When the Royal Commission on Long Term Care published its report on 1 March 1999 it did not provide ...
When the Royal Commission on Long Term Care published its report on 1 March 1999 it did not provide the clear solutions to the problems of funding care for the elderly that many in the industry hoped and expected it would. The reactions were quick to follow.
Where next?
But, apart from all the talking going on, what can we do now? As the providers of and advisers on long term care to a public which still generally, and mistakenly, believes that its care needs in old age will be met by the State, we should build on all this talking with actions to ensure that the important role of insurance is understood.
We must examine in detail some of the assumptions made by the Royal Commission and assess how we can best move the debate forward. If we leave things as they stand, the Government is likely to accept or reject the report based on the assertions made in it. I believe that some of these are flawed, and should be questioned publicly by the insurance industry.
Questioning the proposals
The following statements are taken from the Commission's overall conclusions.
Conclusion 1: For the UK there is no 'demographic time bomb' as far as long term care is concerned and as a result of this, the costs of care will be affordable.
This is a huge assumption to make. I believe there is a demographic issue developing that will cause problems in the future. If the Commission's calculations are wrong and its projections incorrect, as I believe they are, the financial consequences could easily run into millions of pounds. General taxation would be unable to support the personal care costs of the elderly, who are an increasing proportion of the population
as a whole.
Conclusion 2: Long term care is a risk best covered by some form of risk pooling to rely on income or savings, as most people effectively have to do now, is not efficient or fair due to the nature of the risk and the size of the sums required.
This sweeping statement implies that private insurance cannot provide cover at a reasonable cost. Indeed, the Commission stated that the insurance industry, 'would not deliver what is required at an affordable cost.' The option of a partnership between the State and private provision, with individuals funding the first four years of care, either through insurance or from their own resources with the State paying after this period, would provide an affordable alternative.
Conclusion 3: The most efficient way of pooling risk, giving the best value to the nation as a whole, across all generations, is through services underwritten by general taxation, based on need rather than wealth. This will ensure that the care needs of those who suffer from Alzheimer's disease, for example which might be therapeutic or personal care are recognised and met just as much as the needs of cancer sufferers.
Insurance is a proven means of minimising the financial impact of a risk on the individual. A problem with general taxation is that it is not neutral in fiscal terms. The Government might raise taxation by a small amount and earmark the money for the provision of long term care then either increase the level dramatically in subsequent years, or even spend the money raised in other areas. Insurance will always be used for the purpose it was originally intended.
Conclusion 4: The answer lies in the improvement of State provision, but the State cannot meet all the costs of long term care in the broad sense. The elements of care which relate to living and housing costs should be met from people's income and savings subject to means testing as now, while the special costs of what we call 'personal care' should be met by the State. This would cost between £800m and £1.2bn a year (at 1995 prices).
Individuals would, therefore, pay for their own accommodation, but not for their actual care. But the discrimination would still be there. Using the example of an elderly person suffering from Alzheimer's, they might have to pay for their accommodation for 10 years or more, while all this would be free to another elderly person with cancer because they are receiving a different type of care, based in a hospital.
Conclusion 5: Currently an estimated 2.2% of taxes from earnings, pensions and investments is spent on long term care in residential settings and in peoples' homes. Improving entitlements in the way we propose will add 0.3% to this bill, rising to 0.4% in the middle of the next century.
But what are the chances of getting this calculation right? On what basis are these projections made? These figures do sound low, but if the sums are wrong what begins as a minimal rise in tax could soon grow out of control.
Conclusion 6: Although people will still need to meet their living and housing costs should they need care, it will be clear what they will need to make provision for and such provision will be affordable by more people.
The danger of this is that people will remain in their own homes to save money, even though their condition is such that they really need residential care.
Conclusion 7: Other options are available at lesser cost to make specific improvements to the current system. They include disregarding the value of the house in the means test for three months, changing the limits of the means test, and making nursing care free wherever it is provided. Each option would involve increases to current spending each year of between £90m and £220m.
Currently everyone with assets of more than £16,000, including their home, has to pay for their own care. The changes in means testing which the Royal Commission proposes would not benefit a significant number of people unless the limits were raised to a lot more than £60,000.
Conclusion 8: The Royal Commission proposes that a National Care Commission is established to look at trends, monitor spending, ensure standards, and visibly represent the voice of the silent majority of consumers now and in the future.
The idea is laudable in principle but how would the National Care Commission's existence answer these problems? What power would it have? Would it be independent? How would it monitor long term care provision and ensure that there was adequate funding if, at some stage in the future, the Government changed its priorities?
Official dissent
The report was not, of course, unanimous. Two of the commissioners, Joel Joffe and David Lipsey, published a note of dissent. The authors say they, 'enthusiastically endorse' most of the analysis and recommendations in the report but cannot go along with the recommendation that personal care is provided free of charge, paid for by general taxation, on the basis of an assessment of need. They believe that the costs of providing this care have been greatly underestimated. They propose modifying the current means test so that it is, 'less harsh towards people with small amounts of wealth and does not force elderly people to sell their homes'. But how can this be done? They also propose making nursing care, more restrictively defined, free. What is the definition and what are the costs? The calculations vary dramatically.
The authors call for a, 'genuine public-private partnership in the funding of care, with private savings and private insurance making their contribution.' This, I believe, is fundamental to the solution. State welfare benefits and insurance interact and complement each other in many other areas income protection, private healthcare and so on and there is no reason why long term care should be any different.
The insurance industry must sit down and examine the report in detail. The way in which long term care will be provided in the future is not yet decided the Government will not respond to the report until the end of the year. The recent Health Select Committee responded to the Royal Commission by urging the Government to act quickly. Pressure is growing. It is, therefore, vital that we continue to lobby and make our voices heard. If we leave it to the politicians to decide, we will get a political solution, not the one we are looking for. If we are to ensure that there is a real partnership between private provision and State support, it is our obligation to act now.
Hywel Jones is marketing manager (long term care) at Norwich Union
Cover notes
l The Commission makes huge assumptions about future demographics which could be financially damaging if wrong.
l The Government should not rule out insurance as a means for funding long term care, despite the Commission's
recommendations otherwise.
l A geniune public/private partnership is fundamental to the long term care funding solution.
