What price ‘peace of mind’ for social care?

The ‘capped cost’ reforms to England’s long-term care funding system were meant to be one of the coalition’s proudest achievements. The government’s consultation on implementing the reforms closed last month.

Launching in April 2016, the reforms have two central elements: a lifetime ‘cap’ on notional, private expenditure on social care of £72,000; and, an increase in the local authority means-test threshold for support for residential care costs from £23,250 to £117,000.

Since the Dilnot Commission proposed the reforms in July 2011, the initial drum-beating enthusiasm from the care sector has given way to a more pragmatic assessment. Back in 2011, many genuinely thought no one would ever have to spend more than the value of the ‘cap’ on care costs. And, because the state would protect people from very high (‘catastrophic’) lifetime care costs, some people really believed this would at last unleash a huge private market for pre-funded care insurance.

However, since 2011, most people have come to recognise the ‘cap’ won’t in fact cap people’s care costs at all: because most ‘self-funders’ pay more for (often equivalent) care home places than local authorities, many will have to go on paying ‘top-ups’ beyond the ‘cap’, which for most ‘self-funders’ will look more like a reasonably generous, delayed co-payment for care costs.

In addition, no one now bothers to pretend a much-vaunted market for pre-funded care insurance will develop because of the reforms. This outcome – predicted in many quarters back in 2011 – has become a source of embarrassment for both the insurance industry and the government.

All of this raises an important question for the ‘capped cost’ reforms: do they represent value for money?

An impact assessment for the reforms published in February by the Department for Health attempts the tricky job of presenting a cost-benefit analysis for the changes that demonstrates positive net benefits. It’s a fascinating document for Whitehall watchers.

The challenge for officials is to justify the considerable administrative burden of the ‘capped cost’ reforms, i.e. lots of extra new and ongoing assessments for thousands of people, many of whom will never actually receive any local authority support for care costs.

So, officials have estimated the monetised benefit of the supposition that in future: ‘Everyone will benefit from the peace of mind from knowing that they do not risk facing unlimited care costs. This is an insurance benefit which accrues even to individuals who do not encounter catastrophic care costs.’

To put a financial value on this ‘peace of mind’ benefit, the Department of Health argues that since purchasers of pre-funded private social care insurance in the US (where the market is shrinking) on average only receive 60% of the value of their premium back, the remaining 40% must be the amount that US consumers are willing to pay for ‘peace of mind’.

So, in its impact assessment, the Department of Health banks 40% of the Exchequer cost of the additional care funding provided by ‘capped cost’ reforms to older people as the financial value of the ‘peace of mind’ provided by the reforms to the older population.

Now, it doesn’t take too much thought to see the flaws in this approach, and the department does itself acknowledge it is far from perfect.

However, it does mean that the Department of Health is left trying to show the flagship reform to long-term care funding in England of the coalition government represents value for money on the basis of a methodology that a first-year undergraduate economics student would consider humiliating.

Let’s put to one side obvious issues such as the difference between US and UK citizens, and the strange approach of applying estimated benefits of private insurance to public expenditure on social insurance – when of course the level of state support determines the demand and benefits of private insurance.

The much bigger questions for this estimated ‘peace of mind’ dividend are: will anyone know about the reforms in April 2016 when they come on stream? And, will older people genuinely believe that they are now protected from catastrophic care costs given – as described above – they are not?

In effect, for the ‘capped cost’ reforms to represent value-for-money, the Department of Health must foist on to the older population a state of blissful semi-ignorance, whereby people know about the ‘capped cost’ measures and genuinely believe the reforms will ‘do what it says on the tin’.

This is a big ‘if’. As we are already seeing, the caveats in the scheme are proving a red rag to the consumer media who like to tell the truth behind the government’s claims, even before older people’s charities have begun providing information to the public on how the ‘capped cost’ regime will actually work in practice. It is highly likely as people become aware of the scheme, they will also be told it doesn’t really cap your costs, and most will forget about it.

In fact, the complexity of both the local authority care system and the ‘capped cost’ reforms is such that even social care professionals struggle to understand how the new reforms will work.

So, what does this all mean? Put simply, it is difficult to see the ‘capped cost’ reforms surviving more than a handful of government Spending Reviews given the likely absence of any evidence of peace of mind benefits in future.

Indeed, with the possibility of a new government just around the corner, we may yet see a full ‘pause and review’ for the reforms to explore: can we institute some sort of alternative cap more cheaply? Would we be better off forgetting the ‘cap’ and simply putting the money into frontline services and a more generous means test?

Crucially, within local government, many are less than enthused with the significant challenge of implementing the ‘capped cost’ reforms, especially since the reforms ultimately failed their hoped-for political purpose: giving the coalition an incentive to shield social care from spending cuts.

And looming into sight is the burgeoning integrated care agenda, which has suddenly jumped from think-tank seminar room to a looming reality in Greater Manchester. As many have observed, the ‘capped cost’ reforms are rather unhelpful to integrating health and social care, given their burdensome emphasis on delineating ‘personal care’ costs and trying to meter them. It may be only a matter of time before Manchester and other integration vanguards seek permission from Richmond House to put in place their own alternative arrangements for funding ‘social care’ fairly.

In short, the debate on how we fund the costs of care in old age seems set to continue.