After months of delay, the Government has opted to reject the Royal Commission on Long Term Care's c...
After months of delay, the Government has opted to reject the Royal Commission on Long Term Care's chief recommendation of funding personal care for all elderly people in residential and nursing homes.
Instead, it is to limit its care funding contribution to free nursing care for the elderly, removing the anomaly of care being provided free in a hospital but not in a nursing home. The move is part of a £1.4bn initiative to improve levels of care for the elderly.
Although free nursing care has been welcomed, industry experts suggest few people will actually benefit from the announcement.
Ross Ainslie, product actuary at GeneralCologne Re, said: "The Government has said that 35,000 individuals will make savings to the tune of £5,000 per year, but according to the Royal Commission there are 100,000 people in nursing homes at any one time and 300,000 in residential care homes."
The State will therefore not be liable for a large proportion of the care received in care homes, such as assistance with feeding, washing and mobility - that is personal care, provided by untrained nurses.
"People will still have to pay for the social care element in a nursing home and there are an awful lot of long term care costs that are not being met by the Government which insurance can cover," said Ainslie.
While the announcement from the Government has clarified the situation for IFAs and long term care specialists, Ainslie is not convinced people will flock to buy long term care insurance. He believes the proposals may even leave the consumer more confused.
"The Government is now saying that it will help with long term care costs, but people already believe it will meet their care costs, so this investment may make them more confident in State provision. It may now be more difficult for advisers and insurers to explain the importance of long term care."
Had personal care costs also been met by the Government insurers would be in a good position to expand the market. People would only have to cover accommodation costs and so benefit levels and, in turn, LTCI premiums could be reduced. But as expected, the Government rejected this option and insurers have less scope to offer lower priced cover.
In theory, those that come to rely on nursing rather than personal care are likely to have a reduced liability, but as with any insurance it is impossible to foresee what will trigger the claim.
If an individual claimed for a stroke they would be heavily reliant on nursing care, but if Alzheimers' disease triggered the claim then personal care would be much more important.
Paul Bennett, LTC marketing manager at PPP lifetime care, said: "At the moment it is fairly difficult to assess whether this will have any major effect on premiums as we have no clarification or detail on how and when nursing care will be delivered."
It will also be difficult to assess what the likely impact will be on existing policyholders - many will assume that with nursing care provided free of charge they will be over-insured, but this may not be the case, according to Bennett.
"At this stage, it is difficult to assess what will happen with existing policyholders until we get clarification on what nursing care is and how people will qualify," he said.
Richard Thomas, managing director at independent care advisory service, Red Arc, said one of the most disappointing aspects of the Government's response was the changes made to means testing. While the upper capital limit for help rose from £16,000 to "more than £18,000", it did not amend its consideration of income.
He said: "If you have less than £10,000 in assets then the local authorities will assess your income and they can take all bar £15.25 'pocket money' as a contribution to care costs."
Irrespective of the changes made, insurers agree that the news has to be welcomed on the grounds that the market is no longer in limbo. The Government has left the path open for insurers and IFAs to highlight the importance for people to protect their home and other assets in the event of needing care.
Roger Edwards, marketing manager at Scottish Provident, said: "The bottom line is we now know what the rules are. Up until now there has always been a fog surrounding LTC and an LTC plan was way down the agenda for IFAs. We can now get back to building LTC back into the advice process.
"We must take this announcement and crystallise it in the minds of clients."
Bennett said: "The Government has now made it absolutely clear that if people want to protect their house and their long-term savings from the impact of long term care costs, then they will need to take out appropriate insurance," he said.
However, Thomas said that if insurers are to play a more central role in long term care funding, then they will have to amend their strategy and start focusing on making insurance more affordable to a wider audience. While nursing care may now be provided free of charge the resulting cost savings are not likely to be enough to prevent people from having to sell their homes.
"The Government's own indications suggest that the typical value of hands-on nursing care will come to £100 a week. If a nursing home costs £400 a week, then free nursing would result in a saving of £100 a week, but if you have to sell the house to afford £400 a week then the chances are you will also have to do so for £300."
LTCI is an obvious solution, but with premiums averaging £60-£70 a month, it remains a luxury for the few.
Thomas added: "The challenge for LTC providers is the same as ever and that is to design a product the average pensioner can afford."
