It is widely accepted that for health care there is a collective duty – and thus a role for the state – to provide financial support for all. No such consensus exists when it comes to social care. Yet Sir Andrew Dilnot at our recent Summit reminded us that the structure of risk for personal care is no different from that for health: only a handful of us will have no need for social care, most of us will have some, and a small proportion of us will have extreme need and face ‘catastrophic costs’.
As the much-awaited green paper approaches, we have collected and reviewed the different funding proposals put forward over the last two decades and two things have become clear: they are numerous and they are varied. A fundamental question remains about whether policy-makers will reconsider the balance of responsibility for funding between the state and the individual.
Changing role of the state?
Sir Andrew suggests that the role of the state is changing, and auto-enrolment pensions are an example of that. The government has acknowledged the importance of saving for old age but, instead of addressing that directly, has opted to compel individuals to take responsibility for saving through private pension schemes.
This vision of the role of the state is mirrored in some of the more recently reported proposals that we might expect to see in the green paper. The details for proposals for an auto-enrolment scheme modelled on pensions for social care funding remain unclear, however. Would they operate as a form of voluntary insurance, or as an individual fund relative to the size of your income? Either way, it draws on a narrative of individual responsibility.
Applying the rationale of pensions to social care need is misleading. While a pension pot is designed to reflect the quality of life of people’s working years, a need for social care can arise irrespective of wealth.
Relying solely on the private market to provide appropriate products is also problematic. Experience suggests there is limited enthusiasm for financial or insurance products for social care. Creating an attractive offer is difficult, and demand from individuals is low. Private products are also prone to medical underwriting, favouring the young and healthy and excluding those of high risk.
What would an ideal funding system look like?
Our collection of proposals underlines the multitude of potential ways to fund social care, some of which could be applied in combination. While there isn’t one perfect approach, we have come up with four principles that should be central to an ideal funding system.
Use the tool to see how some popular options fare against our tests.
1. Does it raise money for now and the future?
An effective approach to funding needs to inject additional money into a system already struggling to maintain existing standards.
The current means-tested approach does not provide a route to securing additional funding, as it relies on covering costs through a mix of local authority funding and personal contributions that are dependent on income and assets. Proposals to raise the level of income at which individuals have to fund themselves (the ‘floor’, currently set at £23,250) would raise costs for local authorities, without injecting additional funding. So too would setting an overall cap (as proposed by some) on what individuals can be expected to pay.
Looking to the future, the funding system must also make sure it can accommodate the growing need for care, as demographic change means that a system in which only working-age adults contribute is unlikely to be sustainable in the long term.
Tax increases and extending national insurance contributions beyond the state pension age are two schemes that offer the potential to reduce the short-term funding gap.
In contrast, some of the individual insurance-based approaches proposed would require contributions over a longer period before having full impact, and would need to sit alongside other mechanisms to ensure short-term funding increases.
2. Does it pool financial risk?
Risk pooling provides protection against the lottery of catastrophic care costs by redistributing revenue to those with the greatest needs. It provides security to all, and ensures the whole population has equitable access to care, regardless of wealth.
While all funding systems based on insurance and taxation have an element of risk pooling, some perform better than others. Universal mandatory contribution schemes, such as general taxation or national/social insurance, have the greatest potential to protect the largest number of individuals. They distribute cost across the whole of society and therefore offer at least some protection to all.
In contrast, voluntary auto-enrolment insurance models run the risk that those who are already struggling financially may opt out, leaving their future needs unfunded.
3. Is it fair?
There is growing evidence to suggest that those with lower socio-economic status are more likely to experience high needs, but are less able to pay the associated costs. A fair funding system would address these inequalities and minimise the burden on individuals. In a universal, mandatory system, for instance, everyone contributes in line with their level of wealth, and everyone has equal access according to their level of need, not their level of contribution.
But, of course, ‘fairness’ is complex and multidimensional. Our current system is beset with regional variations, so a fairer approach would respond to the fact that wealth and care costs vary regionally. Collecting and redistributing money at a national level minimises local disparities.
Intergenerational fairness is a further dimension. An ageing population puts more financial pressure on younger generations, leading to the suggestion that a fair model should see people continuing to contribute beyond state pension age.
4. Is it understandable and transparent?
Many people believe that social care is part of the NHS. They are consequently not aware of a need to save for their future social care needs, and by the time they or a relative develop a need, it may be too late. The current means-testing system is also complex and poorly understood by those navigating the system for the first time.
A reformed funding system will need to be clear about what is being contributed, by whom, and how it is being redistributed. Only an understandable and transparent approach to funding can hope to engender public support for, and ownership of, a reformed social care system. The funding mechanism most likely to gain most public support is one that is familiar to people.
Building a consensus
No single funding scheme proposed to date meets all of the principles perfectly, but some fare better than others, and it could be that a mix of options is required. As the debate on social care funding evolves, a shared political and public consensus will need to be found on what kind of overall social care system we want and how we want to fund it. Building a funding system that reflects these principles seems like a good place to start.
Oung C and Schlepper L (2019) "What principles should underpin the funding system for social care? Nuffield Trust comment.