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How should we pay for care? Dilnot on a diet Prof Julien Forder


Distinct feeling of déjà vu… • Reform attempts: – Royal Commission on Long-term care (1999) – King’s Fund Wanless Review (2006): – Green Paper: Shaping the Future of Care Together (2009) – White Paper: Building the National Care Service (2010)

• And now Funding (Dilnot) Commission…


What are the challenges? • (1) Increased future cost of care – Demographics: ageing population – Unit costs

• (2) .. But also a range of poor outcomes under the current means-tested funding system… … hence the Dilnot proposals.


(1) Dealing with cost pressures...

Projected cost of older people’s social care


(2) .. Poor outcomes: The problems to be addressed.. • Unmet need/lost outcomes – Affordability and quality

• • • •

• Needs test • Means test

Under-insurance/excessive risk exposure Means-test has perverse incentives Incentive for fraud (divesting of assets) (Un)fairness – Prudence penalised – Too pro-poor?

• Complexity • Cost: cheap!


Funding Commission (Dilnot) proposals: Capped risk model • How does it work? – Free care for those with accumulated care costs above threshold (e.g. £35,000) • Housing/accommodation costs not included • Will pay out at council’s ‘usual rate’ for care

– Means-tested support for those under the threshold • Upper capital limit raised to £100,000 • … but not lower capital limit (which is the limit that protects remaining assets)


What happens… • …. after reaching the cap: – Self-payers: • Will see a significant reduction in what they pay for care from that point

– People supported by councils: • Will already have part (or all) of their charges paid by the council, so benefit is smaller for these people

• The cost… (if implemented in 2014/15)


Costs of Capped Risk option

2017/18 Extra cost: ÂŁ1.9bn


Which problems does the Capped Risk model tackle? • Unmet need/lost outcomes – Affordability and quality

• • • •

• Needs test • Means test

Under-insurance/excessive risk exposure Means-test has perverse incentives Incentive for fraud (divesting of assets) (Un)fairness – Prudence penalised – Too pro-poor?

• Complexity • Cost: cheap!


Which problems does the Capped Risk model tackle? • Unmet need/lost outcomes – Affordability

• • • •

• Needs test • Means test 

Under-insurance/excessive risk exposure  Means-test has perverse incentives Incentive for fraud (divesting of assets)  (Un)fairness – Prudence penalised  – Too pro-poor? 

• Complexity  • Cost: Expensive: More taxes, extra funds mostly to the rich


Funding gap

2025 gap Current: £3.8bn Dilnot: £7.3bn


Options to reduce funding gap • (1) Dilnot on a diet? – Do not raise upper capital limit • But does not save much: £100m

– Set a higher cap e.g. £50,000 or £70,000? • Saves money, but still more expensive than current system

– Change capital rules under the means-test e.g. bring in person’s home for non-res care – Restrict access to only the extremely frail/impaired – Reduce support e.g. hours of home care per week


Capped risk model at higher caps‌


Options to reduce funding gap • (1) Dilnot on a diet? – Do not raise upper capital limit • But does not save much: £100m

– Set a higher cap e.g. £50,000 or £70,000? • Saves money, but still more expensive than current system

– Change capital rules under the means-test e.g. bring in person’s home for non-res care – Restrict access to only the extremely frail/impaired – Reduce support e.g. hours of home care per week


Options to reduce funding gap (cont.) • (2) More Government funding

– General taxation e.g. Income tax or National Insurance increase • Political challenges

– Inheritance tax – ‘Earmarked tax’: a specific care duty • Charged on income or wealth? • Age-specific? • Politics: ‘death tax’

• (3) Encourage private solutions to reduce demand (on public purse)

• Provide incentives for people to buy private long-term care insurance • Can work e.g. in France - if done in partnership


Options to reduce funding gap (cont.) • (4) ‘Raid’ other public spending budgets – Other services e.g. the NHS – Benefits • Disability benefits (AA and DLA) £5.8bn • Winter fuel allowance

• (5) Improve use of care funding – Improving how well the care, health and housing sectors work together – Improve preventative measures (where these work) • E.g. rehabilitation, use of technology


• So‌ Will this be third (or perhaps fourth) time lucky for reform attempts?


Partnership Assurance 29 May 2012 v4