The Southern Cross controversy brings into sharp focus the problem of looking after the old and vulnerable in our rapidly ageing society. The whole country, including the care industry, eagerly awaits the report of the Dilnot Commission which is looking into the future funding of social care, but a few things are already clear from selected quotes to the press or at meetings with stakeholders.
Some of the most indicative of what to expect are phrases like: “the current system is unsustainable… no silver bullet… no appetite for compulsion… insurance industry not producing fit for purpose products” and many more. The commission has admitted that it will be difficult to find a single solution, and that the trick will be to find a balance between the state and the responsibility of the individual. With a final social care bill that could theoretically exceed the entire cost of health care, clearly the state cannot be expected to do it all even if had wanted to.
If the recommendation is that the state should take on greater financial responsibility for social care (unlikely I admit!), it might start to unravel the voluntary care giving of millions of unpaid carers which society desperately needs to nurture and grow. Higher taxes which would be the result would fall disproportionately on the young. And yet there will always be a need to protect the most vulnerable in society through some form of public financial support. The commission agrees with nearly all observers that the arbitrary cut off for support, currently £23,250, is unfair. It discourages those below or around the borderline to save, whilst those above the threshold face heavy charges and may lose their homes.
How would a fairer and more flexible system work? My own research with colleagues at Cass Business School proposes a simplified and more graduated approach in which a person’s income and assets would be combined and people then banded into groups. Band A, those who could least afford care would attract 90% support, B 70%, C 50% , D 30%, E 10%, after deducting any reckonable income (e.g. a person’s occupational or state pension). Those with sufficient income and assets to pay for care for greater than five years would be considered to be self funding and hence un-banded (in fact 70% of the 65+ population fall into this group).
The notional tariff for care would be the means by which public expenditure is controlled: for example, assume for the sake of argument that it was set at £25,000 p.a. (roughly the annual cost of a place in a care home), and that a person had an income of £10,000 p.a. A person in band C would receive £7,500 from the state on this basis (50% of £25,000 minus £10,000). Note that there would be nothing to stop a person spending more than this e.g. on a more expensive care home, but the state would not pick up the extra bill. If the circumstances of a person changed because they lived longer than expected, there would be arrangements to re-band them based on a simple formula.
In such a system the onus would be on individuals to fill the financial gap. We have proposed a range of private sector financial products that would also be regulated by an independent regulator. These products would include existing vehicles such as equity release on homes or immediate needs annuities, but also new types of products such as disability linked annuities which are like a pension but which pay out more on becoming disabled. Crucially, income from these regulated products would not be subtracted from state entitlement, thus removing one of the biggest barriers to saving and sources of confusion among the population.
In the past those that could afford the premiums on long term care insurance were probably self funders anyway. Under this proposal premiums would become affordable to nearly everybody. However, there remains the difficulty of the poorest in society – who can be identified as those with the barest of incomes and fewest assets, partly it must be said because they have not benefitted from the massive transfers of housing wealth to older generations or had an opportunity to build a pension.
Our idea for this group is to introduce ‘long term care bonds’. These would work like premium bonds and pay out cash prizes monthly but unlike premium bonds they would not be cashable until a social care assessment is triggered. Unspent bonds would go into a person’s estate and help, for example, to pay for funeral expenses. Long term care bonds could also usefully be used to reward and incentivise those involved in care banks which provide unpaid or low cost care.