Planet Insurance - LTC and the private sector

Long-term care (LTC) has always been in the ‘too difficult’ box, as successive government reviews and think tanks have advocated varying roles for the private insurance sector.

At one extreme we have competitive, voluntary, and individual risk based insurance.

This market has always been small. And, for pre-need regular premium based ‘life' insurance, has disappeared.

Its problems stem from an unwillingness to buy or sell it; a complex regulatory system; lack of clarity over what the State will and will not provide in the future; little differentiation between what care you can expect if you are privately funded or funded through the state; and pricing for the small number of people who may need to be in a nursing home for a very long period.

Advocates of this route have argued for the State to fund the costs of care after two or three years. Paradoxically, it makes the product less attractive as it removes the risk that most people would want to insure against.

At the other extreme are various social insurance models. The problem with these arises from their compulsory nature.

This was particularly stark in the run up to the last election - where the parties competed on the level of the ‘tax' - or opposed it in principle, labelling it a ‘death tax'.

One of the most interesting responses to the current government review comes from the Strategic Society Centre - a non-aligned think tank.

It proposes a compulsory National Care Fund which would allocate insurance premiums into a range of social investment funds managed by the private sector.

An annual National Care Grant from these investment funds, would then be used to purchase annuities for each individual aged over 65 experiencing the onset of three ADL failures.

These annuities would be sold to the National Care Fund, which would then make payments to claimants. The annuities would be community-risk rated rather than individually underwritten.

It argues this would look like a social insurance fund to individuals, but be entirely administered and underwritten by the private sector in partnership with the State.

The centre proposes £150 as the target amount for a weekly benefit. An average total benefit of around £27,300.

This would be based on an average total premium from individuals of £6,825, assuming contributions from the whole population.

So what's new? Well this is the first time we have a scheme where the administrative arrangements for a social insurance scheme have been properly spelled out. But it still has two fundamental weaknesses.

First, it will be seen by most people as a ‘tax' because it is compulsory. In the current economic climate it is difficult to see politicians having any enthusiasm for it.

Second, is the community rating, and here we have lessons from EU countries with similar schemes.

If it were adopted, there would be increasing pressure for the government to subsidise the costs of those in nursing homes for a long time - the very issue which has been at the heart of the debate on non-compulsory private insurance.

So we end up where we started. A scheme which only supports a risk which most people wouldn't want to pay for. Sorry to be cynical but my bet is the issue remains in the ‘too difficult' box.

Richard Walsh is a director and fellow of SAMI Consulting, www.samiconsulting.co.uk