Submission to Dilnot Commission on Social Care UK

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Submission to the Dilnot Review of Social Care Financing in the UK 2011-12

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Submission to Dilnot Commission on Social Care UK

  1. 1. Submission  to  Commission  on  Funding  of  Care  and  Support   from   Oliver  O’Connor   Special  Adviser  to  the  Minister  for  Health  and  Children,  Ireland,  2001-­‐2010   28  January  2011      Summary:      From  an  incoherent  system,  Ireland  introduced  a  new  scheme  for  financing  long  term  residential  care  in  2009,  providing  for  a  new  way  of  sharing  costs  between  the  State  and  individuals,  while  not  substantially  altering  the  proportions  of  State  and  individual  cost.    It  involves  a  scaled  co-­‐payment  according  to  means  by  the  individual,  with  the  State  meeting  the  balance  of  cost.    The  means  test  assesses  assets,  including  the  principal  private  residence,  but  provisions  for  a  deferral  of  contributions  related  to  house  asset  value  mean  that  no  person  has  to  sell,  mortgage  or  rent  their  house  to  pay  for  care  –  an  explicit  policy  goal.    Many  protections  are  included  in  the  legislation.    A  significant  element  of  choice  for  users  is  also  built  in.    All  nursing  homes,  public  and  private,  that  meet  quality  standards  and  value  for  money  may  take  part.    It  was  vital  to  start  the  policy  process  with  clear  propositions  for  the  public  and  equally  vital  to  iterate  and  refine  these  throughout,  while  keeping  the  essentials  clear.    Policy  design  and  implementation  took  several  years,  and  significant  political  commitment  overcame  some  initial  negative  reaction.          Introduction  1. I  was  Special  Adviser  in  the  Government  for  Ireland  for  Ms  Mary  Harney,  T.D.,  from  January  2001  to  September  2010,  focusing  on  policy  involving  finance,  economics  and  budgetary  matters.    She  was  Tánaiste  (Deputy  Prime  Minister)  up  to  September  2006,  and  Minister  for  Enterprise,  Trade  and  Employment  to  September  2004.    From  then  until  January  2011,  she  was  Minister  for  Health  and  Children.    I  offer  this  input  to  the  Commission  on  a  personal  basis.      2. The  challenge  of  long  term  care  provision  and  financing  is  common  to  all  developed  societies.    Britain  and  Ireland  share  many  common  traditions  and  cultures  in  terms  of  health  and  social  care  provision.    This  paper  is  a  summary  of  some  of  the  policy  choices  and  decisions  made  in  substantially  re-­‐designing  the  system  of  long  term  care  in  Ireland,  in  particular,  the  sharing  of  cost  between  the  State  and  individuals.    I  hope  the  Commission  will  find  some  of  these  reflections  useful  in  its  recommendations  for  policy  for  England.    This  paper  itself  is  not  written  as  a  recommendation  for  policy,  based  on  data  and  analysis  of  British  care  systems;  it  does  not  directly  offer  a  view  on  the  three  questions  posed  in  the  call  for  evidence.    Situation  prior  3. Ultimately,  the  focus  of  our  reform  of  financing  was  long  term  residential  care,  clearly  more  narrow  in  scope  than  the  work  of  the  Commission.    This  was  a  choice  for  several  reasons:  
  2. 2.   2   a. By  January  2005,  when  we  started  our  work,  the  ‘system’  of  long   term  residential  care  was  incoherent.    Basically,  over  the  years,  a   dual  State  role  had  arisen,  first,  by  the  provision  of  State-­‐funded   and  operated  public  nursing  homes  under  a  general  health  statute   of  1970,  for  which  every  person  was  ‘eligible’  to  apply  for,   irrespective  of  means.    In  1990,  a  system  of  means-­‐tested  part   subvention  for  private  nursing  homes  was  also  created.    Both   because  of  funding  constraints  and  because  of  choice  by  some   families,  the  stock  of  public  nursing  home  places  was  not  sufficient   to  meet  demand.    People  who  could  not  get  a  public  nursing  home   place,  or  did  not  find  one  convenient  to  their  needs,  went  to   private  nursing  homes  and  applied  for  subvention.    In  public   nursing  homes,  the  co-­‐payment  required  was  80%  of  the  basic  rate   of  State  old  age  pension,  for  all  persons,  irrespective  of  their  means.     In  the  private  nursing  home,  means-­‐tested  subvention  amounted   sometimes  to  about  one-­‐third  of  the  cost,  with  the  individual   having  to  pay  the  rest  to  the  nursing  home.    Over  one-­‐sixth  of   people  received  no  subvention.    Clearly,  there  was  a  substantial   inequity  between  persons  in  public  and  private  nursing  home   places.    Those  who  felt  they  had  no  option  but  to  use  a  private   place  felt  particularly  aggrieved.    Indeed,  this  gave  rise  to  litigation   against  the  State,  some  of  which  is  still  before  the  Courts  and  is   contested  by  the  State.    Finally,  it  was  advised  by  the  Attorney   General  in  late  2004  that  the  charge  for  public  nursing  homes   places  (80%  of  pension),  was  itself  illegal,  i.e.  it  had  been  levied  by   health  agencies  ultra  vires.    This,  and  an  unsuccessful  legal  attempt   to  validate  it  retrospectively,  caused  us  (the  Minister,  Department   of  Health)  to  review  the  entire  financing  system  for  long  term   residential  care  from  the  bottom  up  in  January  2005.     b. It  was  also  the  case  that  data  on  home  based  care  was  even  less   complete  than  on  residential  care;  the  sharing  of  costs  was   somewhat  different  (in  that  there  was  no  subvention  scheme)  and   it  was  only  in  2005  that  a  systematic  provision  of  ‘home  care   packages’  for  older  people  was  commenced.       c. From  a  public  financing  position,  it  was  felt  better  to  address  one   area  first,  see  how  a  new  system  worked,  review  it,  while   preparing  analysis  and  thinking  on  financing  long  term  care  needs   in  general,  using  the  experience  gained  from  the  residential  care   side.    Process  of  work  –  starting  with  the  end  in  mind  4. While  we  set  up  an  interdepartmental  Committee  in  January  2005  to  gather  data  and  process  the  necessary  analytical  work  for  all  aspects  of  social  care,  at  all  times  the  impetus  and  driving  force  was  to  achieve  clear  statements  for  citizens  and  potential  service  users.    These  propositions  were  achieved  at  the  
  3. 3.   3  end,  but  many  were  present  from  the  beginning,  leading  to  the  system  design.  In  short,  they  were:   a. There  will  be  a  clear  and  modern  clinical  assessment  of  medical   need  for  residential  care  applied  consistently  for  the  whole   country.    The  assessment  will  be  done  efficiently.       b. Most  people  can  and  should  be  cared  for  at  home.    Residential  care   is  for  people  with  high-­‐dependency  needs.       c. There  is  no  age  discrimination  or  qualifying  age  in  the  scheme.   d. While  the  State  will  continue  to  meet  most  of  the  overall  cost  of   care  (about  66-­‐70%),  there  will  be  a  contribution  to  the  cost  of   care  from  individuals.       e. Your  contribution  will  vary  according  to  your  means.    Once  you   make  your  contribution,  the  State  will  pay  the  rest.    You  will  not  be   exposed  to  price  increases  by  a  nursing  home  provider.   f. There  will  be  an  utterly  fair  and  transparent  means  test,  covering   both  income  and  assets.   g. You  will  not  have  to  sell  your  home  to  pay  for  care.  You  will  not   have  to  mortgage  your  home.       h. Your  family  will  not  be  means-­‐tested  or  be  required  to  contribute   to  the  cost  of  your  care.   i. You  will  not  have  to  deplete  your  savings  fully.   j. You  will  have  a  choice  of  nursing  home  provider.   k. All  nursing  homes,  public  and  private,  may  be  part  of  the  scheme   on  an  equal  basis.  The  same  explicit  standards  of  care,  and   independent  inspection,  will  apply  to  all.   l. There  is  no  obligation  use  the  scheme  on  the  part  of  a  nursing   home  or  on  the  part  of  an  individual.    If  people  want  to  fully  pay  for   care  independent  of  the  State,  they  may  do  so.  5. Some  of  the  policy  thinking  for  the  scheme  was  informed  by  a  substantial  policy  framework  document  produced  by  the  National  Economic  and  Social  Council  called  ‘The  Developmental  Welfare  State”.    This  analysed  modernised  welfare  and  State  support  in  general,  and  described  a  concept  of  ‘targeted  universalism’  –  that  is,  a  universally  available  service  with  different  levels  of  contribution/access/prioritisation  based  on  individuals’  needs.      6. Ultimately,  new  policy  ground  was  broken  by  the  Nursing  Home  Support  Scheme,  referred  to  also  as  ‘the  Fair  Deal’,  in  a  number  of  respects:    
  4. 4.   4   -­‐ the  scaled  contribution  according  to  means,  eliminating   discontinuities  and  flat  charges  for  the  poorest  and  wealthiest  alike.     The  contribution  is  80%  of  assessed  disposable  income  (plus  an   imputed  5%  of  the  value  of  assets,  with  a  disregard  of  the  first   €36,000),  capped  by  the  cost  of  care.    This  was  similar  to  the  old   public  scheme,  where  a  person  whose  sole  income  was  the  State   pension  was  asked  to  contribute  80%  of  it  to  the  cost  of  care1;    the   inclusion  of  assets  was  a  feature  of  the  Subvention  scheme.     -­‐ the  use  of  ‘any  willing  provider’  which  met  standards  and  value  for   money,  in  a  comprehensive  way,  and  choice  for  patients;   -­‐ the  inclusion  the  principal  private  residence  asset  in  means  testing   and  choice  to  defer  the  relevant  contribution  arising.  The  first  of  these  two  received  attention  in  the  realms  of  policy-­‐formation  debate,  but  the  latter  (the  treatment  of  the  house  /  land)  was  one  that  the  public  paid  most  attention  to,  since  it  went  to  the  heart  of  sharing  of  cost  between  State  and  individual,  and  there  is  strong  cultural  attachment  to  home  ownership.    The  problem  of  selling  or  mortgaging  a  home  and  had  been  one  of  the  disliked  elements  of  the  Subvention  Scheme.    Treatment  of  the  house  asset  7. As  mentioned  above,  since  1990,  there  was  a  means  test  for  the  private  nursing  home  Subvention  Scheme.      This  test  included  the  principal  private  residence  of  the  person  applying  for  subvention.    For  the  sake  of  simplicity,  in  the  case  of  a  single  person,  a  notional  income  of  5%  of  house  value  was  ascribed  to  the  house.    Thus,  when  the  average  house  price  was  €200,000,  the  means  test  would  assume  the  individual  received  a  rental  income  of  €10,000  a  year,  or  €192  a  week.      This  was  broadly  the  level  of  the  State  old  age  pension  in  the  mid-­‐  to  late  2000s.      The  weekly  cost  of  care  varied  regionally  from  about  €650  a  week  to  €1,000  a  week.    A  subvention  of  approximately  €300  per  week  was  often  available;  only  in  a  minority  of  cases  was  an  ‘enhanced’  subvention  reaching  €600  a  week  given.    Some  people  received  less  than  €300,  some  received  no  subvention.    Clearly,  it  left  a  substantial  funding  gap  for  the  individual  –  one  which  realistically  could  only  be  met  by  relatives  or  by  selling/mortgaging/renting  the  house.    By  contrast,  a  person,  of  whatever  means,  who  got  a  public  nursing  home  place  was  charged  around  €120  in  total  (by  reference  to  the  prevailing  rate  of  State  pension).  8. In  our  review,  it  was  judged  that  it  would  be  inefficient  and  inequitable  not  to  take  account  of  the  value  of  the  principal  private  residence.    Inefficient:                                                                                                                  1  Very  few  people  in  the  over-­‐65  age  cohort  have  substantial  incomes;    the  average  income  is  only  about  10%  higher  than  the  old  age  pension  itself.      However,  some  persons  may  receive  no  financial  support  for  nursing  home  care;    in  simplified  terms,  any  person  with  assessed  disposable  income  over  €65,000  approximately  would  get  no  financial  support  for  nursing  home  care,  at  a  price  level  of  €1,000  per  week  –  80%  of  €65,000  being  €52,000  
  5. 5.   5  because  clearly,  house  asset  values  (even  having  fallen  now  substantially  since  2007)  represented  a  store  of  wealth  which  was  destined  otherwise  for  inheritance  –  why  should  it  not  be  used  for  a  pressing  need  for  the  generation  owning  it?    If  this  source  of  wealth  were  not  used  to  finance  care,  another  source  would  have  to  –  inevitably  falling  on  the  working  generation  (those  who  would  inherit  the  asset  later  intact).      Using  the  store  of  wealth  in  housing  would  be  less  distortionary  on  economic  activity  than,  for  example,  additional  tax  on  labour,  consumption  or  investment.      Inequitable:  because,  once  there  is  any  means  test  for  care  (as  distinct  from  a  service  free  at  the  point  of  use  for  all,  a  policy  position  taken  by  some),  it  is  compelling  that  no  asset/income  should  be  exempt  ipso  facto;  otherwise  an  inherent  unfairness  would  be  built  in,  and  opportunities  for  avoidance  or  wealth  re-­‐organisation  would  be  created  for  those  in  a  position  to  do  so.      9. However,  there  was  a  strong  political  position  taken  by  the  Minister  and  Government  from  the  outset  to  meet  a  traditional  and  deep  concern  on  the  part  of  older  people  not  to  have  to  sell  or  mortgage  their  house  once  they  went  into  residential  care.  10. We  were  also  conscious  that  there  was  an  evident  degree  of  mistrust  for  commercial  equity-­‐release  products  offered  by  banks,  notwithstanding  that  they  were  used  by  some  people.    People  were  fearful  of  total  asset  depletion.    It  was  not  going  to  be  possible  to  force  everyone  to  use  such  a  device.    Difficult  issues  like  the  role  of  the  State  in  pricing  and  interest  rates  arose,  if  the  State  effectively  created  a  reliance  in  its  own  scheme  on  commercial  equity  release  products    (some  of  this  reasoning  also  applied  to  constructing  a  scheme  that  relied  on  commercial  long  term  care  insurance).  11. The  conclusion  arrived  at  was  the  following:   a. In  the  means  test,  a  5%  imputed  income  value  annually  from  the   house  would  be  added  to  other  disposable  cash  income.   b. To  give  reassurance  about  total  depletion,  the  5%  value  was   capped  at  three  years’  value:  i.e.  a  maximum  of  15%  house  value   (this  was  chosen  because  the  average  length  of  stay  in  a  nursing   home  was  2.5  years).   c. The  person  would  have  a  choice:    to  pay  this  portion  of  the   contribution  upfront  (through  e.g.  sale,  mortgage,  family   contributions)  or  to  defer  it  and  have  the  State  collect  it  from  the   person’s  estate.   d. We  had  to  create  a  legal  mechanism  to  put  this  charge  on  the   estate,  which  entailed  also  enacting  much-­‐modernised  mental   capacity  legislation  and  protection  for  both  the  person  in  care  and   any  care  representative  making  that  the  ‘charge’  decision.   e. The  house  valuation  was  professionally  carried  out,  but  could  be   appealed  by  the  person  after  the  passage  of  some  time.  
  6. 6.   6   f. The  joint  ownership  by  spouses  of  houses  was  recognized,  as  was   the  position  of  adult  dependants  (generally,  people  with   disabilities)  living  with  parents.    The  collection  of  the  deferred   contribution  from  estates  was  itself  deferred  until  after  the  death   of  a  spouse  and  of  any  adult  dependant  reliant  on  that  home.   g. There  is  an  interest  rate,  set  at  the  Consumer  Price  Index,  to  take   account,  somewhat  imprecisely,  of  the  cost  of  funding  to  the  State.     Furthermore,  the  Department  of  Finance  had  to  calculate  the   upfront  cash  cost  of  the  scheme  relating  to  deferrals.  12. It  took  a  degree  of  political  skill  and  courage  to  introduce  this  concept.    Irish  people  share  with  British  people  a  strong  attachment  to  their  family  home.    It  was  first  approved  and  announced  by  Government  in  December  2006.    There  was  initially  a  vigorous  political  and  media  reaction  against  it.    The  legislative  and  administrative  process  took  quite  some  time  subsequently.      The  scheme  was  enacted  in  2009  and  commenced  in  October  that  year.    While  media  comment  was  very  negative  initially,  service  users’  views,  in  practice,  seem  to  be  positive,  particularly  because  of  the  element  of  choice.    Under  the  social  partnership  model  then  used,  representative  bodies  were  invited  to  make  comment.    Organisations  like  the  Irish  Farmers’  Association  engaged  on  the  farm/inheritance  issues  and  the  details  of  legislation  were  drafted  accordingly.      Statistics  will  become  available  increasingly  on  the  choices  individuals  make  with  respect  to  payment  upfront  or  deferral.  13. There  are  variations  and  details  applying  to  the  scheme,  in  relation  to  spouses  (basically,  assessment  and  ownership  of  assets  is  deemed  to  be  half  share,  so  that  the  5%  of  total  house  value  could  in  fact  be  2.5%  if  a  spouse  lives);      and  in  relation  to  farms  and  small  businesses.    These  are  set  out  fully  in  the  Frequently  Asked  Questions  document  attached.        Provider  arrangements  14. It  may  also  be  worth  noting  briefly  some  features  of  the  provider  side.    There  was  widespread  private  nursing  home  provision  in  Ireland  before  this  scheme  –  about  63%  of  the  19,416  beds  were  in  the  private  sector.    Typically,  the  individual  made  arrangements  directly  with  the  private  nursing  home,  but  a  practice  also  arose  whereby  the  State  purchased  beds,  so-­‐called  ‘contract  beds’.    This  gave  rise  to  a  further  anomaly  whereby  two  patients  in  the  one  nursing  home  could  be  paying  radically  different  contributions  to  the  cost  of  their  care,  depending  on  whether  they  were  in  a  public  ‘contract’  bed  or  fully  private  bed  (with  no  distinction  in  accommodation  type  or  care  level).  15. In  the  new  scheme  the  State  contracts  with  all  private  providers  who  want  to  be  part  of  the  scheme.    A  contracting  agency,  the  National  Treatment  Purchase  Fund  (NTPF),  bargains  with  all  providers  on  a  bed  charge  basis.    There  is  no  national  tariff,  since  prices  vary  regionally,  reflecting  premises  costs  and  some  degree  of  labour  availability.    The  NTPF  pays  per  bed  used,  not  to  have  general  capacity  available.    It  might  be  remarked  that  the  NTPF  has  very  strong  pricing  power  over  providers  in  this  scheme.    Indeed,  it  is  a  near-­‐monopoly  
  7. 7.   7  buyer,  but  it  is  constrained  to  act  reasonably  as  a  public  body,  and  as  such,  it  is  also  accountable  to  the  Oireachtas  (Parliament)  through  the  Minister  and  Department  of  Health  and  Children’s  Accounting  Officer,  and  is  subject  to  potential  judicial  review  of  its  administrative  decisions.      16. It  is  to  be  noted  also  that  the  NTPF  does  not  yet  pay  a  separate  State  body,  the  Health  Service  Executive,  for  State-­‐run  long  term  care  beds  in  this  way,  although  the  new  system  has  required  all  public  nursing  homes  to  publish  their  actual  costs  per  bed  (interestingly,  those  costs  are  higher  in  the  public  sector  generally,  even  though  all  nursing  homes  are  required  to  meet  the  same  standards  of  care  and  physical  accommodation  standards).    Recent  recommendations  from  an  expert  group  have  recommended  much  more  extensive  use  of  payment  for  output/outcomes  in  the  public  sector.    This  would  mean  that  public  nursing  home  beds  would  then  be  bargained  for,  and  purchased,  in  the  same  way  as  private  beds  are  already.  17. There  have  been  some  disputes  about  the  package  of  care  the  NTPF  will  pay  for,  and  it  is  clear  that  some  private  nursing  home  operators  offer  their  patients  more  than  the  NTPF  will  pay  for  (e.g.  in  the  area  of  social  activities)  –  and  pass  on  charges  to  patients  accordingly.      It  is  an  important  policy  objective  to  keep  the  package  of  purchased  care  adequate  for  the  patients’  needs  and  not  to  allow  a  significant  divergence  to  grow  between  those  who  can  afford  top-­‐ups  and  those  who  cannot,  within  the  one  home  particularly.    Conclusion  18. To  address  the  issue  of  cost-­‐sharing  between  the  State  and  the  individual,  it  was  vital  to  start  with  some  clear  propositions  for  the  public  to  guide  policy  development,  to  iterate  and  refine  these  while  addressing  the  complexities,  and  to  come  out  with  simple,  clear  propositions  at  the  end.    There  are  some  policy,  even  philosophical,  choices  that  the  analytical  process  can  not,  and  will  not,  of  itself  make.    Starting  propositions  are  decidedly  necessary.  19. The  cost  to  the  State  of  funding  long  term  residential  care  was  not  substantially  altered.    Under  the  previous  and  new  arrangements,  it  still  meets  about  two  thirds  of  the  total  cost  –  it  was  about  €1bn  in  2005  terms  for  approximately  22,000  people  in  care.    There  was  an  additional  timing  cost  to  the  State  in  funding  the  upfront  cash  provision  for  deferred  contributions,  which  depends  on  the  choices  made  by  individuals  deferring  or  not  –  possibly  in  the  order  of  €100m.      20. However,  the  private  contribution  portion  was  made  more  rational  and  fair  across  all  individuals  and  all  personal  circumstances.    Some  people  paid  the  same  –  effectively,  those  whose  income  was  effectively  the  State  pension  and  who  did  not  have  any  significant  assets.    Some  would  pay  less  –  those  whose  private  contributions  to  the  cost  of  a  private  nursing  home  place  were  higher  than  the  new  co-­‐payment  level.    And  some  would  pay  more  –  those,  in  particular,  who  had  medium  to  high  incomes  or  assets,  but  who  secured  a  public  nursing  
  8. 8.   8  home  place,  rather  than  paying  for  a  private  bed.      A  transition  provision,  however,  was  implemented  to  ensure  that  no  person  currently  in  care  would  be  disadvantaged  by  the  introduction  of  the  new  scheme.    So  no  person  actually  lost;    the  changes  were  in  notional  cases  or  what  a  person  might  have  paid  under  the  old  scheme  relative  to  the  new  one.      21. The  introduction  of  a  rational  co-­‐payment  mechanism  for  individual  contributions  was  seen  as  improving  the  sustainability  of  financing  long  term  care,  even  if  it  was  not  aimed  at  reducing  the  foreseeable  Exchequer  cost.  22. Extracting  from  the  complexity,  the  following  tests  were  used  for  the  acceptability  of  using  the  house  asset  for  finance:   a. Clarity  of  concept  and  rationale   b. Affordability  –  contributions  not  in  excess  of  actual  disposable   income   c. Fairness  -­‐  as  between  all  applicants  across  the  country   d. Choice  –  upfront  payment  or  deferral   e. Simplicity  –  while  addressing  situations  like  farmsteads   f. Capped  depletion  of  house  asset  value  at  an  acceptable  and   evidence-­‐based  level   g. Exemption  of  some  savings  –  up  to  €36,000  individually   h. Protection  of  persons  with  diminished  capacity  while  allowing  for   sufficient  decision-­‐making  powers  for  care  representatives   (usually  family  members)   i. Protection  of  spouses  and  adult  dependants   j. Non-­‐commerciality  of  deferral/”loan”  provisions   k. Administrative  ease  to  the  greatest  extent  possible   l. Well-­‐grounded  legal  framework  to  avoid  estate-­‐probate   complications    Other  ideas  for  the  scheme  were  examined,  including  insurance  and  total  tax-­‐based  funding,  but  the  Scheme  as  designed  was  ultimately  chosen  as  meeting  the  tests  of  ability  to  fund  care  provision,  financial  sustainability  and  fairness.    Oliver  O’Connor  
  9. 9.   9  London  28  January  2011    Appendix    Documentation    Comprehensive  documentation  on  the  Fair  Deal,  the  Nursing  Home  Support  Scheme,  is  available  at    http://www.dohc.ie/issues/fair_deal/    In  addition:    Report  of  the  Long  Term  Care  Working  Group,  2008  (publication  date)  (incl).  Frequently  Asked  Questions  (release  2009)  –  when  scheme  is  operational  Frequently  Asked  Questions  (release  December  2006)  which  gives  statistics  available  at  the  time  of  the  Government  policy  decision        

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