During the three years since the Care Act was passed, the problems have intensified to the point that the Government has been forced into short term financial fixes for social care, and recognised the need for a longer term solution through the plan for a green paper. In his lecture, Andrew demonstrated how the introduction of state-provided social care insurance with a large ‘excess’ would solve the fourth problem and help substantially with the second and third without necessitating any increase in the state spending on older people.
His slides, which contain several impactful graphs, can be viewed here.
Andrew began with a long view: we worry about the 100% increase in over 85’s in the 20 years to 2030, but society has already absorbed a 20-fold increase in the over-85’s (from 65,000 in 1901 to 1.4 million now), so we should calm down – and shouldn’t hark back to a golden age when the aged were cared for at home (‘Granny wasn’t sitting at the fireside – she was dead’).
Then a wider view: social care (£16bn) is just a slither of the spend on older people (against £80bn on benefits and £50bn on health) – some reallocation would make good sense, but there’s no need to spend more on older people. Moreover, real national income is 5x what it was in 1948, and pension and insurance wealth has increased as share of that x5 GDP, so we can certainly ‘afford’ things, albeit choices are needed.
Adult social care (unlike education and health) is means tested. That’s OK, but the cliff edge between £14k (social care paid for by the local authority) and >£23k (no support until savings have run down to £23,000) would win a contest for silliest means test… It’s unfair and encourages cheating. That needs fixing, and spending patterns need rebalancing to provide a decent means-tested system which supports the poorest.
Yet that isn’t enough: we desperately do need to do something about the population as a whole because, while 20% will turn out to have no social care need, and £20k is the median total cost of social care, a small number will incur over £250k. That suggests it follows a pattern for which risks should be pooled, as with the NHS (ill health risks fall similarly). It is illegal to drive a car without pooling risk.
The private sector doesn’t provide an insurance product for this: not because they are unwilling, but because they don’t know what curve will be for current insurance purchasers – costs may well be 40 years away, and further big shifts in the patterns of old age spending could occur. The private sector can’t take on such a potential for ‘aggregate shocks’, so there is a complete market failure. As is evidenced widely: it is no coincidence that nowhere in the world is there such a market.
In Theresa May’s words ‘the state exists to provide what people, communities and markets cannot’ – here is a perfect case. The state needs to insure the catastrophic bit of the risk. Effectively ‘social insurance with a large excess’ (£72k in his report). The key is that the state can then change the level of the cap in future in response to any aggregate shock, as a private company could not.
At present people are forced to self-insure – which leads to hoarding, a flat demand curve, low wages and strong incentives to cheat. People need the potential of catastrophic loss to be covered. The market could also insure people against the excess, but that’s not so important – people can reasonably self-insure for that via property or savings.
We would then have reduced incentives to ‘cheat’ (as happens now by giving away assets), and a reduced CHC boundary problem between social care and the NHS. This would also improve the overall care market, which is increasingly suffering from another type of market failure. We need to move away from the combination of high risk (due to regulation and living wage) with not terribly high return which comes with most customers wanting the cheapest option, choking off innovation which needs to be encouraged.
The cost of implementation would be £2bn per annum. Equivalent levels are spent on both the Winter Fuel Allowance (and the pensions ‘triple lock’. The Winter Fuel allowance could be abolished, as it was never a good way of dealing with fuel property; or the triple lock could be altered to include social care at the expense of another aspect. So, he argued, there is no need to spend more on older people, just to spend more wisely.
Why hasn’t it been implemented yet? Andrew speculated that he hadn’t explained clearly enough the market failure issue (so it seemed he was criticising the private sector), and had been seen as asking for extra money for the retired population (when he was not).
The case for implementing the Care Act’s provisions for a cap on care costs in 2020 appears stronger than ever. Whether that happens or not, it remains critical that local authorities strike the right balance between maximising the Value for Money delivered by low prices and ensuring their local care market remains healthy.