After years of rumour, we finally know the Government's response to the Royal Commission. The news i...
After years of rumour, we finally know the Government's response to the Royal Commission. The news is not great for the public and most involved in the long term care arena are disappointed that the Government could not find the resources to go further than its has done.
What is clear is that most people will have to fund most of their care costs themselves in the future. Many will be interested in insurance as a way of financing this care and there is now no reason why advisers should delay informing their clients about the options open to them.
What is the likely effect of the major elements of the Government's proposals on the long term care (LTC) insurance market?
People with assets over the means test limit still have to be prepared to pay their own residential care costs. From October 2001 they will find that these costs are reduced by the cost of 'nursing care' - initially estimated by the Government at up to £5,000 per annum - which will from then be met by the NHS. Their care bills will therefore be reduced.
An 'average bill' of £1,600 a month for a nursing home bed could fall by up to £400 to £1,200 a month. A typical LTC insurance benefit, calculated after allowing for the planholder's other income, is currently around £1,000 a month. In future a customer might need to provide only £600 a month benefit, a saving of 40%.
For those providing LTC insurance premiums from their resources, an insurance solution is now less expensive and therefore a more attractive option. The reduction in cost means that more people will now be able to use insurance to help meet their long term care costs.
A typical LTC insurance plan, under which there is a three-month waiting period at the time of a claim, will also fit in particularly well with the new three-month home value disregard which forms part of the new funding regime. Benefits under both new and existing plans will fit with the proposed new regime. It is a pity that this feature of the package was not a total disregard for the first three months as it means that those people with savings in excess of the upper means test limit will still need to fund their own care during this period.
There is a relaxation in the means test limits, which will in future retain their 'real value'. From 2001, the upper limit will increase to around £18,500. This means that fewer people will now be in the situation where they would have to pay their own care costs in full. However, it is unlikely that many of these are potential LTCI buyers.
The introduction of the local authority loan scheme - intended to avoid the precipitate sale of their home when a person enters residential care - does not alter responsibility for care costs and is unlikely to impact on insurance business. Anyone with a home who wants to ensure that its value is not used up paying residential care fees will still need to look at insurance as an option.
The proposed changes to domiciliary care charge guidance will produce a greater degree of consistency for the individual and their adviser when looking at this aspect of care costs in the future.
The three-month home value disregard and the changes in the means test will take effect in April 2001. Nursing care in nursing homes will be paid for by the NHS from October 2001. Financial advisers and their clients need to consider whether to insure taking account of the proposed changes, or on the basis of the current situation and charging rules.
