Meeting the costs of care

Chris Horlick takes a look at the findings of the Dilnot Commission

Andrew Dilnot’s long-term care proposals will have significant consequences for the UK.

He has been tasked with finding a funding solution for the care needs of our rapidly growing elderly population.

This issue is not unique to the UK. As a recent OECD report pointed out, in 1950, less than 1% of the global population was aged over 80 years old.

By 2050, the share of those aged 80 years and over is expected to increase from 4% in 2010 to nearly 10% across OECD countries.

What is unique is Andrew Dilnot’s solution which is a limited liability model.

What does it mean? In a nutshell, self payers will have to meet their costs of care up to a cap of £35,000.

(This does not include board and lodging costs, known as hotel costs which the self payer is expected to meet up to £7,000 to £10,000 a year).

After this, the government will meet care costs, but not hotel costs beyond a normal local authority threshold.

As these are typically two thirds of the costs of care and a typical quality care home in the South of England costs £50,000 a year this means the individual has to continue to meet the bulk of their care costs if they exceed the proposed new means test threshold.

Winners and losers

It is perhaps trite to seek to identify winners and losers at this point.

However, if adopted it would be fair to conclude that people who now enjoy a higher threshold before they are required to pay for their care, known as self payers, and those people who will live longest and have their care costs paid following their initial £35,000 cap are the winners.

The current threshold, which is now set at £23,250 of assets (including property) in England rises under these proposals to £100,000.

Although this increase is considerable, I wonder whether it will cover significant numbers of additional people, as people who tend to hold assets including property exceeding £23,250, may also tend to include those whose asset wealth exceeds £100,000. It does however make good politics!

Those people who exceed the cap of £35,000 and find their care and support costs are met by government are clearly beneficiaries.

We expect our policyholders to benefit from this as our average policyholder lives for four years and 12% live for eight years or more.