The funding conundrum
Professor of Statistics at Cass looks at proposals for long-term care - and puts forward an alternative.
Long-term care in the UK is at a tipping point. Costs are spiralling and increasing numbers are living longer, but with a frail disposition, placing a heavier burden on the state purse. The problem facing policymakers is to find a fair and cost-effective way to fund and reform the system.
The Government has tentatively backed a proposal from the Commission on Funding of Care and Support, chaired by the economist Andrew Dilnot, to cap care costs (possibly at a level between £35,000 and £50,000) and increase the means-tested threshold to somewhere in the region of £100,000. Some stakeholders have accepted this solution.
There are, however, mixed views on the Dilnot proposals. The cap model is hugely problematic and possibly unworkable. If set too low, the cap would merely subsidise the rich; if set too high, large numbers of people with low levels of wealth but high levels of housing equity might still be forced to sell their homes. It also focuses on catastrophic costs and not on day-to-day support.
Moving the goalposts
A further problem is that subsequent governments may review the cap and insurers who entered the long-term care market on the back of the reforms might find the goalposts have shifted.
But the biggest sticking point may be how to measure and record an individual's progress towards the threshold. The guidance in the Dilnot report is unclear, probably because such a system would be overwhelmed by details such as the need to define care. And a computerised system would have to be devised to monitor people's use of care, taking years to set up. Other questions also arise: would a cap be applied retrospectively? Would the system be monitored centrally or locally?
I believe the Government should consider an alternative system: divide people into bands according to their cumulative wealth (the amount of income they receive and the value of their assets) and subsidise a proportion of their care costs according to which band they are in. For instance, if they are in band A, the state might pay 90 per cent of their care costs; in band B, it might be 70 per cent, and so on until a person becomes self funding (this would be the majority of people).
This state subsidy would decrease if personal wealth increased. But as a person in care decumulated their assets the state would pay more.
The private sector would have a clear set of rules within which to develop products such as long-term care insurance, equity release and specially designed annuities.
To prevent people from shedding their wealth as old age approached, people would have to prove that they had not off-loaded huge amounts of money to defeat the system.
There would, inevitably, be people for whom the Government would pay most or all of their care costs. One way to help these people make a contribution without buying expensive insurance would be to introduce long-term care bonds - a cross between Premium Bonds and Lottery tickets costing, perhaps, £1 apiece. The tickets would be entered into a prize draw every month and the investment would be ring-fenced to pay part of the bond buyer's long-term care costs. Any money left at the time of death would go into his or her estate.
Dilnot has its merits but it would be difficult to implement and would not be workable for years to come. A system of banding, coupled with long-term care bonds and a strengthened private sector, would be a simpler, fairer and more cost-effective way to strike a balance between what individuals pay and what the state provides.