Long-term care - Age, I do abhor thee

Late last year we saw potential for a resurgence of interest from insurers into long-term care funding. Peter Barnett looks at what’s happened since then

Well, the mists are beginning to clear and it is likely that in the face of a significant increase in the number of older people, especially in the very old, the settlement proposed by the Dilnot Commission on the Funding of Adult Social Care in England, due to report in July, will favour an innovative partnership proposal – ­possibly some sort of ‘capped-risk’ model.

This will seek to include – at first voluntary and, if that doesn’t work, compulsory – contributions from everyone who can afford to pay something, however small. But in terms of care provision, what balance will be struck between supporting personal choice with fair local variation (which is very difficult to risk-price in advance) and a one-size-fits-all ‘best practice advice’ pooled approach (the risk profile of which could more easily be estimated and priced)?

So, from an insurance perspective, in Shakespearean terms, will it be As You Like It or Measure For Measure?

Rising care prices

A key issue highlighted in 2010 was that however much they became convinced of the need, the poor capability of much of the ‘squeezed’ middle class to pre-fund that later-life care will prevent them from engaging.

Recent reports from Aviva and Saga have further highlighted those shortcomings and reveal a growing issue of ­long-term debt among Britain’s over-55s.

Plainly, these people will have great difficulty funding any part of care costs should they arise. However, not everyone in this age cohort has low income and low asset levels. Some do have the funds, as a recent survey by annuity provider Partnership found.

It suggests that 60% of elderly people were willing to pay for elderly care, possibly because people over the age of 60 have more than 80% of Britain’s wealth and have more than £10trn in unmortgaged equity.

In a partnership model, via pre-funding throughout working age, a basic state safety net for the very poor could be supplemented by a contributory universal state scheme. If you so chose, this could be topped up through private insurance, immediate-need annuities, equity release or from liquid savings assets to provide better accommodation in a venue of your choice.

For this to work, the funding level of both the safety net and the wider partnership offer, which the government anticipates financial services will want to manage and administer, will need to be established and guaranteed.

So, as the state steps away, where will individuals be able to get the support they need? Private insurance products will never be a complete answer to the catastrophic bills some individuals and their families will face.

The Local Government Information Unit (LGiU), noting that 1.78 million adults currently access social care services at a cost of £16.5bn, recently began research highlighting the cost to councils of those who begin by funding their own care but fall back on the state when their own means end.

The report estimates that an average of 41% of people entering residential care each year self-fund. Of those, 25% run out of money, even though such an outcome could have been avoided if they had taken expert advice.

These rates of self-funding mean that out of 130,000 people who go into care each year, more than 53,000 are paying the bulk of care fees themselves. Health company Laing & Buisson estimated that in 2010, the average annual cost of a nursing home bed was £35,984.

In reality, according to the Personal Social Services Research Unit, about a third of people aged 65 would not expect to spend much at all on care. Half face lifetime costs of more than £20,000 and one in ten can expect cost of more than £150,000.

This scale of care fees is often funded from the sale of the person’s property and it is estimated that 70,000 properties a year are sold for this purpose. This is because, via means-testing, they are obliged to spend down the value of their assets to £23,250, at which point the LA will step in to fund care.