Future of long term care: What the experts think

Earlier this week the Chartered Insurance Institute (CII) released a report declaring the public was massively disconnected from the reality of long-term care (LTC) costs.

The CII recognised that this was a particularly concerning situation given the recent publicity surrounding the Dilnot Commission's report into the future of LTC funding.

As part of its research, the body sought responses to the Dilnot report from a wide range of experts, including insurers and reinsurers.

The submissions are published in full in the paper and make interesting reading, but here are some of the more pertinent points raised.

CII LTC report

Dr Ros Altmann, director general at Saga Group

The current system of long-term care funding is haphazard, inefficient and unsustainable.

Even though it has been obvious for many years that an ageing population will mean spending more money on care, neither government nor individuals have prepared properly for future care costs.

Several major official reviews since the 1990s have been parked in the political long grass, hopefully the Dilnot Commission will not suffer the same fate.

Dilnot's solution is not perfect (especially as residential home accommodation costs are not included) however, his framework would be a significant improvement on the current situation.

Encouraging an insurance market could also help cut future care costs by incentivising more telehealth and telecare services, as well as home aids to help prevent or detect accidents or injuries.

Reform is essential. Our care system is not designed for 21st Century realities and the sooner we bring it into the modern world, the better all our futures will be.

James Lloyd, director of the Strategic Society Centre

Throughout this proposed process, local authorities will - as now - be undertaking so-called ‘carer-sighted' needs-assessments: if a person can have their needs met fully or partly through informal care, they will not be entitled to local authority support - including notional packages of support - even if they are experiencing relatively high levels of disability.

The ‘capped cost' model is therefore built around ‘need' defined as a financial value by local authority resource allocation systems, rather than disability or expenditure on care services.

With self-funders knowing that financial support from their council would jump at a certain point in the future, by definition, a greater proportion of the 120,000 self-funders in residential care will have an actuarial interest in purchasing an immediate needs annuity.

Affordability would be greater for more people, and the current market of around 7-8000 policies might increase to 15,000-20,000.

Overall, the ‘capped cost' model would likely result in increased take-up of decumulation vehicles like equity release, and point-of-need products like immediate needs annuities.

However, pre-funded insurance protection under the ‘capped cost' model is likely to be very limited indeed.

Otto Thoresen, director general at the ABI

The ABI supports the recommendations by the Dilnot Commission as a framework for a sustainable solution to funding long-term care.

It is essential that MPs from all parties work towards a sustainable settlement and that the issue is not put on the shelf.

There needs to be clarity over the respective contributions which government and individuals will be expected to pay.

Once this framework is in place, insurers can develop the necessary financial products to enable a person to cover their share of care costs.

Jules Constantinou, head of marketing at Gen Re

Since its publication the focus of debate has been around the ‘three' numbers:

£35,000 represents the maximum that any individual would contribute to the cost of their social care,

£100,000 is the proposed maximum value of assets an individual could hold before their entitlement to full state funding disappears and they would be responsible for the full £35,000,

£10,000 is the recommended maximum cost per month for food and accommodation whilst requiring social care.

There will be a continued focus on these numbers over the next few months, as the debate about turning the broad framework set out by the Commission into a practical structure develops.

The devil will be in the detail and already there are signs that the "three" numbers are inherently misleading in that the public are likely to pay a lot more than £35,000 before the State takes full responsibility.

Ron Wheatcroft, technical manager at Swiss Re

Short of compulsion, there is no single way to meet care costs.

It is possible that the Commission's recommendations may be accepted by the government in whole, in part, or even rejected as too costly.

Nonetheless, they set out some strong indicators which, if adopted, should encourage the financial services sector to design and deliver products that dovetail with state provision.

One example might be an extension to cover LTC under a critical illness or income protection policy.

Meanwhile, the government should consider allowing pre-funding of care costs to sit alongside pension savings, with tax relief on contributions as an extension to, or within, the annual allowance.

Access to high-quality advice that helps people plan will be vital and the proposals, if adopted, should create further demand for advice services for care and estate planning.

There is also an important role for the Money Advice Service in clarifying people's responsibilities, irrespective of whether they use an adviser or not.

This should be an integral part of the Financial Health Check.