Patrick Nolan: Time to bite the bullet on paying for long term care

Dr Patrick Nolan is the Chief Economist of Reform

Long term care needs reform. The major parties all agree that the current system is outdated and unsustainable. They all recognise that an ageing population and changes in morbidity mean the cost of care will continue to rise. Yet efforts to adopt solutions are stuck in the slow lane.

Earlier this week Reform held a summit on paying for long term care. This summit generated front-page coverage in the Telegraph, as well as articles in the Guardian, Daily Mail and Associated Press, with coverage focussing on comments by Lord Warner, a member of the government’s Commission on Funding Care and Support, ruling out “100 per cent universal state provision” and highlighting the need for a look at the money that is locked up in people’s houses.

Yet as well as discussing where the money will come from Lord Warner also highlighted three other priorities for reform. The private sector needs to develop better products to allow people to protect themselves, there needs to be an improved understanding of how the care support system works and there needs to be better information on how long term care interacts with other support, such as the NHS and welfare.

The importance of improving understanding of how the care system works was also highlighted by Penny Mordaunt MP and Richard Humphries from the King’s Fund. As Richard Humphries said, if there was an international award for a poorly designed system then England’s would be the favourite to take it out. It is the “King’s Speech of poor systems,” being stingy, confusing, fragmented and poorly understood.

One poorly understood feature of the system is the role that housing assets already play in covering the cost of care. The financial journalist Paul Lewis noted no one is obliged to sell their home to pay for care. The real problem is an unwillingness to contribute to the costs of care out of inheritance, although there are £1 trillion of housing assets held by the elderly generation, who have enjoyed windfall gains from a long period of house price inflation higher than wage and price inflation.

This need to consider assets in any funding solution has been a theme of reform to systems of long term care around the world. Mark Pearson of the OECD, Emma Stone of the Joseph Rowntree Foundation (JRF) and Jules Constantinou of Gen Re Lifehealth illustrated how different countries are grappling with the problem of funding care. As Mark Pearson noted, using assets as a funding source has played an important part in reform in Australia, Ireland and the United States. Reforms have also emphasised the need to broaden out who they expect to contribute, moved towards more universal coverage and funded long term care in a similar way to the way that health services are funded.

A major challenge is how reform will affect people 55 and above, who in many cases have too little time left to significantly build up more assets to draw on in retirement. Both Clive Bolton, drawing on Aviva’s Real Retirement Report series, and Nick Kirwan of the Association of British Insurers (ABI) highlighted how too many people lack a plan for their retirement. Better and trustworthy information on not only how to prepare for retirement but also how to maximise the value of assets when retired must play a part in any solution.

It has been 15 years since the JRF first published the results of their Inquiry into the Costs of Continuing Care. Someone who was 40 when this document was published would now be 55 and have little chance of significantly building up assets to draw on in retirement. As concerning as this is at an individual level, from a national perspective there is even greater ground for concern. Demographic changes mean that unless changes are made soon even more people will approach retirement age without an adequate plan for their future. Waiting another 15 years for action should not be an option.

Any approach taken to funding long term care will require difficult choices to be made, including the need to account for the value of the family home when funding care. But they must be made. Further delay will simply mean harder choices tomorrow.