Posted on Jul 05, 2011 by Sergio Ulloa
This week, the Commission on Funding of Care and Support presented its long-awaited findings to the British government in its landmark Fairer Care Funding Report. This commission, headed by economist Andrew Dilnot, was launched last year by the coalition government to present an independent review of the funding system for social support in Britain and to offer recommendations on how long-term care for the elderly and those on disability must be handled in the future.
The report first acknowledged widespread concerns surrounding the shortcomings of the current care system. At present, the British social care scheme provides support through a means-tested system, administered by local authorities. Under this system, council-funded in-house and nursing home services for the elderly and adults with disabilities are only offered to those who hold under £23,250 worth of assets. The social care system has been the only insurance system in the UK structured this way. In areas such as motor and housing coverage, Britons are encouraged to purchase private insurance to pool risks and cover themselves against potential exposure to high costs. In healthcare, the NHS
pools risks through providing social insurance to everyone. For social care costs, however, the state does not provide a universal support system and thus people are unable to take out private protection. This has been the only major sector in Britain in which everyone still faces significant financial risk and yet no one has been able to protect themselves against it. This uncertainty manifests itself into a large national financial burden. The UK government currently spends £14.5 billion a year on adult social care in total, half of which is directed towards services for older citizens. A report from the OECD issued earlier this year confirmed that aging populations will cause global spending on long-term care to double or even triple by 2050
. This is indeed a national problem that needs to be confronted promptly.
The current social care framework, which has been in place for 70 years, has not properly taken into account the rise in living expenses, medical inflation
and demand which has left many Britons exposed to potentially very high care costs without state support. Seniors with assets just above the value threshold are often unable to protect themselves without leveraging their income and estate - a situation the general public has widely viewed as unfair. The report calculates that a quarter of all UK residents aged 65 and over will need to spend relatively little on care for the rest of their lives. Half of UK residents could have long-term-care costs of up to £20,000, but over 10 percent will likely incur costs of over £100,000 and for some many times over. There is no true way of predicting in advance what the long-term-care costs might be for any one individual and the current system leaves too many households at risk.
To address this problem and protect people from extreme healthcare costs later in life, the commission has recommended capping the lifetime contribution to adult social care costs that any individual in Britain would need to make at around £35,000. Those with care costs exceeding the cap would become eligible for full financial support from the state. A cap on contributions is thought to benefit the struggling middle classes as they pay far more towards their social care than those on lower incomes. The report also maintains that the asset threshold for means-tested state support for those in residential care should increase from the paltry £23,250 up to £100,000. The commission believes broadening the requirements will allow greater access to the state support system and could bring greater peace of mind to pensioners and reduce anxiety for both individuals and care professionals in Britain.
The Fairer Care Funding report broadly believes that care costs should not consume more than one third of a person's assets. In addition to raising the means-test threshold four times over and updating the funding system, the commission has looked into addressing many of the more pervasive administrative concerns that continue in the UK care system. There have been frequent complaints about the high variation in eligibility for care across the country and of poor integration between different services and individuals. The report calls for all eligibility criteria to be finally standardized nationally to end the "postcode lottery" and improve transparency during the assessment process. Portability of care across localities would also be instituted to prevent citizens from needing to reapply for care if they change localities. Finally, the study recommends a significant promotion strategy to build awareness about upcoming changes to the care system, as well as a nationwide campaign to encourage citizens to put more towards savings to prepare for retirement related care costs.
Going by the commission projections, lifting the asset cap to £35,000 would cost the national purse £1.7bn in the first year, equivalent to just 0.22 percent of the country's GDP. The cost would then increase to £3.6bn at current rates by 2015. This is all on top of a projected £22bn increase in costs due to Britain's ageing population in the coming decade. The commission concludes the report claiming these resources and more will be necessary to institute the vital systemic reforms to update the British social care service for the 21st century: "We believe that our proposals are fairer than the current system. There is a clear, national offer, which should be backed up by better information and advice. The system facilitates choice and puts people in control. By focusing resources on those with the greatest need, while enhancing the well-being of everyone, it offers value for money. It is sustainable and resilient in the longer term. It is a better deal - one fit for today and for tomorrow."
The Fairer Care Funding Report envisions a more robust partnership between the state support services and individuals whereby individual costs are capped while substantial risks would be covered by the government. It is hoped however, that the private insurance industry would step in and develop solutions that will help individuals meet a greater share of their care obligations. Social care insurance
has yet to take off in the UK market, but now by defining the amount people will have to pay, insurers could offer viable savings plans (equity release on property, life, pension etc.) that enable policyholders to pay up the full contribution. The lessons learned from any profound changes to the UK social care infrastructure will no doubt influence what other industrialized nations attempt to do themselves.