The Dilnot proposals on funding adult social care are welcome , but there are some tricky financial issues for policy-makers to digest over the summer break
With the August break approaching, it’s worthwhile reviewing where the long-term care funding reform agenda has arrived at, now that all concerned have had an opportunity to digest the recommendations of the Dilnot Commission on Funding of Care and Support.
The Commission put forward a ‘capped cost’ model, which has two key features. It would cap a person’s care costs at £35,000, although as described below, the £35,000 amount refers to ‘notional’ support from local authorities. The other key feature would be an increase in the means-test threshold for residential care from £23,250 to £100,000.
As the finer details of the ‘capped cost’ model are digested, three key questions are emerging which policymakers will have to find answers to in the autumn.
First, is the ‘capped cost’ model of the Commission deliverable? The model could more accurately be described as a ‘capped exclusion from means-tested support’ model. It uses the existing local authority needs-assessment system – which takes account of informal care provision – to determine need for paid care, and on that basis allocates to individuals ‘notional’ packages of support that will cease to be notional when they accumulate to £35,000.
But the reality of how local authority needs-assessments work on the ground now is variable and, frankly, sometimes rather murky – as the Commission itself acknowledges. The ‘capped cost’ model will require this system to be scaled up to cope with at least 40-50% more assessments. This may expose grey areas in the current system around incentives, ‘gaming’ and the accuracy of both needs and means-assessments. None of these issues are necessarily insuperable, and the Commission has itself proposed reforms to the system. However, the practical implications of the ‘capped cost’ model are going to be new and complex, and some piloting of the model would ideally follow, even before the end of this year.
The second big question is around how individuals will fund their £35,000 liability, and what’s the ‘offer’ from the state in relation it? Because this liability is determined by ‘capped exclusion from means-tested support’, this amount is not, strictly speaking, insurable. Private insurers can only price social care insurance on the basis of trends in disability and longevity; they cannot take account of informal care provision, or variable levels of support among local authorities. So any insurance products will likely be limited to £35,000 lump-sums that pay out when someone can no longer undertake several essential activities of daily living. It would then be up to individuals to try and spend down their lump-sum to the £35,000 threshold of state support.
But this is likely to be a difficult product for insurers to market and sell to the minority of retirees that have a spare £10,000 in liquid savings such that they can afford to buy insurance – certainly no more than 1 in 4 of those entering retirement. The principal motivation to purchase insurance will be to ensure that you don’t have to pay anything more toward your care costs, but the nature of the ‘capped cost’ model makes such a guarantee impossible, and a large private insurance market is unlikely to result. Volume Two of the Commission’s report appears to recognise this, although many in the insurance industry are only just beginning to understand the precise nature of the ‘capped cost’ model. However, if few people buy insurance, can policymakers come up with a better ‘offer’ for individuals in relation to their £35,000 liability?
The third question is how the ‘capped cost’ model should be paid for? The Dilnot Commission has done very well in showing how for a relatively small amount of money - £2 billion rising to £3 billion in 15 years – a lot of sharp edges could be smoothed off the social care system.
But, as the Commission itself notes, just to maintain the current system, the government will need to find an extra £11 billion by 2025. It wasn’t the job of the Commission to say how the existing growing black-hole in social care budgets should be filled. Few in the Treasury are likely to deny that something like the ‘capped cost’ model would represent an improvement on the current system. But by putting forward a model that will not bring much new private money into the system, the effect of the ‘capped cost’ model is to make the challenge of public funding for care even bigger.
So, implementation, insurance and funding – these are the three big questions for social care policymakers to ponder over the long summer break.
James Lloyd is director of the Strategic Society Centre
