Funding Care Home Fees: The Future

 

On the 14th May 2014, the Care Act 2014 received the Royal Assent. The Act was implemented in two phases, the first of which started on 01 April 2015 and the remainder, mainly the financial aspects, on 01 April 2016. The backbone of the Act was published on 18th February 2013, being the Government’s response to the Dilnot Commission.  By Budget Day, 20th March 2013, it had already changed its mind!  Talk about policy on the hoof!  By July 2015 the key funding proposals were deferred until April 2020 and some cynical commentators reckon they’ll be kicked into the “long grass” never to be seen again!  Having said that, some elements reappeared in the ill-conceived Tory manifesto for the 2017 election, but have since been consigned to a further consultation.  More “long grass”?

What were Dilnot’s key proposals?

Andrew Dilnot, an Economist, was appointed by the Government in 2010 to look at the current system of funding of long-term care, which many considered was inequitable, and suggest an alternative system.  In the report, delivered to the Government in July 2011 there were two key proposals, as follows:

  • Introduction of a cap on care costs.  Instead of having an open-ended liability to pay for their own care, Dilnot recommended a cap of between £25,000 and £50,000, with a specific recommendation it should be £35,000.
  • An increase in the upper threshold of assets included in the means-test.  Currently, if someone entering care has assets in excess of £23,250, including their solely owned and occupied home after an initial 12-week disregard, they are deemed to have sufficient income to pay for all their care.  Dilnot considered this figure too low and recommended an increase to £100,000.

Why did the Government delay their proposals until February 2013?

The simple answer is cost.  Dilnot costed his own proposals at £1.7bn and doubling in 10-years, but the Treasury pooh-poohed this, countering with an estimate of £2.5bn, which would double in 5-years.  In these austere times, the Government doesn’t have spare resources of this magnitude.

Why has the Government delayed their proposals until 2020?

The simple answer again is cost. As this article will go on to explain, the cap would not benefit many people, but the cost of implementation was in the billions. Why? The system was unwieldy and bureaucratic.

What were the new rules?

This is a “first the good news” story.  The good news is that the Government had embraced both of Dilnot’s key proposals, but now not until 2020 for the cap (if ever).  The cap was to be much higher than Dilnot proposed at £72,000, but the asset threshold was to be £118,000 (to allow for inflation between July 2011 and April 2016).  Okay, so what’s the bad news?  The bad news is in two stages; firstly, how the cap would have been applied and, secondly, what income would be deemed to be generated by asset at or below the £118,000 threshold.

How would the £72,000 cap work?

The Government (and Dilnot) differentiated between “care” costs and “board & lodging” costs, with only the former counting towards the cap.  In the proposals, the Government suggested the board & lodging component should be a universal £12,000 per annum, with no regional variation, which is the equivalent of £230 per week.  The care component is then calculated by reference to the maximum amount the Local Authority will pay a Care Home or Nursing Home for someone who is receiving such funding.

These limits do have marked regional variations, as the following calculations show:

 

Kent County Council

East Riding Council

Maximum weekly limit

£      439

£     367

Board & Lodging component

£      230

£    230

Care component, therefore

£      209

£     137

Annual Care component

£10,868

£  7,124

Years to reach the £72,000 cap

6.62

10.11

Average weekly Care Home cost*

£     583

£    483

Annual Care Home cost

£30,316

£25,116

Spent reaching the cap

£200,842

£253,839

* Source: Laing & Buisson 2011/12

One of my first observations from these calculations is the time it would take to reach the cap; based on the experience of Partnership Assurance, a leading provider of Immediate Needs Plans for the payment of care fees, self-funders on average live for 4 years in care and only one in seven lives for 8-years.  Consequently, only the minority would live in care long enough to reach the cap in Kent and virtually nobody in Yorkshire’s East Riding.  The other observation is the sheer amount that would have been expended, even at average care costs, before reaching the cap.

If the cap is finally introduced, which is debatable in view of the huge (mainly a bureaucratic) cost, it should be noted that no expenditure on care prior to its introduction would count towards the cap.

How would the new asset limit work?

The answer to this is exactly the same as the current limit.  So, as I have already said, currently assets over £23,250 are deemed to generate sufficient income to cover care costs at any level.  Assets between £23,250 and the current lower threshold of £14,250 are deemed to generate a “tariff income” of £1 per week per £250 between the lower and upper thresholds.  This is £52 per annum per £250 of capital, or a return of 20.8% per annum!  When I do my talks on this topic, I ask for a show of hands at this point as to who would like a 20.8% return on their savings, with no risk!

The new lower threshold was to be set at £17,000.  However, the tariff income between this and the new upper threshold of £118,000 remained the same – £1 per week per £250 over the lower threshold.  So, anyone with assets of £118,000, again, including their solely owned and occupied home, will be deemed to have an income from these assets alone of £404 per week.  In Kent, this is only £34 short of the maximum the Local Authority will pay and in the East Riding it’s £38 more.  Consequently, with just State Pension, let alone any occupational or personal pension income, people with assets at £118,000 were unlikely to receive any Local Authority funding until their assets have been seriously depleted.

How can the Government claim that homes won’t be sold?

By now you will be getting a clear picture that the Government was only paying lip-service to Dilnot’s proposals and that, in reality, very few people would actually benefit.  How, therefore, can the Government claim that nobody’s home will have to be sold to pay for their care?  This is the last bit of the Government’s “smoke and mirrors” subterfuge.

Elsewhere I have written about the Deferred Payment Scheme and this is how the Government can claim that nobody will have to sell their own home to pay for their care.  However, it doesn’t mean that the family won’t have to sell the home after Granny’s death to clear the loan and accrued interest.  Many people of my generation grew-up watching the Lone Ranger on television; to plagiarise his native American companion, Tonto might have said, “Health Minister speak with fork tongue”!

What can I do to protect my children’s inheritance?

That’s the $64,000 question.  In my opinion, very little, other than, perhaps, some prudent Will planning.

The Government hopes that the insurance industry will come to its rescue and devise some sort of pre-funded scheme.  These were available until relatively recently, but all were withdrawn for lack of support.  Currently, no insurers have said that they will introduce a new scheme, although one has added a high-cost option to its Whole of Life plan for a payout on the diagnosis of certain activities of daily living.

What next?

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About Clive Barwell

Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at info@clivebarwell.co.uk. Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.