Social care funding: complex but not impossible

Debate over social care reform in England continues to focus on funding, with the recent suggestion of a rise in national insurance contributions the latest to seemingly become politically difficult. So is a solution to this thorny issue impossible? Natasha Curry and Laura Schlepper argue that countries like Japan and Germany have showed that it can be done.

Blog post

Published: 02/08/2021

Another week and another turn on the merry-go-round of social care policy news. Reports emerged that national insurance contributions would be raised by 1% to pay for social care reform. Or, rather, it would pay to clear the NHS backlog and then used for social care reform. However, only a matter of hours later, it was reported that social care reform proposals would be delayed until the autumn.

This was the most recent in a long line of different funding solutions that have been floated over the last two decades – we’ve looked at 15 of them and assessed them against what we think are four key principles that must underpin a funding system. This latest idea, while meeting some key requirements, falls down on the fairness dimension and came in for some intense criticism as a result (see the tool at the end of the blog). And so we face another delay. It’s a familiar story to anyone who has followed social care policy over the last two decades.

So does experience suggest it is simply impossible to reach a solution to this thorny issue?

It can be done

Other countries demonstrate that funding social care is not impossible. Indeed, many countries recognised the importance of putting social care on a firm sustainable footing more than two decades ago. Two of those countries that we’ve looked at in some detail – Japan and Germany – show that even in some really quite testing political and economic circumstances, radical change is complex but possible.

Everyone pays in so everyone benefits

Although the systems are not identical, at the heart of both is the basic principle that everyone pays in so that everyone can benefit. It’s how the UK chooses to fund its health system and most other essential services. In Germany, whose system is available to all, everyone pays in on starting work. In Japan, only the over 40s pay in but care is only accessible to the over 65s. In both countries, people continue to contribute beyond retirement age.

Some proposals in the recent past in England have championed individual insurance or pension-style approaches. In Germany, there have been several unsuccessful attempts to encourage private insurance. The idea – rejected during initial reforms over concerns that it would not raise money immediately and that those on lower incomes would struggle to pay premiums – resurfaced 20 years later when the government offered tax subsidies to those taking out policies. It proved difficult to encourage lower risk young people (who generally have other spending priorities) to take out policies which, in turn, made premiums for higher risk and older people prohibitively expensive. Uptake remains low.

It’s unlikely that the outcome in England would be different, particularly given the low levels of public awareness of social care. The financial services industry has also signalled its reluctance to move into such a market.

Sustainability: balancing individual with societal responsibility

Social care funding in England has been characterised by ad hoc injections of funding which offer little certainty or stability to those who draw on services or those who provide or commission them. Germany and Japan put in place sustainable sources of funding that sought to balance society’s and an individual’s responsibilities. Care is not free at the point of use in either system – people eligible for care are allocated a monthly budget from central funding depending on their level of need to pay for some care, but they are expected to meet the remainder of their care bill themselves.

Japan recognised a need to offer protection and certainty to individuals from the outset, and defined the contribution that people would make as a percentage of care costs (this is means tested) up to a monthly cap. This offers people clarity over their monthly costs and protects them against very high costs even if they have very high care needs.

After much deliberation, Germany has recently opted to introduce a cap on residential care costs along a sliding scale relative to length of stay. The longer that a person stays in a care home, the lower the cost, but people do not cease to contribute privately. This approach seeks to balance the need to protect individuals from high costs with sustainability of the overall system.

Transparency v flexibility: taking a blended approach

In Germany, transparency of funding was seen as crucial to building public support so they opted for a strictly ring-fenced social insurance fund. However, this transparency means there is little flexibility – the fund cannot be topped up from other sources nor can excess money be diverted elsewhere. So, if levels of need increase, the only way to increase the fund is to raise employee and employer premiums (a lengthy and political process) or costs have to be passed on to the individual.

Japan, which modelled its system on Germany’s, recognised this weakness and opted for a combination of methods. A highly transparent and strictly ring-fenced social insurance scheme provides around half of the core funding and general taxation provides the other half. That has allowed the government to flex the amount it puts towards care according to changing needs.

Germany has recently decided to go down a similar route. From next year, long-term care insurance funds will receive an annual €1 billion tax subsidy to help stabilise the system.

How can we get there? Don’t start with the funding

Debate over social care reform in England continually focuses on funding, rapidly becomes politically toxic and, consequently, fails to move on. When looking at how other countries pushed through reform, it seems they started in a very different place.

To build support for contributions, Japan and Germany set out a compelling vision that people wanted to support. They designed systems that sought to explicitly address well-understood problems, and created a service offer that sees everyone with care needs benefit to the same extent. Discussions over who should pay and how much took place against a backdrop of mutual understanding. The narrow focus in England on older people in care homes protecting their offspring’s inheritance is not one that is likely to build widespread collective support for raising new funding. Nor is it likely to lay the foundations for a system that promotes choice and enables people with social care needs to live an independent and fulfilling life.

Fairness was also central to the debate in both countries, guiding decisions about funding, eligibility, access and payments. Fairness is deeply culturally rooted and so what is fair in another country would most likely not be seen as fair here. Building a system that is seen to be fair – across generations, regions, wealth and income – in how it is funded, but also in how it is accessed will be essential for securing much-needed cross-party support and public buy-in.

Suggested citation

Curry N and Schlepper L (2021) “Social care funding: complex but not impossible”, Nuffield Trust comment.