Wealth Management

CHOICE, CONTROL, INDEPENDENCE: REFORMING CARE AND SUPPORT

The Government’s announcement to reform care and support has been long awaited, in fact it has been a decade since the Dilnot commission report was published, which shed light on many of the failings within the current system. While some of these findings were applied in the Care Act 2014 it is fair to say changes to the system are well overdue.

When the Independent Commission, chaired by Andrew Dilnot, published its report in 2011, one of the many recommendations was the introduction of a lifetime cap on care costs at £35,000 along with an increase on the threshold at which time care and support funding is provided from £23,250 to £100,000.

Over the past decade several governments have reviewed the care sector however, the initial hesitations from 2011 around the potential impact upon the treasury have remained. Ten years ago, the introduction of a cap on care costs was expected to cost £2billion, this now looks like a relative bargain given the £12 billion pledge over three years to manage the current situation within the care sector and the National Health Service (NHS) following the past 22 months of Covid-19.

To recap, the Government plans to introduce a lifetime cap of £86,000 and implement access to means tested help with costs should an individual’s assets fall below £100,000.

The cap, which will be introduced in October 2023, of £86,000 is over twice the amount recommended in 2011 even when inflation has been taken into account. While the new level of means testing on assets between £20,000 and £100,000 is certainly a positive move this is significantly below the Dilnot recommendation of the latter figure being the ‘asset threshold’ after which all care is funded for by the state.

When these original recommendations were published the UK was in a very different position, inflation was running at 5.2%, the country was only a year on from the recession with concerns of a ‘double dip’ with a new coalition government barely 14 months into the job. Therefore, it is possible to see why Cameron and Clegg were not in a rush to sign up for costly policies to help care for the ageing population.

Fast forward ten years and the UK is once again experiencing a recession albeit triggered by different circumstances. Our NHS has been pushed to near breaking point with the hospitalisation of over 550,000[i] people due to Covid-19 and over 137,000[ii] deaths, and the once positive financial outlook for the UK has taken a battering as a result of furlough and support for individuals and companies over this extraordinary time.

It could therefore appear that a reform of care and support services at this time, costing the population 1.25% by way of a new health and social care levy, is a bold move. However, when you consider the extra strain the current disjointed system of care puts on the NHS it is easy to understand why change is such a necessity, especially with the worrying statistic that one in every three people born in the UK this year will develop dementia in their lifetime. [iii]

Simply put, the government is reforming care in order to provide capacity within the NHS, making it possible to reduce the number of people currently in hospital who would be better cared for in an alternative setting.

The three main aims are to provide:

  • choice, control and independence to care users
  • outstanding quality of care including seamless experience of an integrated health, care and community system
  • to be fair and accessible to all who need it, when they need it, with clarity around fees

As with any financial policy the devil is in the detail, and it helps to recap on the current fee position in the care industry.

Current system

Currently the estate value over which an individual must self-fund their care is £23,250. Once your assets fall within the £14,250-£23,250 range you receive some means tested help which takes into consideration both income and capital wealth.

Only once an individual’s capital wealth is below £14,250 does the capital means test cease, however the income means test remains.

The value of an individual’s home is generally included in the capital means test unless it continues to be occupied by a dependant, partner or relative aged at least 60.

NHS funded nursing care is available where an individual’s primary need is medical rather than social, therefore the circumstances when this applies are limited. However, this benefit is not means tested and the individual pays for both personal care and accommodation costs.

Proposed changes

As detailed previously, under the new system the thresholds are set to increase from £14,250 and £23,250 to £20,000 and £100,000 respectively and the care cap of costs of £86,000 will be introduced for individuals from October 2023.

As a result of this new cap many individuals may be under the impression that once they have contributed £86,000 to the cost of their care the local authority will fund their care in full, yet this is not the case. The local authority will assess their needs and provide a personal budget based on an understanding of what is necessary. This will help them to assess which care homes are available to them and the rates they can access.

Currently self-funders often pay higher costs for the same nursing care accessed by their local authorities; therefore, the government will enable people to request their local authorities arrange their self-funded care in order to benefit from these savings.

We are aware that care homes vary greatly from relatively basic through to luxury assisted independent living villages and the personal budget will not take personal preference into account.

It is also worth considering the personal budget set by the local authority will provide a breakdown of personal and accommodation costs, sometimes referred to as ‘hotel costs’ and it is only the former which counts towards the £86,000 lifetime cap.

For example, a client’s family could select a care home close to a city centre with extensive facilities for £800 per week however the local authority might deem only a personal budget of £650 is appropriate of which £270 relates to ‘hotel costs’.

This means only £380 per week counts towards the lifetime cap and it would take over 4 years of self-funding before this was reached, after this point the family would still be required to fund the shortfall of £420 per week or select a cheaper home.

One notable point which is missing is whether the new cap or the limits on estate value will be inflation linked. If this remains frozen for even a few years it will have a notable impact on funding as care home fees are likely to increase year on year with inflation.

While these reforms make great headlines and are rooted in the noble cause of providing relief to our NHS, the actual working mechanics will see a number of self-funding care recipients continue to pay during their lifetime. One positive is that these new measures hopefully will encourage more life offices back into the immediate care and long-term care annuity market providing greater product choice for individual’s and their families.

[i] As at October 2021. https://coronavirus.data.gov.uk/details/healthcare

[ii] As at October 2021. https://coronavirus.data.gov.uk/details/deaths

[iii] https://www.alzheimers.org.uk/sites/default/files/2018-07/RAND-research-report-2015.pdf

 

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