Like being on an NHS list, we’re still waiting… When are the government’s delayed social care reforms going to be implemented, asks Tom Kenny? And, more importantly, will they actually help?
England’s social care system is in crisis, leading to strains on the NHS. Around 14,000 beds (10% of those available in the NHS) are occupied by patients who are medically fit for discharge, many of whom are simply waiting to move into care.
The UK government has been promising social care reforms for many years, with the most recent pledges originating from recommendations made in 2011 by the Dilnot Report and the associated legislation of the Care Act 2014. However, whenever the government is close to implementing reforms in England, a multi-year delay is announced. The latest implementation was expected in October 2023, until a two-year delay was announced in November 2022. Is there a better way to structure the funding and delivery of social care in England?
The current system
Social care is devolved to each country within the UK. Scotland offers the most supportive system, with free personal care to those over 65 who have eligible needs. England and Northern Ireland offer the least supportive systems, with means-tested support only provided to those with assets of less than £23,250 in England. In Wales, that figure is £50,000.
Under England’s current system, the first stage in receiving support for care is completion of a care needs assessment, provided by the local authority’s social services department. The authority must follow national eligible care needs criteria, based on an ‘activities of daily living’ assessment. This determines whether the activities that an individual struggles with or cannot do are significantly affecting their wellbeing.
If the authority determines that the individual has eligible care needs, a care plan is produced that describes the support needed.
The next stage is a financial needs assessment, or means test, to determine the contribution the individual needs to make towards their care costs.
Around half of people aged 65 or over who are in care qualify for some means-tested support in England, according to analysis from the Department of Health and Social Care (DHSC). The means test contains several disregards for which the assets and/or income are not included in the financial assessment. The most common disregard is the home, which is excluded from means-tested assets if the person being assessed, or a family member, is living in it. There are also rules against reducing assets by ‘deliberate deprivation’. The local authority may treat the individual as still having the assets in question if it determines that this has happened.
Worked example: means test and cap
The following example demonstrates the mechanisms of the means test, with the proposed increased thresholds of £20,000 and £100,000, and the proposed £86,000 personal care costs cap. It is assumed there is inflation of 3.8% per year.
At the time of commencing care, the individual has total assets (minus disregards) of £150,000. During the first three years of care, their assets remain above the inflation-linked £100,000 upper threshold, and they are not eligible to receive means-tested support. Furthermore, while they contribute more than £86,000 in real terms over the first three years, part of this is towards the notional £200-per-week daily living costs. As these do not count towards the £86,000 cap, the person does not reach the cap until year four, so does not receive any cap-related local authority contribution in the first three years.
By the start of year four, the total level of assets has fallen below the £100,000 threshold, and during year four the £86,000 cap is reached. At this point, local authority contributions kick in due to means testing and the cap.
The individual subsequently continues to contribute towards their daily living costs (assuming they do not qualify for means tested support towards these).
The proposed changes
Under the changes that were due to come into effect in England from 2023, there was expected to be a change to the means test limits, increasing lower and upper thresholds from £14,250 and £23,250 to £20,000 and £100,000 respectively. This change would lead to more people with eligible care needs qualifying for state-funded support.
The other key change was the planned introduction of an inflation-linked £86,000 cap on personal care costs.
This was a key recommendation in the Dilnot Report, intended to avoid individuals facing potentially catastrophic care costs – although the report recommended a £35,000 cap.
The average cost of care in England is around £38,000 per year for residential care, and £52,000 per year for nursing care, according to LaingBuisson. (Residential care provides support for people who need help with daily tasks, while nursing care additionally caters to residents’ medical needs.) There is significant variation by region, with nursing care typically costing £62,000 per year in the South-East of England.
According to a study by the Personal Social Services Research Unit (PSSRU), there is around a 3% probability that someone who enters a residential care setting at 85 will live for more than 10 years there. This means they could spend more than £500,000 in care home fees.
Introducing a cap on personal care costs would certainly reduce the number of people facing catastrophic bills (measured as percentage of assets eroded by care costs). However, many would still see a significant proportion of their assets exhausted. For example, someone with £186,000 in assets would exhaust 46% of them before reaching the cap, assuming their retirement income is only sufficient to meet their notional daily living costs (Figure 1).
In reality, an individual would expect to pay more than £86,000 in real terms before reaching the cap (assuming they survive). For example, their contribution towards the notional daily living costs of £200 per week does not contribute towards the cap, and they would continue to pay for it (less any means-tested support they receive) after reaching the cap. This amount is intended to represent accommodation costs and remove any incentive for individuals to be placed in a residential care setting over a domiciliary care setting.
There is also a significant difference between the rate that private payers pay for care compared to the rate paid by local authorities. A 2017 Competition and Markets Authority analysis found that self-funders typically paid 40% more than authorities for the same care. Under the proposed reforms, it would be the local authority rate that counts towards the cap – so unless an individual secures care through their authority, they would only be likely to reach the £86,000 cap after they had spent significantly more on care. This discrepancy is one of the reasons behind the delay in implementation (see Worked example, p29).
Key barriers to insurers playing a greater role in social care funding
Consumer demand – public awareness and understanding of potential care costs is very low. According to the Just Group Care Report 2022, only 6% of over-45s understand the proposed changes to the care system, and 74% of over-75s have not thought about, planned or spoken to family about care. Without greater public awareness and understanding of potential care costs to stimulate demand, it is unlikely that insurers will be able to create care funding solutions that can have a material impact on care funding in England.
Political risk – some potential insurance solutions are long-term in nature. For example, pre-funded solutions would typically target people commencing premiums in their 50s and 60s, with premiums expected to be paid over a 20-year period. Benefits would be structured to meet the expected care needs. However, uncertainty around future cap levels (and around political will to maintain a cap) could lead to insurance being inadequate or undermined by subsequent government policy changes.
Incentives and means test – under the proposals, anyone likely to qualify for means-tested benefits is disincentivised from making private provisions, because such provisions could lead to them receiving less state support. Analysis by the Pensions Policy Institute suggests that 60% of current pensioners would see a net benefit of less than £33 by increasing their level of income by £100 a week during a five-year period in care. Similarly, it estimates that 57% of current pensioners would see a net benefit of less than £50,000 upon receiving a lump sum of £75,000 at the start of a five-year period in residential care. Pre-funded insurance solutions could clearly make sense for a reasonable proportion of the population but the potential impacts on consumers’ eligibility for means-tested benefits would need to be clear in any advice and consumer-facing materials provided.
Eligible care need – a pre-funded insurance solution would need claim criteria to be met to trigger payment of the insured benefit. This could be defined in terms of the insured not being able to perform a certain number and type of daily living activities. However, this assessment may not match the local authority’s assessment.
Do we need a care cap?
Clearly, a capped system limits personal care costs for the individual and reduces the risk of catastrophic care costs. It also lowers the cost of insuring potential care costs, which could allow insurers to offer more affordable care insurance solutions. This might increase the proportion of care funding provided by private insurance solutions, if certain barriers are removed (see Key barriers, left).
With an £86,000 cap, however, the people in care with the highest levels of income and assets are most likely to benefit. An individual can protect themselves against the uncertainty of how long they may live in care by buying an immediate needs annuity (INA) – a medically underwritten lifetime annuity that guarantees to pay an income for the rest of the insured’s life.
The typical INA premium is £170,000 for a benefit amount of £39,000. Is there, therefore, a need for the state to cap care costs as well as offering means-tested benefits?
Other disadvantages of introducing a capped system include the following:
- Complexity and confusion – adding a cap to the means test could further complicate an already convoluted system. This may make it harder for consumers to engage with planning for future care needs, or cause them to misunderstand what their needs are.
- Implementation – under the care cap regime, individuals can ask the local authority to facilitate care provision, giving a private payer access to authority rates. This would be resource-intensive for the authority. Insufficient capacity to support implementation of the cap within the local authority sector was the reason given for delaying it in 2013 and 2022.
- Regional differences – a single cap does not recognise differences in care costs across England. It will be reached more quickly in areas where provision of care is most expensive, such as London, so local authorities in these areas will need to step in to cover costs sooner than elsewhere. While the government proposes to adjust funding settlements accordingly, there is no guarantee that this will happen, which will leave some authorities financially disadvantaged. (An alternative in which caps vary from area to area, however, would probably be even more confusing.)
What are the alternatives?
Finally, key unanswered questions include: will the proposed reforms be sustainable in the long term for our ageing society, and what is the proposed funding model – is it fair?
There are possible alternatives to the proposed reforms, including:
- Free personal care
- Full social insurance, such as in France and Japan
- Private voluntary insurance
- A co-payment model, similar to the scheme in Germany.
The IFoA’s Social Care Working
Party is investigating potential insurance and savings products that could dovetail with the anticipated care regime in England, as well as examining social care systems around the world to see what can be learnt.
I hope to share our initial findings in these areas later this year – and, of course, to report in three years’ time on the successful implementation of the long-awaited reforms.
Tom Kenny is pricing and underwriting director at Just Group and chair of the IFoA Social Care Working Party
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