Britain is not the only country facing a demographic time bomb. Care of the elderly is a problem facing many governments across the developed world.
The ratio of people of working age to those of retirement age is declining, and these elderly people often require above average amounts of healthcare. The situation has been worsened by healthcare costs increasing way over the average rate of inflation.
It is clear in the UK, and in other countries that the current state of provision for long term care needs urgent review. However there are no clear cut answers. The burden on the State is in many cases becoming too much to take and many governments are now investigating alternative methods for providing care for the elderly.
As Peter Gatenby, director and chief actuary of PPP lifetime says: “There is no single solution, which is why we have seen our Government as well as other interested bodies struggle to come up with answers. This is why the old chestnut of compulsion keeps surfacing.”
For the time being at least we have a Royal Commission looking into the problem, and proposals and recommendations will be put forward to the current Government within 18 months.
This will no doubt look at how the problem is being tackled abroad. In the UK as well as in France, Germany, the US, Australia and even Japan, it seems that partnership between the public and private sector will become key to developing solutions in the 21st Century.
It is important to remember that systems of provision and state support have often evolved very differently in countries across the world. Long term care practices in other countries can provide useful guidelines for the UK market, but it is imperative to ensure that any solutions are adapted to meet the specific needs of the UK market and its ageing population.
The Continuing Care Conference is a forum which seeks to raise public awareness and find solutions to providing continuing care for elderly people. It is made up of a wide-ranging group of commercial, charitable and public service organisations which have an interest in providing better care and funding of care.
Chairman of CCC, Desmond Le Grys says: “At present the US and Germany provide two extreme ways of dealing with this problem. In most of the US you have to make your own provision. The only help that is generally available is through charity.”
The first long term care policy was sold in the US in 1974 and the market is 15 years ahead of most European countries. At present there are 125 insurance companies in the US selling long term care policies. Most of these policies are sold through direct agents or specialist insurance brokers.
But when looking at US long term care models it is important to remember that the US has no equivalent to the UK welfare state or National Health Service.
Le Grys adds: “Americans are brought up to provide for themselves. There is no culture of state dependency as there is in the UK.”
However a few American states do provide financial benefits to encourage individuals to save and provide for old age.
Partnership schemes were introduced in the US with the aim of solving the problem of financing long term care. Individuals are encouraged to share the costs of care with the state by purchasing insurance policies.
Since 1992 four states have developed partnership schemes. These were funded originally by $14m in grants from the nations largest health care charity, the Robert Wood Johnson Foundation.
Connecticut was the first state to introduce such a scheme, the so-called “$ for $” scheme in March 1992. Indiana and California followed with similar schemes, while New York State introduced a time-based system with “total asset protection” which was established in April 1993.
Under the Connecticut scheme individuals are encouraged to save $40,000 towards long term care, This is then matched by a further $40,000 from the state. In New York, if individuals have enough insurance to pay for the first three years of nursing or residential care the state will then provide care for the rest of their lives.
It is these initiatives that inspired the “partnership schemes” that were mooted by the last government. These however failed to come to fruition, though they may well be recommended by the Royal Commission.
But in the other 48 states that do not provide partnership schemes or incentives, long term care is still a successful product. Le Grys says: “We need to look at how insurance salesman in the US are have stimulated interest in this market. IFAs and brokers in the UK could learn a lot from their selling techniques.”
To help intermediaries Norwich Union has produced a video, looking at selling methods in the US.
Interviews with several long term care agents reveal selling techniques and Harry Crosby, a long term care specialist says: “It is important that customers really understand the need for this product.” As in the UK, sales of long term care policies were slow initially. But the shocking statistic that over a third of families spend their life savings on care costs for their parent is finally hitting home. Crosby says most people now buy these products because they do not wish to be a financial or emotional burden on their families.
He adds: “Agents really have to a detailed, localised and up-to-date understanding of this market if they are going to be able to advise customers on products and sell them the concept of long term care.”
The culture of self-reliance has created some other, typically American solutions to coping with an ageing population. Continuing care retirement villages are springing up all over the US.
These are usually aimed at middle-class Americans who sell their homes, pay a hefty membership fee and move into sunny leisure complexes when they retire.
A smaller annual fee will provide for round-the clock nursing care should it be needed. These compounds promote a community spirit, with younger, fitter residents taking time to talk to and help their older and infirm neighbours.
These have been highly successful, but many experts doubt they would work within the British culture.
Germany has tackled the problem in a different manner. Rather than encourage individuals to take out private insurance policies, the Government launched a compulsory tax scheme three years ago to pay for long term care. At present the working population and employers contribute around 1.5% of earnings into a state scheme. If older individuals then fall sick this fund will then pay for nursing care, either at home or in residential accommodation.
This scheme has won praise from the Continuing Care Conference. The chairman says he is pushing for the, Government to introduce a compulsory levy and also to guarantee standards of care.
The German Government is also thought to be building a “slush fund” into the scheme to cope with future demand. But long term, this scheme can only be maintained with increased taxation.
For the UK, this type of scheme does not really look viable. The current Government has already committed itself to low taxation. For either a Labour or Conservative government, compulsory taxation for long term care could be political suicide.
For Hywel Jones, marketing manager of long term care at Norwich Union the German model is clearly untenable. He says: “A compulsory scheme would be expensive to set up, and while it may solve some of the immediate problems we could well end with the same problems that we have with the state pension today. Millions of people have contributed to all their working life and on retirement discover that it is worth very little. Indeed, most financial advisers now recommend that young people starting out in work opt out of state provision and take a private or company pension instead.”
In Germany you can already buy “top-up” long term care policies and can opt out of the state scheme. These are not selling well at present, but this could change in the future as the number of people contributing drops and more and more people start claiming from the state fund.
The outcome of the Royal Commission is uncertain but it seems that it will try to pitch a centre ground between the German and American models, with partnerships between the state and private providers playing a prominent role.