Can the new government solve the long-term care dilemma?

With soaring healthcare costs and an ageing population, Charlotte Moore looks at how the coalition government might tackle the problem of long-term care.

The 2010 election turned out to be more interesting than anyone had predicted, resulting in the first coalition government since the Second World War. But despite the politicians’ re-assurances this is a solid government, doubts and uncertainty linger.

It is difficult to predict how the coalition will deal with the problems posed by the long-term care market. It is a well-documented yet somehow ignored problem: the number of people over the age of 85 is growing rapidly but current government policy to provide long-term care for this growing section of society is wholly inadequate.

Growing population

According to government figures, the number of people over the age of 85 more than doubled to 1.3 million in 2008 compared with 600,000 in 1983. Advances in medical science mean the numbers will continue to grow rapidly; by 2033 that population will double again to 3.2 million.

A large elderly population puts a huge strain on the state, not only because they have the highest health care costs but because they are often too frail to carry on living independently and need to move into expensive care homes.

Current statistics suggest 40% of those going into residential care are self-funded. In England, those with more than £22,250 in assets must pay their own way.

The average cost of private care home in England is around £664 a week. But Andrew Neligan, a financial planner at Informed Choice, points out that for the majority of the population located in the south of the country, costs are much higher. “Private care homes in the south-east can cost up to £2,000 a week.”

The average length of stay in a care home across the country is two years. But those statistics vary depending on whether someone can afford to pay for their own care. Chris Horlick, managing director of long-term care at Partnership, says: “Our research shows that self-funders stay in a care home for an average of four years,”

So given the inadequacy of the current regime, what, if any, are the measures proposed by the different political parties to resolve this situation?

The Labour government tried to reform this situation. It passed The Personal Care at Home Act against significant opposition. It conceded that for the Act to be implemented, the Labour party needed to be re-elected and the Act had to be ratified by both the House of Commons and the House of Lords.

Proposed solutions

So what have the two other political parties proposed as a solution? The Liberal Democrats have opposed the Labour proposal but have not yet come up with a realistic alternative – their suggestion is to form a committee to discuss this further and to use the £650 from the Personal Care at Home Act to ensure carers get a week’s respite care.

The Conservatives, however, have suggested that when people reach pensionable age of 65, they could voluntarily pay a one-off insurance premium of £8,000 which would then cover all their possible long-term health care costs.

These proposals were not well-received by long-term care advisers. Nick Tyler, chief executive of the NHFA, says: “One of the biggest problems with this proposal is that it is a voluntary measure which means that only the wealthiest are likely to take it up.”

Brian Fisher, marketing manager at AXA Lifetime Care, concurs: “The pension funding gap has been well-documented with a growing number of people facing a meagre retirement. So it seems highly unlikely that a large proportion will have an additional £8,000 available to put towards an insurance policy.”

Tyler questions whether £8,000 is a large enough premium. “That’s substantially lower than any that would possibly be offered by an insurance company.”

Tyler also points out that the insurance industry does not have the best track record in this area. “There used to pre-funded insurance policies on the market but, with the exception of one from Partnership Assurance, they have all been withdrawn from the market. The costs were too high to be attractive to consumers and yet the policies were unprofitable for the product providers.”

A difficult problem

Assuming the Conservative and Liberal Democrat alliance lasts, it is difficult to predict what, if any, solution the new coalition government will find for the problem.

Long-term care advisers agree this is an inherently difficult problem to solve. “It is an intractable problem to solve if you expect the government to fund everything,” says Horlick.
But there are ways the system could be improved without such a major overhaul. “There is currently no uniformity of care need assessment across the different local authorities nor is there a uniform level of care home funding. This could be streamlined,” he says.

The IFA community should not sit on their hands while the politicians debate the issue. Neligan says: “It’s not enough for IFAs to advise people to save for retirement; people also need to think about providing for future care home costs.”

Tyler says: “We know that of those going into care, only a tiny proportion has sought any type of financial advice.”

Horlick says IFAs often miss a trick. “IFAs often advise people who are between the ages of 40-60, who are likely to have elderly parents, yet they rarely inquire about the older generation. Given that more traditional investment business is harder to come by these days, it seems advisers are missing out on an excellent opportunity.”

Fisher says: “Advising older people is going to become more important for IFAs as the industry moves towards RDR.”

Limited choice

Although there are some products on the market to help pensioners to plan for long-term care, there is a limited choice.

Neligan says: “At the moment there are only two product providers on the market – Partnerships and AXA. A market of two isn’t really a market in my book. There should be more competition on the underwriting side of the business to provide the consumer with better choice.”

The pressing need to sort out the public sector deficit is weighing heavily on the new government and there is a very real prospect of eye-watering fiscal constraint. IFAs should not expect the government to come up with a swift solution; they will have to use the tools available to address this very real financial need.