Long-term care in the UK is at a tipping point. Costs are spiralling and
increasing numbers are living longer, but with a frail disposition, placing a
heavier burden on the state purse. The problem facing policymakers is to find a
fair and cost-effective way to fund and reform the system.
The Government has tentatively backed a proposal from the Commission on Funding
of Care and Support, chaired by the economist Andrew Dilnot, to cap care costs
(possibly at a level between £35,000 and £50,000) and increase the means-tested
threshold to somewhere in the region of £100,000. Some stakeholders have
accepted this solution.
There are, however, mixed views on the Dilnot proposals. The cap model is
hugely problematic and possibly unworkable. If set too low, the cap would
merely subsidise the rich; if set too high, large numbers of people with low
levels of wealth but high levels of housing equity might still be forced to
sell their homes. It also focuses on catastrophic costs and not on day-to-day
Moving the goalposts
A further problem is that subsequent governments may review the cap and
insurers who entered the long-term care market on the back of the reforms might
find the goalposts have shifted.
But the biggest sticking point may be how to measure and record an individual's
progress towards the threshold. The guidance in the Dilnot report is unclear,
probably because such a system would be overwhelmed by details such as the need
to define care. And a computerised system would have to be devised to monitor
people's use of care, taking years to set up. Other questions also arise: would
a cap be applied retrospectively? Would the system be monitored centrally or
I believe the Government should consider an alternative system: divide people
into bands according to their cumulative wealth (the amount of income they
receive and the value of their assets) and subsidise a proportion of their care
costs according to which band they are in. For instance, if they are in band A,
the state might pay 90 per cent of their care costs; in band B, it might be 70
per cent, and so on until a person becomes self funding (this would be the
majority of people).
This state subsidy would decrease if personal wealth increased. But as a person
in care decumulated their assets the state would pay more.
The private sector would have a clear set of rules within which to develop
products such as long-term care insurance, equity release and specially
To prevent people from shedding their wealth as old age approached, people
would have to prove that they had not off-loaded huge amounts of money to
defeat the system.
There would, inevitably, be people for whom the Government would pay most or
all of their care costs. One way to help these people make a contribution
without buying expensive insurance would be to introduce long-term care bonds -
a cross between Premium Bonds and Lottery tickets costing, perhaps, £1 apiece.
The tickets would be entered into a prize draw every month and the investment
would be ring-fenced to pay part of the bond buyer's long-term care costs. Any
money left at the time of death would go into his or her estate.
Dilnot has its merits but it would be difficult to implement and would not be
workable for years to come. A system of banding, coupled with long-term care
bonds and a strengthened private sector, would be a simpler, fairer and more
cost-effective way to strike a balance between what individuals pay and what
the state provides.