £35,000 threshold is reached.
Therefore, for the first 129 weeks, the self-funder in this care home would not be entitled to any support as the £35,000 cap would not have been reached (129 weeks at £271 a week = £35,000). Yet during this time, the self-funder would pay the full £817 per week, costing them around £105,500.
Once the cap has been reached, the state would contribute £271 per week for the rest of the four year stay. Thus, for the final 79 weeks the individual would still have to finance £546 per week (made up of £190 per week hotel costs and £346 per week care costs above the local authority rate). This adds up to about another £43,000.
Overall, the self-funder in care for four years will now pay a total of around £149,000 under Dilnot compared with £170,000 beforehand, i.e. they will still fund 90% of the costs of care – hardly the certainty for families promised!
Therefore, I'm not really convinced on Dilnot - in principle and on a practical level. I'd much prefer if the Government took a comprehensive look at how to liberalise immediate-needs annuities and equity release schemes, which seem best suited to deal with unforeseen care needs. They could even explore ways of incentivising self-insuring - such as varying an individual's disregard according to the amount they'd spent on various products - raising the safety net for those who've taken some action to insure themselves.