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On 28 October 2021, the House of Lords is scheduled to debate the following question for short debate, tabled by Lord Lipsey (Labour):

To ask Her Majesty’s Government what assessment they have made of the possible role of the private sector in helping individuals pay for social care.

Background

There have been concerns about the provision and funding of adult social care in England for a number of years. This is covered in more depth in the recent House of Lords Library briefing Social Care: Challenges, Funding and Reform.

The briefing highlighted the following key issues for the sector:

  • Funding and market fragility: local authorities continue to face financial pressures and funding issues can mean care providers go out of business or hand back contracts.
  • Costs and means testing: unlike the NHS, social care is not free at the point of use and many see this as unfair. Some people can end up facing very high costs for their care.
  • Quality of care and unmet need: many people do not get the support they require or go without the care and support they need completely.
  • Integrated care: the integration of health and care could be improved to reduce the impact of issues such as delayed transfers of care from hospital.
  • Sector workforce: care staff can face poor pay and conditions. This is among factors that can lead to high vacancy rates and/or turnover.
  • Unpaid care: most care is delivered by unpaid carers who may be relatives, friends or neighbours of the recipient and may lack support.

A number of organisations and bodies have put forward options for improving the funding of social care. The Nuffield Trust has produced a list of some of these options, which includes ideas for funding through tax increases or individual funding through mandatory social insurance schemes, voluntary insurance schemes or pension-style schemes. The Health Foundation has highlighted that currently there is no way for individuals to insure themselves against the possibility of needing to pay for care costs. It explained that the private sector does not provide comprehensive insurance for social care because of factors such as the difficulty of predicting future costs and the problem of ‘adverse selection’ (where people at higher risk than average sign up, increasing premiums) if the insurance is not compulsory.

Government position

On 7 September 2021, the Government published its plan to increase funding for health and social care. The plans included a new levy based on national insurance contributions. The Government indicated that most of the proceeds of the levy would be directed towards the NHS initially, to tackle backlogs over the first three years of the levy’s operation, with £5.4 billion of the expected £36 billion to be raised set aside for adult social care.

In addition, the Government announced it would introduce a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime. This would be brought in from October 2023. It hoped the reforms would “complement the existing service allowing people in need of residential care to defer payment of their care home fees so that they do not face the added stress of having to rush into selling their home”. It stated that further details on its plans for reforming adult social care would be set out in a white paper later in the year.

Elaborating on the Government’s cap proposal, Prime Minister Boris Johnson explained that he also hoped this would enable the financial services industry to offer products providing insurance up to this amount. He said the Government would work with the industry to encourage this:

We know we cannot rely solely on private insurance because demand would be too low for insurers to offer an affordable price, and a universal system of free care for all would be needlessly expensive when those who can afford to contribute to their care should do so.

Instead, the state should target its help at protecting people against the catastrophic fear of losing everything to pay for the cost of their care, and that is what this Government will do. We are setting a limit on what people can be asked to pay, and we will be working with the financial services industry to innovate and to help people insure themselves against expenditure up to that limit.

The cap will be implemented using provisions already in place under the Care Act 2014. It had been legislated for under this act based on recommendations from the 2011 Dilnot Commission on social care funding. The commission had also hoped that a cap would “create a new space for financial products, which could support people in making their individual contributions”. Although a possible cap had been legislated for by the Care Act, it had never been implemented. Under the provisions of the Care Act, only personal care costs count towards the cap. Daily living costs, or what are commonly referred to as ‘hotel costs’ in a care home, such as food and accommodation, do not count towards the cap.

The Financial Times has reported that the Chancellor of the Exchequer, Rishi Sunak, also supports the idea that the cap may allow more insurance products to be offered to cover care costs. It said that Treasury officials have been told to “step up talks with the insurance industry over the possible launch of new products enabling people to fund future social care costs in England”.

Reaction to the Government’s plan to improve private sector involvement

The Association of British Insurers welcomed the Government’s plans, with the Director General, Huw Evans, saying: “the simpler and clearer the rules about what the state will provide, the easier it will be for insurers to respond to and support customers with what is not covered”.

The idea was also backed by the former Liberal Democrat pensions minister, Steve Webb, who said that the cap “mattered” because insurers “hate risk”.

However, others are more doubtful of the impact. For example, Nicky Cave, managing director at Eldercare Solutions and an accredited adviser of the Society of Later Life Advisers, told the Financial Times:

I doubt there will be a rush of new products but hopefully the existing, at need product will start to look like a more affordable way of properly limiting those catastrophic [care] costs.

Last time around [referring to the proposals for a cap around the time of the Care Act 2014] didn’t reassure insurers sufficiently for them to develop products and so I am not sure this time around will be any different.

She also believed that insuring against future care costs is not seen as a priority for most people, particularly when compared to mortgage or pension costs. Instead, she recommended existing products, such as care fees annuities, as an attractive option:

These are being purchased by people going into care now, for whom it should be easier to predict when and by how much the care cap will benefit them. Therefore they could potentially buy the annuity for a lower annual income, making it cheaper.

However, she believed there was low knowledge of these products.

Speaking in a House of Lords debate about some of the doubts raised by insurers, Lord Hunt of Kings Heath (Labour) questioned the effectiveness of the cap and queried why the Government was not doing more to incentivise a “private market to develop to help self-funders”. He believed this would then allow the Government to “concentrate on the proper provision of social care for those who cannot afford to pay above any insurance prospect”. Lord Lipsey (Labour) has also criticised the Government’s approach, saying it has “apparently paid no attention whatever to the great role that the private sector can play in helping richer people to afford their care in later years”.

Commentary and further reading

The House of Lords Economic Affairs Committee discussed various social care funding options in a report published in July 2019. This included public funding, including taxation and mandatory social insurance (as used in Germany and Japan), and private funding, including through insurance.

The witnesses in the inquiry highlighted a number of issues to consider for the private insurance approach to work, including:

  • How to encourage demand: Would people seek out these products? How could they be promoted?
  • How to encourage supply: Would a cap be effective for boosting insurance companies’ willingness to supply these products?
  • Whether an auto-enrolment scheme would be effective, as with pensions: Would people opt out of the scheme? And what could be the future impact of them opting out?

Taking these issues into consideration, the committee made the following points regarding private insurance:

No country relies primarily on private insurance to fund adult social care costs. In the current system, establishing a market for long term social care insurance in England would be difficult, even with a cap on lifetime social care costs or accommodation costs or an auto-enrolment scheme. Private insurance cannot provide the amount of funding required by the social care system, not least because roughly half of public social care funding is currently spent on people who are working age.

The analogy between social care, national insurance and the state pension is weak. Most people will expect to need a pension, while the proportion needing care is unknown and may be even further away in time than retirement.

A market for private care insurance may be more likely to develop in a system where personal care costs are funded by the state. Products might emerge offering individuals the ability to insure against accommodation costs, other care needs or to access more expensive private care provision.

The Government did not produce a response to the report.

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Cover image by Georg Arthur Pflueger on Unsplash.