Consumer insurance will not solve the problems of social care funding
A new think-tank report published this month argues that consumer insurance for long-term care will not solve the problems of the social care system in England and Wales, and policymakers should instead explore hybrid public-partnership models found in other countries.
The report, Gone for Good? Pre-funded insurance for long-term care from the Strategic Society Centre observes that although the UK has one of the most successful insurance industries in the world, no provider now offers pre-funded long-term care insurance.
The report argues that no country in the world has an effective or functioning market in this type of product, and like other countries, the UK market confronts impossible demand barriers, which include the system of free personal care system operating in Scotland that leaves many households in England and Wales confused.
The report comes at the time of a major government review into the future of long-term care funding in England and Wales. The Dilnot Commission on Funding Care and Support is due to report in July 2011, with a White Paper from the Coalition Government promised before the end of the year.
The report argues that even if the UK were to achieve take-up rates for pre-funded long-term care insurance of 15%, equivalent to the current international leader France this would still result in a social care system that was under-funded, means-tested, excessively rationed, and with many households confronting catastrophic bills for paid care.
The report concludes that there are multiple other roles that the financial services industry could take in long-term care funding reform, particularly around delivering and servicing a state-sponsored insurance scheme for long-term care. The report cites case studies such as ElderShield in Singapore and the long-term care insurance scheme of the Netherlands. Not only has the high level of coverage that has resulted from such schemes gone a long way to solving problems of long-term care funding, it has also enabled governments to introduce working-age contributions, reducing the scope of the kind of retirement means-testing in social care that has done so much to undermine the pensions industry in the UK.
James Lloyd, Director of the Strategic Society Centre, said: “No country in the world has a properly functioning market in pre-funded long-term care insurance, leaving policymakers everywhere with problems in their long-term care funding system. The current system in England and Wales is characterised by real human suffering, and households left to foot enormous bills for care. However, its clear that pre-funded insurance just cannot deliver the outcomes that the government seeks in the social care system, and new, alternative approaches, such as the public-private partnership insurance schemes found in other countries need to move to the front of the debate.”
Oliver Thomas, Director of UK Care Homes, Bupa Care Services, said: “The only sustainable option is a partnership between the individual and the state where risk is pooled. Insurance is an option but, as the report suggests, we dont think a voluntary system would work. We know from our own previous experience in LTCI that people dont buy it if they dont think theyll need it. If the Dilnot Commission thinks insurance is part of the solution, an element of compulsion will be crucial.”
David Brown, insurance partner at PwC, said: “The debate on the funding of long-term care and support is well documented but so far inconclusive. There are still real gaps in plans to fund retirement and health provision and the role that financial services providers will have in this. The impact of the shrinking working population in proportion to those of retirement age and depreciating pension pot values is already being felt – providers need to develop more flexible and transparent saving products to respond to these factors.
“These products should be low cost to administer and should seek to balance the risks and rewards for members and sponsors. There are already signs of this in the market, the next steps will be to allow greater flexibility and risk-sharing between employers and employees and striking a balance between the development of products suitable for mass consumption, and more tailored products aimed at customers with more complex needs. The Dilnot Commission will have a profound impact on the debate on the funding of long-term care and support.”