This piece first appeared in Saga Magazine in May 2013
The text here may not be identical to the published text  

Care cost reform

Generous? or full of catches?

The Government is planning to give more help to people who have to pay for their long term care. The new scheme will begin on 1 April 2016 and will only apply in England. It is likely that Scotland, Wales, and Northern Ireland will make some alterations to their own schemes.

The reform introduces three big changes on the present system

·         A cap of £72,000 on the cost of care – after that the state will pay.

·         An increase from £23,250 to £118,000 in the amount of savings someone can have and still get some contribution to the cost of care.

·         A promise that no-one will have to sell their home in their lifetime to pay for care

The scheme will cost an extra £1 billion a year by 2020 and help 100,000 more people than the present system with the cost of their long term care in old age. By 2026 the cost could have doubled.

However, none of the changes is quite as generous as it seems at first sight.

The cap
The cap on care costs of £72,000 does not mean that once a person has paid £72,000 to a care home the state would pick up the whole bill for the rest of their life. There are three reasons why an individual will pay more.

First, the £72,000 only covers the cost of the actual care. It does not cover the cost of accommodation and food. These board and lodging costs will be capped at around £11,500 a year but will still have to be paid even when the cost of the care itself is paid by the state.

Second, the figure of £72,000 is not the amount the individual has actually spent on their care. It is the amount of care that could be bought for £72,000 at the rate paid by the local authority. If a local authority was willing to pay £410 a week for care in a home then £72,000 would buy about 175 weeks there. So to reach the cap an individual would have to buy 175 weeks of care – whatever price they paid. To buy that same care privately the cost would probably be at least £510 a week. At that rate the individual would have to spend £510 for 175 weeks – a total of £89,250 – before the cap was reached. And throughout the 175 weeks they would be spending £11,500 a year on board and lodging which is another £38,700. So altogether the person in the care home would have paid £128,000 before the '£72,000' cap was reached. And even then the £11,500 a year board and lodging costs will continue. The cost of care the council will pay will be different in each local authority area and so will the amount an individual pays privately. So the actual cost that has to be met before the cap is reached will be different in almost every case.

The cap includes care bought at home before going into residential care. But again only care the local authority will pay for and at local authority rates will count.

There is a third problem with the cap. Once a person reaches it the local council will still only pay its standard fee. So if the home has been charging £510 a week and the council will only pay £410 then the individual will have to find the extra £100 a week towards the cost. At the moment residents cannot top up their own fees but under the new scheme they will be allowed to do so. With the board and lodging charges that would mean an annual cost of nearly £17,000 even after the cap was reached.

People in care at the time of the change will be subject to the new rules. But the cap will only take account of care costs incurred from 1 April 2016 when it begins.

Savings limit increased
The £118,000 savings limit means that anyone who has capital (including an empty home) which exceeds that figure will have to pay all of their care home costs, until of course the cap is reached. Below that figure a sliding scale will determine the contribution they make. Details have still not been announced but on the information released someone with £100,000 savings could have to pay £330 a week towards their fees and someone with £50,000 in the bank £130 a week. Only if savings fell below around £17,000 would the local council pay the whole bill.

Your home is safe
Saga readers who follow these columns will know that no-one can be forced to sell their home to pay for their care under the present rules although around 19,000 a year do. Since October 2001 a person in care with an empty home outside has been able to enter into what is called a deferred payment arrangement. Under that scheme the local council picks up the bill and takes what is called a charge against the resident’s home. When they die the debt is paid from the estate. Currently at least 8,500 people are in such schemes. Some councils resist making them but since 2009 at the latest, and in fact for some years before, that has been unlawful and can be challenged. Even if the local council does defy the law the resident can simply refuse to pay. The local council still has to provide care and again it will take a charge against an empty home so the bill is paid after death. That law dates back to 1983.

In either case no interest is charged on the debt while the resident is in care – and for 56 days after death under a deferred payment agreement. Those rules apply throughout the UK. The Government plans to replace them in England by a universal deferred payment scheme that local councils will have a clearer legal duty to apply. But interest will be charged on the debt from the moment it begins and the backstop of the 1983 law will be repealed. This change is scheduled for April 2015, a year before the other reforms.

Paying for it
The extra cost of the new scheme will be around £1 billion in 2019/20 though official figures show it will reach almost £2 billion by 2025/26. It will be partly paid for by freezing the £325,000 threshold for Inheritance tax until at least April 2018. The rest will come from the extra National Insurance contributions which will be paid by several million people and their employers as a consequence of the state pension reforms which will also now begin in 2016. The extra taxes will apply throughout the UK even though the new system will only affect people in England.

The new money will go mainly to the better off. Department of Health figures show that by 2025/26 the wealthiest 40% of people in care homes will get nearly 70% of it. The poorest fifth will get no more as their care costs are met in full already.

Despite the extra money being spent the new scheme will be even more complex and difficult to explain than the present one.


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