The Royal Commission has finally reported its findings on long-term care (LTC) – with its report published in March.
For anyone expecting the solution to the funding problem there was certainly disappointment. However, it is important its suggestions are carefully considered as part of the process of finally answering the problems raised by this complex issue.
The main recommendation – splitting long-term care costs between the individual and the State – came as no surprise. No one can deny that the present system is unequal; people with acute illnesses such as cancer receive free nursing care while those that suffer chronic conditions are expected to meet their long-term care costs until their savings drop below £16,000.
And so the proposal to place the personal care costs with the State, and the living and housing costs with the individual, has generally been well received.
However, the proportion of care the Commission is suggesting the State picks up has shocked some experts.
Sandy Johnstone, LTC strategy manager at CGU Life comments: “The recommendations are that nearly two thirds of nursing home care will be delivered to everyone. I don’t think many people in the industry expected the pendulum to swing quite so far.”
This level of support, recommended by the main body of the Commission, could be levied through taxes, at an estimated cost of between £800m and £1,200m a year. Increased taxation, it believes, is preferable to the insurance route; this being an option it perceives as unable to provide the necessary cover at an avoidable cost.
However the issue of funding created division within the group. The Note of Dissent which accompanies the report reflects the thinking of two members of the Commission, Joel Joffe and David Lipsey. This recognises that the main body’s proposals could place a huge burden on the Treasury, and in its place puts forward a partnership scheme for meeting care costs.
This could take the shape of imposing a four year limit on the costs which the individual would have to meet; after that period any further expense would be met by the State.
Favouring time limits
Norwich Union is in favour of this type of scenario. Hywel Jones, long-term care marketing manager, believes that this would offer the public a level of reassurance. He explains: “Having a time limit lets people know what the liability could be and gives them a rough idea of the cost.
“Imposing the time restriction would also enable insurance companies to cut LTC premiums by at least 25%.”
One conclusion the Commission reached, which was possibly a determining factor in its generous suggestions on funding, is that the UK is not facing a demographic time bomb.
Whether this is true – and the number of elderly requiring care is currently static – there is still the issue of the change in the family unit which has to be taken into consideration by anyone looking to provide a long term solution to the problem.
In the last couple of decades many of the traditions of family life have changed. In particular it is much less common for several generations of a family to live in the same area, or for women to stay at home. With this informal care no longer so readily available, more people have had to turn to local authorities for help.
A further recommendation, and one which was less expected by the industry, was to raise the asset limit from £16,000 to £60,000. First impressions are that this would be extremely beneficial to people entering nursing care, giving them some dignity by letting them retain an inheritance to pass on to their families.
However, with decisions on when any changes are likely to be implemented still to be made, this suggestion could do more harm than good.
Johnstone describes the situation as one likely to set a whole group of people’s hearts racing. He comments: “There won’t be too many people complaining if this increase is introduced, but for some it is a promise that sits in the future which they can’t get hold of.” Johnstone is referring to people who are either already in nursing care, or will be considering it in the next few years. As an example he cites someone in a nursing home with £80,000 of assets. Before the findings were announced £70,000 of these assets might be used to finance their care.
However, the situation is now much less certain; with the amount the person will have to spend determined by when, and if, the Government decides the threshold should be increased.
The issue of regulation also came under the Commission’s microscope. It recognised that although products with an investment content were already regulated, this accounted for only a small proportion of those actually being sold. And, it claimed that with clients being older and at a time of stress or crisis, the possibility of mis-selling was even higher.
Its solution – an extension of the FSA’s remit to include the sale of all LTC insurance products. This would not necessarily cause any problems.
Not only are the majority of intermediaries and insurance companies in favour of bringing in regulation, but it could also be introduced relatively simply. The draft Financial Services Bill has provisions for it to be amended or its remit increased without the need for lengthy primary legislation.
But how should intermediaries be advising their clients now? The problem currently faced is how long the debate could continue. Although junior health minister John Hutton hopes it will be concluded before the end of the year, Frank Dobson, secretary of state for health, has only committed to a conclusion before the next election.
This uncertainly is highly problematic. While solutions are being thrashed out in consultation periods and government committees, the industry and anyone facing LTC are left in a planning limbo. With change imminent, making a decision becomes harder, especially if the levels of funding could be as dramatically altered as the Royal Commission has suggested in this latest report.
Graham Fidoe, chairman of IFACare, believes that the imposition of a deadline is crucial. He comments: “The elderly deserve some certainty so we will be lobbying for a deadline. It is important that this will be an all party decision to ensure that we can help the elderly plan for their future.”
This view is echoed by Paul Bennett, marketing manager at PPP lifetime care. He comments: “No action is no longer an option. Now that the idea of the State paying for all of someone’s care has been dismissed there is a greater awareness of the need to do something.”
Roger Edwards, product marketing manager at Scottish Provident, adds that delay can be dangerous. He explains: “With insurance products, the longer people put it off the more expensive it will become. There has been planning blight in this area for too long.”
Bennett takes the long term care planning situation a step further. He believes that it is important that intermediaries consider people’s LTC requirements alongside all their other financial planning needs.
He explains: “I can see some cases where people will complain that their LTC needs have been overlooked in their financial planning. Now we know that there will be a shortfall it needs to be planned for.”
Others also see the opportunities that lie ahead for increasing sales. Edwards believes that the vast amount of press coverage LTC has gained in the last few months presents intermediaries with an ideal opportunity to talk to clients about their cover.
He also adds that the situation, although desperately needing clarity, may make sales easier.
He explains: “When people were faced with taking responsibility for all their long-term care costs, intermediaries were faced with the problem that once you got beyond the worry of possibly needing care in the future, you would scare them with the premiums. Only having to fund the hotel costs would make this easier and more affordable.”
But whatever decision the government makes, one thing is certain – it must be soon. Whether or not the UK is facing a demographic time bomb is hardly an issue when there are almost 100,000 people facing the need for long-term care each year. As Edwards explains: “Certainty is needed. The longer we procrastinate on this issue, the more uncertainty there will be.”