Care funding: read the small print

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Today’s announcements on care funding are a small step forward. But they offer less than first appears, and duck the issue of how much society should spend on long-term care

It has finally happened. After fully 18 months of reflection since the final report of the Dilnot Commission, the coalition government is today announcing how it wants to see funding for long-term care in England reformed.

The ‘capped cost’ model proposed by the Dilnot Commission in July 2011 had three key components: a standardised contribution to ‘living costs’ in residential care of £7-10,000 a year; an increase in the ‘Upper Capital Limit’ component of the means test applied to those in residential care; and, a ‘cap’ on the financial value of council support that individuals are excluded from owing to their wealth.

Today’s announcement will put numbers to each of these components: a £12,500 (£240 per week) ‘living cost’ contribution; a £123,000 Upper Capital Limit and a£75,000 ‘cap’, and proposes a start date for the new system in 2017. In truth, apart from the higher ‘cap’ of £75,000 – which would have been £61,000 in 2010 prices when the Dilnot Commission got to work – the figures involved are pretty much what was recommended by the Commission, but uprated for inflation.

To really explain what has been announced and what it means, it’s best to use a thumbnail case study of an average individual. So I’ve put together the following vignette for ‘Mrs Smith’ using today’s announcement and various figures (uprated for inflation) gleaned from government social surveys and the social care market research company Laing & Buisson’s recent annual report, which includes figures for the average amount paid by councils for residential care.

Inevitably, this all makes for a rather long blog post, but it’s the only way to really get under the skin of today’s announcement.

Mrs Smith moves into residential care at the age of 89 in April 2017, becoming the very first person to be ‘metered’ under the new system. She has assets totalling £250,000 (including the value of her home, which is subsequently sold) and a total income – including disability benefits – of £250 per week.

She pays £652 per week for her place in a fairly standard care home, using all of her income on her care fees, and therefore spending down her assets at a rate of £402 per week to cover the difference.

Now, her local authority’s ‘usual cost’ benchmark rate for residential care is £540 per week. This is the most her local authority will pay for a place in residential care. So, Mrs Smith’s ‘meter’ only increases by this amount minus her notional £240 per week ‘living cost’ contribution, i.e. by £300 per week. In other words, £300 is the weekly progress she makes toward the £75,000 ‘cap’.

The months tick by. After 167 weeks, it’s June 2020 and so Mrs Smith, aged 92, votes in the general election.

After 250 weeks in residential care, by around February 2022, Mrs Smith’s ‘meter’ finally reaches the £75,000 ‘cap’. However, at this point, she has spent around £163,000 in care fees, and has spent down her capital by around £100,500.

From this point, she receives £300 per week from the local authority. However, this still leaves her with a shortfall, and so she pays the remaining fees of £352 per week herself, comprising £250 from income and £102 per week from depleting her capital. So, a year after she has reached the ‘cap’, she has depleted her assets by a further £5,304, and carries on doing so.

The most immediate response to this ‘typical’ case study is that it is far removed from what has been reported in the wake of the government’s announcement, and what the public may expect when they encounter this system.

But what of the £123,000 ‘Upper Capital Limit’, which is touted as protecting poorer households? Between this and the ‘Lower Capital Limit’, which by 2017 should have been uprated to £17,000, individuals will, as now, be charged ‘tariff income’ of £1 for every £250 of assessable capital, and this is where today’s announcement really does look very different from what many people imagine. To explain why, let’s take Mrs Smith back to the beginning, but lop £100,000 off the value of her home.

Mrs Smith moves into residential care at the age of 89 in April 2017, becoming the very first person to be ‘metered’ under the new system. She has assets totalling £150,000 (including the value of her home, which is subsequently sold) and a total income – including disability benefits – of £250 per week.

She pays £652 per week for her place in a fairly standard care home, using all of her income on her care fees, and therefore spending down her assets at a rate of £402 per week to cover the difference. After 67 weeks of spending down her capital by £402 per week, she has spent down her wealth to £123,000.

At this point, Mrs Smith has £106,000 of ‘assessable capital’ (£123,000-£17,000), so her local authority would be able to charge her £1 for every £250 of capital per week for support, i.e. up to £424 per week. However, with £250 of total actual income, that make £674 of income that Mrs Smith has in the eyes of the local authority, which is more than she pays per week in fees, so in fact she receives nothing from her local authority.

So even with less than £123,000 in capital, Mrs Smith doesn’t receive anything from her local authority. Mrs Smith carries on spending down her capital by £402 per week.

In fact, with a local authority benchmark rate of £540 per week, Mrs Smith has to spend down until she has around £72,250 in ‘assessable capital’, which the council will treat as tariff income of £230 per week. Adding this to her actual income of £250 per week will give Mrs Smith a notional income of £540, which is what the council would pay for her place in care. Only after this point will she receive a modest amount from the council, even while she has to carry on spending down her assets to cover the difference between what she pays and what the council pays.

I’m going to stop here.

Readers who haven’t been exhausted by all these numbers will draw their own conclusions about how much ‘protection’ the measures announced by the government provide.

But the reforms announced today also raise five wider issues, which merit detailed comment.

First: the ‘cap’ is not really a cap. On the one hand, this is because of the ‘living cost’ contribution that individuals will be expected to make. The Dilnot Commission proposed £7.5-10,000 per year as a reasonable amount that individuals would expect to have in retirement regardless of whether they need care. Today’s announcement of £12,500 is extremely significant despite being largely ignored by commentators. It is this, at the upper-range of what the Dilnot Commission considered, that will see far more pensioners forced to spend down their capital.

On the other hand, the ‘cap’ is not really a cap because among the 125,000 older people funding their own residential care in England, the vast majority pay more than the benchmark rates paid by their council (and in so doing, frequently cross-subsidise councils). So self-funders will pay more than the value of the ‘cap’ before they reach it, and carry on paying for care after it – a fact the government itself acknowledged in its ‘progress report’ on care funding reform published last summer. Crucially, this will mean many have to carry on spending down their capital beyond the ‘cap’, as the example above demonstrates.

Second: how will the punters actually view the new system? Upon discovering the ‘cap’ is not a cap, families may simply shrug their shoulders. But, if the wider populace comes to recognise that care costs are not capped, or they are very likely to die first, will they actually disregard and ignore the new arrangements? If so, what of the ‘peace of mind’ dividend that was touted as a key benefit of the ‘capped cost’ model? This will matter most in areas where the proportion of pure ‘self-funders’ in residential care are highest, identified recently by Laing & Buisson as: the South East (55% of residents), South West (53%) and East of England (50%).

Third: will the reforms create an insurance market? Both Jeremy Hunt and David Cameron have spoken in expansive terms about how the reforms will lead to a pre-funded care insurance market. This is, put bluntly, utter rubbish. There is not space here to set out why, although I’ve set out some of the issues elsewhere. Suffice to say: the £75,000 ‘liability’ under the reforms is actuarially uninsurable and, the reforms would only ever have a limited effect on the price of premiums for insurance policies – which insurers don’t anyway currently offer because there is no demand. The consensus view in the insurance industry is that the ‘capped cost’ model will not result in an insurance market, so it is a mystery as to why government ministers go on about this.

Fourth: what of the £1-2 billion ‘baseline’ gap that has opened up since 2010 in the current local authority social care system? This immediate care crisis is causing real hardship and anguish now, and more than a few irate Conservative south of England council leaders. If this is not fixed before the introduction of the ‘capped cost’ model, councils will understandably and justifiably find ways of diverting the extra resources made available to implement the ‘cap’ to pay for this baseline.

Fifth: will these reforms actually be implemented in the form described today? Clearly a lot of the peculiar outcomes for individuals could be ironed out by further work on both the means test and the standardised ‘living cost’ contribution.

But there’s a much bigger point to be made. The Dilnot Commission was told not to look at the care system’s relationship with the NHS. However, since 2010, an enormous head of steam has built up behind the ‘integrated care’ agenda, Health and Wellbeing Boards, and more recently, Labour’s vision for ‘whole person care’. This agenda implies radical changes to how the state funds social care in the community, and defines what a care versus health need is, as well as introducing even more local variation.

Let’s be honest: there are some who think local government won’t even have a direct role in social care by the end of the decade. So, while the principle of protecting people from catastrophic care costs is likely to persist, what eventually comes out at the end of this process years from now may look rather different from today’s announcement.

In short, what is being announced today is rather removed from what many people think it is (and what is being reported on), and it is highly like that the reforms may be substantially reworked between now and 2017, and not just because there is a general election taking place between now then.

The government’s care ministers Paul Burstow and Norman Lamb clearly deserve great credit for keeping this issue alive within the coalition. Indeed, the key significance of today’s announcement is that all three major parties will now have to go into the next election with a detailed commitment to do something on care funding in the next parliament.

However, if either of the coalition parties go into that election claiming to have ‘fixed’ social care funding, this will naturally strike many on the front line of the social care system as a sick joke.

Indeed, as much as today’s reforms do represent a step forward, the government has ultimately ducked the bigger challenge: in the era of population ageing, to have a discussion with older voters about what the state can be expected to pay for in their retirement, and what new contributions they will have to make. Rather than have this debate, the government has opted for the cheapest, credible reform option, and punted the implementation date nearly five years into the future.

The fact that the reforms will apparently be partially paid for by freezing inheritance tax thresholds is merely a toe in the water of the debate we all need, and a rather ironic toe at that given the Conservative’s pre-election ‘death tax’ campaign against using inheritance tax to pay for care.

The crucial issue is, was and will continue to be the overall quantum of money that society spends on care and support, and what the wealthiest older cohort in history contribute to this. At some point, politicians will have to face up to this. Meanwhile, Mrs Smith waits.

James Lloyd is director of the Strategic Society Centre



12 comments on Care funding: read the small print

  1. Jane Young says:

    I hoped you would address the issue of how this helps working age disabled people and older people who need domiciliary care – or, in the case of working age disabled people, I should say independent living support. The current vicious means testing of all income except earned income is a major issue for working age disabled people but according to the Government and the media we don’t even exist!! Please provide a proper balance to your analysis by including domiciliary care and support for younger disabled people. Thank you.

  2. Malcolm says:

    Thanks James. As ever the devil is in the detail and it is so complex that hardly anyone will understand it all, especially those who end their days in a home.

  3. John B says:

    Assuming the content is of this article is correct, which I think it is, the author deserves an award for writing in such a clear, unbiased and comprehensive manner

  4. Susan Dent Tasker says:

    The majority of people in England think this will never happen to them, that their parents will die in hospital after a short illness. Unfortunately life isn’t that neat.
    This ‘solution’ concentrates on peope in Residential Homes.
    If at all possible fight, fight, fight for NHS Continuing Health Care. Place your relative in Nursing Care. Read the regulations and criteria for NHS CHC and keep fighting.It took me 20 months to get my father assessed as eligible. He is 92 with kidney failure, heart problems, profoundly deaf and very frail and is now being funded by the NHS. And rightly so.
    What will happen to those who have not saved, have never worked and do not have £75k to contribute to their care?? Nothing, they will get the same treatment and faciltities as those who foolishly thought it wise to save for their old age.

  5. Jacky says:

    Yes I complement you on the care home theories. But I would also like to know how it will effect disabled young people needing care within their own homes. Or will this now push more councils to put younger disabled adults into care homes because it will be cheaper?

  6. Chris Jackson says:

    Excellent article James, the first I’ve seen today to really get into what the announcements actually means for people and the pros and cons. Yes it’s a complex system (and will be more so) but looks like you’ve got it spot on and it’s important for people to do that to fully understand the pros and cons.

    And as your numbers show, the £123,000 upper threshold effectively means there is NO upper threshold, everyone with assets of over £14,000 will have this converted into income at £250:£1. By the time someone has over £100,000 this will almost always mean the imputed income is high enough to cover any care costs.

  7. Gail Heath says:

    Thank you for such a clear exposition. The most worrying thing about how this has been “sold” is that rather than being clear about the need for individuals to plan ahead and take responsibility for meeting their own care needs as they get older it provides false reassurance that everything will be ok and the state will step in. And what of the infrastructure required to support assessment, with LA budgets under strain I just can’t see them taking on more social workers to manage the process. Is this a case of “hello ATOL, welcome to the world of social care…”

  8. As always an excellent piece of analysis James. A key issue is your assumption that in future local authorities will routinely pay below the true, market cost of a care home place. It is true that many councils already do this, requiring families to ‘top up’ their relatives’ care home fees because their standard rate is below the cost of available care home places. However it is not legal and we would like to built into the draft care and support bill provisions for a simple mechanism for people to challenge the rate a council is prepared to pay, putting the onus on the council to show it is fair. That would remove some of the additional cost that Mrs Smith is required to pay.

  9. Hamish Dibley says:

    The Government’s (sometime in the future) ‘flagship’ policy on social care funding is not radical reform in action. Indeed, the proposals on social care funding announced this week represent the worse kind of sticky-plaster solution. They are based on dodgy Dilnot Commission data of projected demand for services, out-of-date unit costs for domiciliary and residential care and misguided behavioural assumptions over people’s willingness to take out care insurance. The cap cost model for social care will not result in a market for pre-funded care insurance.

    Both Dilnot and the Government’s response rest on economic modelling that do not take into account variation but instead utilise the ‘average of averages’ for both residential care stay and care costs. Moreover, the care cap and means-tested threshold simply entrench fragmentation and disconnect between health and social care services.

    Far more importantly, we seemingly have a blinkered focus on funding allocation that assumes more care demands equal more resources and that there is no bad money or waste in health and social care. This is an entirely false assumption to make. Given this week’s announcement and resulting obsession with bandying around funding cap and threshold figures perhaps we could focus on a few telling ones?

    During the lifetime of the current spending review the NHS will provide £7.2 billion of support to local authorities for ‘health-related needs’ in the provision of social care. During the present financial year we will have spent £108.4 billion on the NHS and £9.3 billion on social care. We know that typically 70 percent of patients in NHS hospitals have social care, not acute medical, needs. We should be asking ourselves if we actually have a funding crisis or whether we have a failure to intelligently lead, manage and spend crisis. I’ll leave that as a rhetorical question.

  10. Lynne Barbone says:

    This is an excellent explanation of the proposals. I have worked as a Social Worker for 10 years and understand current funding arrangements very well but was struggling to link the ‘cap’ with Local Authority charging, client contributions and the rest. I can now clearly see these rather hollow reforms for what they really are. I can only hope some of the detail gets into the wider media to help the wider public understand that the state isn’t really going to pick up care costs for all the reasons that you explain.

  11. Ray Legge says:

    James – how does FACS play in to this? I assume that the meter only starts running once the Council has deemed that your condition meets their minimum criteria… but is this stated anywhere?

    If a Council is only supporting ‘Substantial’ and ‘Critical’, you may have accumulated significant care costs whilst you were only ‘Moderate’ – I assume this is not counted in the £75k…

  12. Rachel says:

    This is very helpful, thanks. Were the care home costs in your calculations uprated to be in line with 2017/18 prices as the cap is?


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