| With Respect to Old Age: Long Term Care - Rights and Responsibilities | ||||||||||||||||||
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Chapter 3 Requirements of a Funding System This chapter considers long-term care as a risk, and what this might mean for the way in which it could be funded, including the balance of responsibility between the state and individuals. 3 The Commission has looked at the issue of the provision of long-term care from first principles, in terms of the kind of risk it comprises both for the individual and the state. This is essential to reaching well-informed conclusions as to the merits of the present system and how it should be changed. In this matter we have been greatly helped by the evidence submitted to us from a number of organisations and individuals, and specifically by the work of a number of expert witnesses. 3.1 In Chapter 2 we made observations on demographic trends and their possible effect on future costs of long-term care. In assessing how long-term care should be paid for, the Commission first considered the kind of risk such care represents to the individual. It is a risk which affects men and women differently. At present, men who live to be over 65 have a 1 in 5 risk of needing residential care, while women over 65 have a 1 in 3 risk(19). Residential care is not of course the whole story, as many people are looked after at home. The point is that people simply do not know whether they will need long-term care until they get old. 3.2 Making provision for long-term care is thus different from making provision for a pension. Everyone reaching pensionable age expects to start drawing a pension for their later years. The pension is something which people hope they can rely on for an old age which they would like to be comfortable, and for which many have optimistic expectations. Paying for long-term care on the other hand involves making provision in one way or another against catastrophic and, in principle, unforeseeable costs. These costs can be illustrated as follows:
* The hourly costs of home care is based on Local Authority rates, which include overheads. 3.3 These are considerable sums of money. If a married couple were to save against the risk of long-term care they would need £85,000 to be sure of meeting the average cost of a residential home for each of the couple for three years. Many people live in residential or nursing care for even longer periods and therefore would need a much larger sum of money. Perhaps 10% - 15% of people who enter residential care might require it for more than five years(20), and would become totally impoverished by the time they died. 3.4 One approach to meeting such costs, apart from some means-tested state help for the very poorest, would be to expect people to provide for themselves from their income and savings at the time when costs are incurred. One justification for such an approach would be that meeting the costs of long-term care should be seen as one of many contingencies which may befall people along life's way, and for which they should therefore pay up front themselves (apart from minimalist means-tested help). Such a view has indeed been offered by one or two commentators. 3.5 The Commission do not consider this approach to be a practical one. First, for the pragmatic reason that very few people have, or can expect to acquire, resources on the scale needed , just as very few people could meet medical bills if they became ill through some disease such as cancer or if they had a heart attack. The figures of pensioners' incomes in Chapter 2, Table 2.3, show clearly that now and for the foreseeable future meeting care costs from current income is a sheer impossibility for all but the very rich. By the same token few people will have capital on the scale needed other than by selling their house. These are matters of fact, not of judgement. 3.6 This is not to deny that, at some undefinable point in the distant future, rising real incomes may provide greater practical justification for the approach set out in paragraph 3.4. But for now, and in our judgement for the foreseeable future, this approach does not even begin to be an acceptable answer. The risk of needing long-term care requires provision over and above the private incomes of individuals. As individuals cannot make provision out of their private incomes, some degree of pooling of the risk is necessary. 3.7 Older people need long-term care not simply because they are old, but because their health has been undermined by a disabling disease such as Alzheimer's disease, other forms of dementia or a stroke. As yet these diseases cannot effectively be cured by medical care, but people sufferering from them will require ongoing therapeutic or personal care of different kinds(iii) in order to enable them to live with the disease. In this regard, the only difference between cancer and Alzheimer's disease is the limitation of medical science. The sufferer is in no less need of care because of that limitation. Yet, as we show in Chapter 4, the amount of state help available varies significantly between the two situations. 3.8 Many people who have submitted evidence to us do not understand the supposed difference between these needs for care. This is the basis of the widespread perception of unfairness by those suffering from chronic disabling diseases who thought that they were entitled to free care at the time of need just as they would be if they needed a joint replacement or treatment for cancer. Society cannot wash its hands of what is clearly a sizeable social problem. 3.9 At a very broad level, provision for long-term care could be made in a number of ways:
3.10 Approach (3) is the way the United Kingdom has chosen to arrange provision for health care, on the grounds of the need for universality of coverage, and to maximise efficiency. The National Health Service ensures that health care is both affordable and available across all social groups, and minimises problems which could arise from the uneven way in which the need, cost and coverage for health care falls to individuals. The costs of ill-health are concentrated on a small number of people - for example out of total NHS spending in England, some £20bn per annum (out of £40bn in total) is spent on 8 million people in hospital care. Spreading the risk across the whole population and over the lifetime of that population is an efficient way of dealing with both the risk and the cost of providing against it. A point of comparison is with the United States, which for health care operates the first kind of system described above. There a far greater proportion of GDP goes into paying for Health Care, and yet a large proportion of the population below pensionable age are not covered by insurance. 3.11 In examining in theoretical terms the approaches summarised in paragraph xxx, the Commission considered very carefully how the risk of long-term care compares to the risk of other kinds of ill-health. In evidence to the Commission, a number of experts helped us to make this comparison, and to focus on the question of the extent to which provision for long-term care should be the responsibility of the state, and how much of the individual. 3.12 In relation to approaches (1) and (2) the Commission considered whether the market for long-term care insurance would be likely to work well without any state intervention. For a market to work well, it was put to us (by Nicholas Barr of the London School of Economics), that it requires, among other things, good consumer choice. This depends on good and understandable information, and on the ease and effectiveness with which provision can be improved in response to changes in that choice. It also depends on how catastrophic are the costs of choosing badly as to how to make provision for care(21)(22). 3.13 Looking at the "market" for health insurance the insurer is faced with uncertain information about potential customers and with the prospect of excessive claims. The United States experience shows what can go wrong with an over reliance on the market for insurance in health care. There are gaps in coverage and exploding costs. A number of experts strongly put to the Commission that the NHS represented a more efficient means of providing health care than the market could offer if left to itself. 3.14 If we then look at Long Term Care Insurance (LTCI), the problems which arise with health insurance are much greater. For the consumer, the agreement which needs to be entered into with the prospective insurer is complex and relates to a contingency which is by definition a long way ahead. Such insurance is not only offered far in advance, but is based on necessarily also imperfect information as to the benefits that individual may require in the future. Policies for women are more expensive than those for men, because of the greater risk for women of requiring care and because they live longer. There are a large number of uncertainties for both parties, the cost of policies are high and the customer may simply decide not to do anything further. We discuss this in practical terms and in more detail in Chapter 5. Moreover, the current UK market experience, as discussed in detail in Chapter 5 and Research Volume 1, is that people are generally unwilling to take out private insurance for long-term care. The Commission therefore conclude that voluntary private actuarial insurance is unlikely to work on its own. 3.15 Since individual saving is not an efficient way to make provision, some kind of universal provision is clearly necessary under which contributions of whatever kind are sufficient to cover the average cost of care in the light of the probability of requiring it. This would be the most efficient use of people's money, the most efficient spread of cost across the UK and the best guarantee of equity. 3.16 From a theoretical point of view, the Commission are persuaded that universal risk pooling of some kind as in approach (3) represents the most effective way of providing the coverage required. This views the risk of needing long term care as, in practical, moral and social terms the same kind of exceptional risk of having a heart attack or contracting cancer. It requires provision that pools the risks in a similar way. The overall solution here should have regard to what will benefit the majority of citizens at the lowest cost to the nation overall, and remove from as many people as possible fear of the costs of needing to be cared for at the end of their lives. Ideally, also the solution should be one under which people contribute according to their means. 3.17 We favour this approach primarily on the grounds of:
3.18 Having decided that some form of effective risk pooling offers, in theory, the greatest possibility of efficient coverage for the nation overall, the Commission went on to consider:
3.19 The next chapter looks at the current system in terms of the principles we have set out here. We then go on to look at possibilities for changing the current system, so as to alter the responsibilities of state and individual. Footnotes (iii) We examine definitions of different types of care in Chapter 6.
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