Equity and efficiency in the fundingof long-term care services: recentpolicy developments in EnglandDr. Jose-Luis Fernande...
The road to LTC funding reform…• 1999 Royal Commission on Long Term Care• 2000 Government’s rejects free personal care• 20...
The social care funding policy“contradiction”• Significant growth in demand and expenditurehave led to claims of financial...
The current support system• Universal disability benefits– Attendance Allowance and Disability LivingAllowance• Means-test...
The current systemLower assessable income Higher assessable incomeCarepackageStatecostUsercharge100% marginalrate of taxat...
The current systemLower package Higher packageAssessableincomeCarepackageStatecostUsercharge
Population aged 90 and over, 1981-2011, England and WalesSource: Office for National Statistics
Number of persons age 90 and overper 100,000 of the population, 2011Source: ONS
0102030405060708090100 SwitzerlandPortugalGermanySpainSloveniaKoreaAustriaCanadaFinlandEstoniaAustraliaJapanNorwayDenmarkB...
Social care cost pressures in England...• Public expenditureprojection for olderpeople’s care (realterms)– If nothing else...
Supported recipients over 6500.20.40.60.811.220122013201420152016201720182019202020212022202320242025Recipients(millionspe...
02004006008001,0001,2001,4001,6001,8002,0002005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-121,000sofserviceusersNumb...
The objectives of funding arrangementsFunding arrangements help determine– The sharing and timing of care costs borne by t...
Greater concerns with efficiency• “Traditional” case for reform– Demographic time-bomb linked to unsustainabilityof system...
Small minoritywith‘catastrophic’costsUnfairDisincentives to saveProjected lifetime care costs at 65
Is voluntary private insurance (VPI) anoption?• Significant interest internationally (and inEngland) but…… not the main fi...
Limited take-up of VPI internationally• UK– Market has practically disappeared– Only Immediate Needs Annuities (INAs) at p...
Terms of reference of 2010 DilnotCommission• The Commission was asked to examine andprovide deliverable recommendations on...
The Capped Cost proposals• Current means-tested system to remain, but…– “the state should protect people against the risko...
The cost cap model (cont.)• Cap varies with age (zero for disabled before40)– Takes into account opportunity to accumulate...
£-£50,000£100,000£150,000£200,000£250,000£300,0001 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 ...
Costs of proposals (in £bn)14.5161922.81.72.22.83.60510152025302010/11 2015/16 2020/21 2025/26£bnCost ofrecommendationsCur...
Costs of proposals (% of GDP)0.14%0.16%0.19%0.22%0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%1.80%2010/11 2015/16 2020/21...
Key implementation considerations• Level of cap and living costs• Local flexibility vs. transparency• Metering of distance...
Level of cap and living costs• Directly affects the ability of the scheme toprotect individuals against financial risk but...
Public costs (older people) of the “new”Dilnot model• Projected costs of care (olderpeople)– Central projections• Dilnot c...
Local flexibility versus transparency• Tradition of– Localism in English social care system– Individual based assessment• ...
Metering system• Based on expenditure or need?– Protection against financial risk or compensationagainst the burden of dis...
Financing model• The choice of financing model will affect thedistributional consequences of the model– General taxation– ...
Implications of proposalsSource: Dilnott (2011)
Behavioural and incentive effects• Impact on demand for support• Impact on LA behaviour– Increased transparency might lead...
Conclusions• There is no ‘One Solution’ to the financingquestion• Local solutions need to reflect nationalpriorities and e...
Conclusions• How well it would work will depend on keyimplementation factors• Cap level• Flexible yet consistent and trans...
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Equity and efficiency in the funding of long-term care services: recent policy developments in the UK

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Jose-Luis Fernandez, Personal Social Service Research Unit, London School of Economics. Economics of Long-Term Care. Helsinki. 4. kesäkuuta 2013.

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Equity and efficiency in the funding of long-term care services: recent policy developments in the UK

  1. 1. Equity and efficiency in the fundingof long-term care services: recentpolicy developments in EnglandDr. Jose-Luis FernandezPSSRU at LSEHelsinki 04/06/2013
  2. 2. The road to LTC funding reform…• 1999 Royal Commission on Long Term Care• 2000 Government’s rejects free personal care• 2005 Wanless review recommends partnership funding model• 2006 Joseph Rowntree Foundation recommends proportional co-payment system• 2007 Treasury review ‘welcomes’ Wanless and JRF reports• 2008 Six-month public engagement about social care funding• 2009– Green Paper launches the ‘Big Care Debate’.– Government introduces bill that would offer free personal care athome• 2010– White Paper plans National Care System– New government sets-up Dilnot Commission• 2011 Dilnot Commission recommends care costs cap• 2012 White Paper supports principles of Dilnot proposals• 2013 Government announces £72,000 capped cost from 2016
  3. 3. The social care funding policy“contradiction”• Significant growth in demand and expenditurehave led to claims of financial unsustainability ofthe system and a call for reform• At the same time, calls for greater coverage ofthe system• Means-tested system is the most financiallysustainable system…
  4. 4. The current support system• Universal disability benefits– Attendance Allowance and Disability LivingAllowance• Means-tested support in social care system– Financial support if less than £23,250 assets– User contributes assessable income: all income +proportion of assets minus minimum incomeguarantee– Assets counted at a rate of £1 per week for each£250 of assets above £14,250
  5. 5. The current systemLower assessable income Higher assessable incomeCarepackageStatecostUsercharge100% marginalrate of taxation canlead to disincentiveeffects
  6. 6. The current systemLower package Higher packageAssessableincomeCarepackageStatecostUsercharge
  7. 7. Population aged 90 and over, 1981-2011, England and WalesSource: Office for National Statistics
  8. 8. Number of persons age 90 and overper 100,000 of the population, 2011Source: ONS
  9. 9. 0102030405060708090100 SwitzerlandPortugalGermanySpainSloveniaKoreaAustriaCanadaFinlandEstoniaAustraliaJapanNorwayDenmarkBelgiumHungaryNewZealandPolandSwedenFranceNetherlandsIcelandCzechRepublicPercentageProportional contribution of the state to long-term careexpenditure across OECD countriesSource: 2007, OECDEngland
  10. 10. Social care cost pressures in England...• Public expenditureprojection for olderpeople’s care (realterms)– If nothing elsechanges …• Main drivers– increase in pop 65+with disability (2%p.a.)– increase in unitcosts of services(1.5% )0.005.0010.0015.0020.0025.0030.002010/11 2015/16 2020/21 2025/26Netspend(£bn)PrivatePublicSource: PSSRU micro-simulation model
  11. 11. Supported recipients over 6500.20.40.60.811.220122013201420152016201720182019202020212022202320242025Recipients(millionsperannum)
  12. 12. 02004006008001,0001,2001,4001,6001,8002,0002005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-121,000sofserviceusersNumbers of people receiving LA care overperiod (2005-06/2011-12)All ages (18 and over) 18-64 65 and overSource: Information Centre
  13. 13. The objectives of funding arrangementsFunding arrangements help determine– The sharing and timing of care costs borne by thestate and individuals (financial sustainability)– Use of services (strong (dis)incentive effectsassociated with charges at point of need) andunmet need– Financial risk (collective arrangements can achievesignificant risk-pooling)
  14. 14. Greater concerns with efficiency• “Traditional” case for reform– Demographic time-bomb linked to unsustainabilityof system– Significant unmet need, in particular amongmiddle income/wealth individuals• Change of perspective– Greater emphasis on aspects of economicefficiency: benefits of insurance against risk ofcatastrophic expenditure
  15. 15. Small minoritywith‘catastrophic’costsUnfairDisincentives to saveProjected lifetime care costs at 65
  16. 16. Is voluntary private insurance (VPI) anoption?• Significant interest internationally (and inEngland) but…… not the main financing mechanism anywhere• Limitations of VPI– Demand side: miss-information about state support;care need myopia; high cost– Supply side: difficulties in estimation of risk; changesin unit costs; adverse selection; uncertainty aboutfuture state policies
  17. 17. Limited take-up of VPI internationally• UK– Market has practically disappeared– Only Immediate Needs Annuities (INAs) at present, but expensiveproducts for the wealthy• US– 7 to 8 million policy holders (2008)– Market is reducing• France– Relative success (5m policies) but special circumstances– Limited support from the state– Prevalence of group (employer) schemes– Tradition of insurance for health– Use of state assessment tool to dovetail PVI benefits to state offer
  18. 18. Terms of reference of 2010 DilnotCommission• The Commission was asked to examine andprovide deliverable recommendations on:– how best to meet the costs of care and support asa partnership between individuals and the state;– how people could choose to protect their assets,especially their homes, against the cost of care;– how, both now and in the future, public fundingfor the care and support system can be best usedto meet care and support needs
  19. 19. The Capped Cost proposals• Current means-tested system to remain, but…– “the state should protect people against the riskof very high care costs by putting a cap on thetotal care costs that individuals face over theirlifetime”• Add-on to existing system: lifetime care costcap at £35,000 (individuals responsible fortheir living costs, approx. £10,000 p.a.)• Increase in the means-test residential careasset threshold to £100,000
  20. 20. The cost cap model (cont.)• Cap varies with age (zero for disabled before40)– Takes into account opportunity to accumulatewealth of different age groups• Metering on the basis of standardised needassessment scale– Metering in line with expenditure for recipients ofLA supported care– Metering in line with notional need for self-payers• Portability of assessment
  21. 21. £-£50,000£100,000£150,000£200,000£250,000£300,0001 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100LifetimecostPercentage of populationStateIndividualProjected lifetime care costs at 65Capping ofindividualcare costs at£35,000
  22. 22. Costs of proposals (in £bn)14.5161922.81.72.22.83.60510152025302010/11 2015/16 2020/21 2025/26£bnCost ofrecommendationsCurrent adult socialcare expenditureSource: Dilnott(2011)
  23. 23. Costs of proposals (% of GDP)0.14%0.16%0.19%0.22%0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%1.80%2010/11 2015/16 2020/21 2025/26%ofGDPCost ofrecommendationsCurrent adult socialcare expenditureSource: Dilnott(2011)
  24. 24. Key implementation considerations• Level of cap and living costs• Local flexibility vs. transparency• Metering of distance to the cap• Financing model for additional expenditure• Behavioural consequences
  25. 25. Level of cap and living costs• Directly affects the ability of the scheme toprotect individuals against financial risk but…• Significant impact on cost of scheme– Commission recommends cap of between £25,000and £50,000, government opted for £72,000• Setting living costs too high could lead tosignificant depletion of assets and schemewould no longer act as a “cap”
  26. 26. Public costs (older people) of the “new”Dilnot model• Projected costs of care (olderpeople)– Central projections• Dilnot capped risk– Start year 2017• Parameters (real terms, 2017):– Cap £75,000– Upper capital limit: £123,250– Hotel costs: £290 per week (£15000 p.a.)02468101214162015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025£BillionsperannumDilnot CR £35kDilnot CR £75kMT
  27. 27. Local flexibility versus transparency• Tradition of– Localism in English social care system– Individual based assessment• Significant variability in local unit costs and carepackages but unified national cap– Differences in implicit local valuation of informalcaregivers– Differences in value of housing stock• Unified assessment system vs. flexibility andefficiency of allocation of resources
  28. 28. Metering system• Based on expenditure or need?– Protection against financial risk or compensationagainst the burden of disability?– Incentive effects on demand for services– Accounting for informal care• Need for a common assessment framework– Transparent– Flexible at the individual level– Accounts accurately for informal care
  29. 29. Financing model• The choice of financing model will affect thedistributional consequences of the model– General taxation– Re-profiling of public service expenditures• Additional cap resources target individualswith high care costs– Those with greatest (or longer standing) needs– Those with greatest assets
  30. 30. Implications of proposalsSource: Dilnott (2011)
  31. 31. Behavioural and incentive effects• Impact on demand for support• Impact on LA behaviour– Increased transparency might lead to policy spillovereffects (e.g. race to the bottom)• Impact on supply and demand for private LTCinsurance– By taking the tail of the risk, the proposals mightincentivise supply of complementary private insuranceproducts– But they will also depress demand for insurance– Products for high income groups to top-up levels ofcoverage or guarantee higher quality services
  32. 32. Conclusions• There is no ‘One Solution’ to the financingquestion• Local solutions need to reflect nationalpriorities and existing structures• Tackling the financial risk associated withsocial care needs is an important andworthwhile goal• Cap proposals target directly financial risk, atlower cost than some of the alternatives (e.g.FPC)
  33. 33. Conclusions• How well it would work will depend on keyimplementation factors• Cap level• Flexible yet consistent and transparentassessment framework• System is add-on to current system andarguably increases its complexity, and doesnot tackle some of its limitations• The question is whether wholesale redesignwould not be a better option

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