The demographic time bomb of an ageing population is a concern among policymakers and insurers alike. The unsustainability of the UK’s current system for providing long-term care is rapidly becoming apparent.
Government statistics show that the number of people with long-term care requirements is set to rise by 1.7 million over the next 20 years. Meanwhile, the costs associated with providing care are increasing. In the UK alone, the combination of an ageing population and changes in mortality rates will create a funding gap of more than £6 billion by 2026, according to figures released by think tank Reform. Finally, a report from healthcare body, the King’s Fund, has found that spending on long-term social care will double over the next 20 years. The principal reason for these dire figures is that, in the UK, long-term care is funded from current taxation. With a proportionately dwindling population of working age, there is therefore a mismatch between assets and liabilities that is ultimately unsustainable.
A review of the UK’s system of long-term care of the elderly has been attempted before. When the Coalition took office it appointed the Dilnot commission on the funding of care and support, which is due to report in July. .
The Commission is likely to suggest that some form of partnership system is needed to replace the current means-tested provision of state-funded care.
A partnership model would assign responsibility for an individual’s elderly care between the state, the individual and the insurance industry; all three would be collectively responsible. This model would bring the UK in line with many other developed countries like the Netherlands, which earlier this year passed a Bill handing over responsibility for payments to insurance companies rather than the state; indeed, only the US among developed nations has a system similar to the UK’s. Or, rather, England’s, as Scotland and Wales are more generous.
The two main advantages of a partnership system would be (i) that it would be more equitable and (ii) that it would be better at investing for future liabilities. Instead of care being given only to individuals meeting the means-tested criteria, there could be a basic state-funded entitlement, topped up by additional payments to increase the levels of care on the basis of ability to pay. If the plan were built up over the 30 or 40 years of working life, it would have a much better chance of providing for the needs of old age. Furthermore, the insurance industry has a proven track record of matching current receipts with future liabilities, unlike the current system, which relies solely on today’s tax receipts to fund the care.
This is an emotive subject, however, and one problemis the issue of entitlement. There is likely to be considerable opposition to widespread reform on the basis that many people would see the insurance contributions as an extra tax to pay during their working life, for something to which they feel entitled anyway. But charities for the elderly are on record as saying the current system is unfair: figures suggest that 80% of all wealth in the UK is in the hands of the over-60s, which would seem to support the argument that they should fund some of their own care
Finally, there is an expectation among baby boomers that their tax receipts can fund a generous pension and a long-term care package. With all the predictions showing that this is no longer the case, the time for radical reform has surely come.