January 1997 - Foundations 1
Meeting the costs of continuing care

• A complex funding system has shunted the costs of care from services which were free at the point of delivery to more means-tested provision.
• A small number of people face a 'catastrophic risk' - all their assets are at risk from means testing.
• Many people expected social care, like health care, to be provided free and now have a sense of a 'broken contract' with the State.
• There are inadequacies in the provision of domiciliary care.

• There is a funnel of doubt as to the cost of meeting the future health and care needs of older people.
• Although no funding crisis is imminent, it would be imprudent to take no action, because:

- the number of over-85s will double between 2011 and 2041;

- changes in family structures and roles, and greater geographical dispersion, mean that there may be less informal, unpaid care.

• Both health care and social care should be free at the point of delivery for all older people. The 'accommodation costs' of residential / nursing care should continue to be paid for on a means-tested basis.
• We should act now, taking advantage of the current opportunity to build up funds for the time when the number of older people rises sharply.
• A funded National Care Insurance scheme should be established. Contributions would be compulsory at a rate which would ensure that someone on average earnings for all their life would pay for insurance cover against the full cost of their continuing care. The rate would be about 1.5 per cent of their earnings.
• A National Care Council should be established both to set and review national standards of continuing care entitlements and to regulate the insurance scheme, making corrections to contribution rates as and when required.

The immediate net cost of the scheme would be about £540 million per annum, but the National Care Insurance contributions would generate £3 billion annually. Payments from the insurance fund will be small in the first 20 years, so a substantial capital fund of at least £50 billion is likely to be accumulated in this period.

The entitlement to continuing care

In the spring of 1995 the Joseph Rowntree Foundation began an inquiry into the ways of meeting the costs of continuing care for older people. It reviewed difficulties with the current situation and made recommendations to create a system which could significantly improve the quality of life of older people, recognising:

Every citizen should be entitled to continuing care at standards to be defined at the national level. These should be set out clearly for all users and providers of services and applied consistently, with proper appeal procedures.

Continuing (or 'long-term') care is defined as 'all forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves without some degree of support, whether provided in their own homes, at a day centre or in an NHS or care home setting'.

The immediate concerns

The shunting of costs of continuing care

The funding for continuing care is currently very complex. Funds come from the NHS, local authorities and from the social security system. Care in the Community policies, together with medical advances, have reduced the length of time people stay in hospital. The independent and residential nursing home sector has grown. The provision of care has been shifted increasingly from the NHS, free at the point of delivery, to a means-tested provision organised by local authorities. Perverse incentives have developed which encourage local authorities to place individuals in residential care, despite the national policy to keep people at home as long as possible. In addition, local authorities are having to charge for the provision of care services in people's own homes, much of which was previously free.

The 'broken contract'

Many people perceive continuing care to be an aspect of health care and expected it to be provided free by the NHS. More of the costs, however, are now falling on the individual household. A study commissioned for the Inquiry revealed widespread disquiet about this trend amongst those who have saved during their working lives. The change has led to people having a sense that their 'contract' with the State has been broken.

The 'catastrophic risk'

Many people are anxious that they will have to sell their home in order to fund their care. Although research indicates that the requirement to sell the house in order to fund care is only likely to fall on a small proportion of the total population, for those individuals for whom this is necessary, the risk is 'catastrophic' - i.e. almost all their assets are at risk.

Inadequate domiciliary care

There is mounting concern about the adequacy and quality of domiciliary care, and a number of studies suggest that many people feel they are not getting enough services or that there are significant gaps in the kinds of services they receive. Nine per cent of the population aged 65 and over, for example, could not get up and down stairs on their own, but half of those were receiving no help from social services (although they may have been receiving informal care).

The Inquiry's recommendations: free care at the point of delivery in all settings

The Inquiry concluded that distinctions between 'health care' and 'social care' - with different funding requirements on the individual user - were artificial and should be rejected. Both should be free at the point of delivery, without the imposition of means-tested charges, for all older people who are assessed as needing domiciliary, residential or nursing care. This change would not be extended to include accommodation costs in residential/nursing homes (since meals, heating, rent or maintenance, etc. would have been paid for by the individuals had they remained in their own homes).

The long-term concerns

The funnel of doubt

The Inquiry agreed with the recent House of Commons Health Committee conclusion that there was no immediate funding crisis, but there was a 'funnel of doubt' as to the future health and care needs of older people. However, the Inquiry concluded that it would be imprudent to assume that costs in the future might fall or increase only gradually. It identified a number of factors indicating a strong possibility that costs are likely to be higher in the future, including:

• A large increase in the number of over-75s and over-85s

  Even if steps are taken to develop preventative and rehabilitative services in future, it is likely that very elderly people will still need more care than younger age groups. In 1991, one in twenty people aged 65 and over were living in some kind of institutional care, but one in four of those aged over 85 were doing so. (see Table 1) The numbers of very elderly people are expected to increase sharply during the first half of the next century (as shown in Figure 1). The number of people aged 85 and older will grow from 1.15 million in 2001 to nearly double that - 2.21 million - in 2041. While there is no immediate crisis in terms of a 'demographic time bomb', the number of people requiring continuing care by the middle of the next century is likely to be very much higher.

  Table 1: Institutional care, Great Britain 1991 Percentage of all people in each age band who are in institutional care Age Men Women All 65-69 1.1 1.0 1.0 70-74 1.6 1.9 1.8 75-79 3.0 4.4 3.8 80-84 6.2 10.3 8.9 85+ 15.2 26.3 23.7 All 65+ 3.0 6.4 5.0 Percentage of those in institutional care (aged 65+) in each age band Age Men Women All 65-69 6.4 13.1 4.2 70-74 9.0 14.6 7.2 75-79 15.7 19.8 14.4 80-84 24.5 23.5 24.9 85+ 44.4 29.0 49.3 All 65+ 100.0 100.0 100.0 Source: OPCS, 1991 Census: Communal Establishments, Great Britain 1993

• Informal care

  There is no evidence that families and neighbours will be less willing to care for their dependent older relatives and friends in future. However, with a decline in the number of middle-aged women (who are the main care providers) at the same time as the numbers of older people are rising, with an increasing tendency for such women to be in work, fewer family members live close to each other, and with a larger number of single, divorced, and widowed people with no children, it is likely that there will be an increase in the demand for care from professional services.

The Inquiry's recommendation: act now

Although there is no crisis in terms of the number of people needing care now, there is great uncertainty about the longer term. The combination of the need for more services, linked to rising expectations, would suggest that a real increase in the amount of expenditure on continuing care will be required. The Inquiry concluded that the nation should begin to build up some of the financial resources for long-term care which are going to be needed in the future. The years ahead represent a 'window of opportunity' which should be used.

The scheme recommended by the Inquiry

The scheme recommended by the Inquiry to address long-term concerns has two key components - the establishment of National Care Insurance and the creation of a National Care Council.

National Care Insurance

Only a minority of people will need long-term care in the future, but for those who do, the cost may be very high indeed. A prudent way of preparing for this is for individuals to pool the risk by taking out insurance. Since the Inquiry advocates an entitlement to care, free when it is needed, few would take out insurance unless the scheme was compulsory.

A National Care Insurance scheme should be established, therefore, with an obligation to contribute on the part of all those who have earnings during their lifetime. The Inquiry's detailed recommendations on the nature and structure of the National Care Insurance scheme are provided below in Box 1.

The National Care Council

The Inquiry proposes that a National Care Council should be appointed by the government to oversee and regulate the system. It should include a balance of experts and consumer representatives and be answerable to Parliament. The National Care Council would have responsibilities for setting out and reviewing national standards of continuing care entitlements and determining the basis and levels of payments from the scheme. Importantly, the same body would have responsibility for regulating the National Care Insurance scheme, establishing and reviewing contribution levels. It would thus be in a position to make 'in-flight corrections' to contribution levels in relation to the standards set and changing social and demographic conditions.

Implications

For the economy, there are two implications of the Inquiry's proposals - a redistributive effect, and a public expenditure effect.

The redistributive effect

Everyone would be entitled to the same level of care irrespective of their contribution record. It would fall to the State, not the National Care Insurance scheme, to redistribute resources between rich and poor. The scheme itself would be redistributive in another way - from men to women. Men and women would be treated equally in terms of contribution while care costs would, on average, be higher for women.

The public expenditure implications

The cost of ending charges for domiciliary care would be about £100 million (net of administration), while health and social care services in residential and nursing homes would cost around £700 million per annum. However, by ending the anomaly of Attendance Allowance being paid to some, but not others who receive care in institutions, the cost to public expenditure would probably be reduced by £260 million. Therefore the immediate, net cost of the scheme would be about £540 million per annum.

In the longer term the payments by those in work, equivalent to an additional 1.5 per cent on employees' National Insurance contributions, would mean over £3 billion being collected annually. Since payments from the fund would be very small over the next fifteen to twenty years, a substantial capital fund would be accumulated, which in itself would generate further income. In future therefore, a substantial proportion of the costs of continuing care in the UK could come from the National Care Insurance scheme and not from general taxation.

Although the scheme means higher costs for the State in the early years, it would be important that this did not lead to any diminution in resources allocated annually to local authorities, who are already facing difficulties in covering the costs of providing care in the community and meeting the bills of people without assets in residential/care homes. Investment in domiciliary care today and spending on preventative measures, such as more accessible housing, could mean savings on the higher costs of residential care establishments.

Further details of the public expenditure implications are shown below in Box 2.

Conclusions

The Inquiry's recommendations envisage a new contract between the State and the individual in which there is universal entitlement for social care at home or in residential and nursing care, free at the point of delivery. Although, in the short term, this would necessitate an additional expenditure from general taxation of over £0.5 billion which currently falls to individuals themselves, it should considerably ease the sense of anxiety and outrage caused by the current system.

For the longer term, the National Care Insurance scheme would avoid a funding crisis - perhaps when those who are now aged about forty reach their eighties. By making regular payments throughout their working lives, today's generation would ease the cost on the next generation. The scheme recommended by the Inquiry would provide the whole nation with greater reassurance and security that continuing care would be available as needed for every citizen, now and in years to come.

Further information

A full report, Meeting the costs of continuing care: report and recommendations, is available priced £11.95 plus £1.50 p & p from York Publishing Services Ltd. - Order 1

Also available from York Publishing Services is Meeting the costs of continuing care: Public views and perceptions by Rebecca Diba (price £11.00 plus £1.50 p & p). - Order 2

These titles are now out of print.

Members of the Inquiry

Sir Peter Barclay CBE,

Joseph Rowntree Foundation

Dr Kate Barnard,

North & Mid Hampshire Health Authority

Cedric Dennis,

Joseph Rowntree Foundation

Andrew Dilnot,

Institute for Fiscal Studies

Nigel King,

Housing Consultant

William Laing,

Laing & Buisson Ltd

Desmond Le Grys,

Munich Re-Insurance Company

Barbara Meredith,

National Consumer Council

Professor Ray Robinson,

Institute for Health Policy Studies, University of Southampton

Paul Seymour,

Continuing Care Conference

Martin Shreeve,

Association of Directors of Social Services

Professor Anthea Tinker,

Age Concern Institute of Gerontology, King's College London

Lewis Waddelove CBE,

previously Joseph Rowntree Foundation

Professor Gerald Wistow,

Nuffield Institute for Health

Observers

Peter Craig,

(Department of Social Security)

Raphael Wittenberg,

(Department of Health) (Observers have no responsibility for recommendations).

Editors

Richard Best and Dr Janet Lewis

(Joseph Rowntree Foundation).

Inquiry Secretary

Dr Ann Richardson