Crisis in care is not a new topic, neither is how care should be funded. The NHS is struggling to cope with the demands being made on it as people are living longer, some with multiple health needs. Local authorities are seeing their funding scaled back and face tough budgetary decisions. Care homes are closing amid a funding crisis. There are cases where people have had to sell their home to cover the cost of care. Funding care is a conundrum.
The NHS is a sacred institution on which we all rely. When the NHS was created, the “cradle to grave” concept was taken as gospel by the post-war generations. However, the distinction between ‘nursing’ care and ‘social’ care was not part of the original concept. Over the years, medical care has improved, longevity has increased, and, as a result, more people are now living with long-term health conditions, have greater care needs, and face the uncertainty of how they are going to pay for it.
The Thatcher years saw individuals being encouraged to become home owners to create a legacy for future generations and many dutifully complied. However family homes have had to be sold to pay for care. After various campaigns, economist and chairman of the UK Statistics Authority Sir Andrew Dilnot was charged with writing a report, making recommendations on how care costs could be met. It advised a limit for personal lifetime contributions to the cost of care of £35,000. Subsequently, when introduced, the limits set were significantly greater, at £72,000, with no allowance for ‘hotel costs’, estimated at between £12,000 and £13,000 a year. The proposals were welcomed, but not without criticism.
The initial £72,000 and hotel costs would have to be found from somewhere. Regrettably, the Dilnot proposals will not be implemented until 2020. Until then, sources of funding will continue to be owned property and savings. In fact, the fourth Partnership Care Index has revealed that assets to be used to cover care costs put selling the home top of the list at 31 per cent, pension income at 29 per cent and savings at 28 per cent. Scarily, but not unsurprisingly, 27 per cent of people do not know what they will use to fund care.
The basic principle for all businesses is to generate profit: in its most simplistic form, having calculated the cost and overheads and added a margin, it is possible to calculate what you will charge for the goods and services that you provide. When any number of care homes opened, these basic principles would have been applied to ensure that the service they wanted to provide could be done at a cost acceptable to local authorities and self-funders alike. Care home fees are on the increase as they struggle to find enough funding. The introduction of the Care Quality Commission created a new set of challenges, with new standards that had to be met – including tightened fire regulations – all imposing further costs.
To get a real-world view, I spoke to the owner of a 100-bed care home in Oxfordshire who confirmed that no longer did the care homes set the tariff for local authority funded residents but rather they were told what they would be paid and what they were expected to provide. As a consequence, and to remain profitable, some providers charge a higher rate for self-funders than local authority placements, meaning self-funders are effectively paying an additional ‘tax’ to cover the shortfall in local authority funding.
One of the key elements within the care home overheads is, of course, staff costs. The retention of staff is important for continuity of care and the quality of care provided. These costs are being driven up by demand for carers in all environments and the introduction of the national living wage only increases the starting point. The care home owner I spoke to also stated that an industry target is for staff costs to be at or less than 65 per cent of income, which is almost impossible to achieve. He does not believe small care homes with 20 to 30 residents are economically viable any longer. In fact, he disposed of a care home of this size for this very reason, saying only larger homes that could achieve the advantages of economies of scale would be able to survive. That survival is likely to see residents only being accepted if they are self-funders or who can guarantee that they or their relatives can pay top-up fees.
Prior to the combined Autumn Statement and comprehensive spending review, Bupa, Barchester, Care UK, HC-One, Four Seasons and Care England wrote to the chancellor expressing their concerns about the effects of the introduction of the national living wage on the care home sector, warning that the extra costs could see 9,000 care homes closing. Four Seasons Health Care, one of the main operators in the sector with more than 400 care homes, is reported to be currently reviewing its situation and aiming to reduce the level of its debt, raising concerns for 20,000 residents.
Even if the warnings of a significant number of care home closures are unfounded, there is a real possibility that the crisis will get worse, particularly for those who rely on local authority funding. The impact on the NHS could be considerable. Could we see the return of geriatric wards and local authority-run care homes?
Much has been said and published about how fortunate the ‘baby boomer’ generation is. But as well as being boomers they are also the sandwich generation – under pressure to support their children onto the property ladder as well as providing care for their parents. The failure to implement the recommendations of the Dilnot Report, leaves them unclear as to how to prepare, save and plan for their own financial future at a time when a large number of people are transitioning into retirement. Not enough is being saved for long-term care, and it is difficult to see how boomers can put cash aside when already squeezed from both sides. A care Isa has been suggested by pensions minister Baroness Ros Altmann as a savings plan for long-term care. It will be interesting to see how this idea develops.
The need for more saving is juxtaposed by further statistics from the fourth Partnership Care Index, which reports that 43 per cent of people would deliberately reduce their assets so as to not have to pay for care. Those with assets of less than the annual threshold of £23,250 would qualify for state support. Local councils would be left to shoulder the financial fallout. But beware, in March this year the Department for Work and Pensions released a factsheet called “Pension flexibilities and DWP benefits”. Under the section ‘Deprivation Rule’ it states: “If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits. If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.”
Pension freedoms promote the idea you can get access to and spend your pension as you see fit, but the state will not support you if it is deemed you ‘deliberately’ reduced your assets to avoid paying for care. No wonder everyone is confused.
The provision of care, how it is provided and who pays for it is a concern for many and it will remain a topic of debate for some considerable time.
Malcolm Booth is chief executive of National Federation of Occupational Pensioners
Key facts
Care homes no longer set the tariff for local authority funded residents.
One of the key elements within the care home overheads is staff costs.
The failure to implement the recommendations of the Dilnot Report, leaves many unclear as to how to prepare for their own financial future.
