Funding residential care
Roughly 1 in 25 of the total population aged 65 and over live in care homes, a figure that rises to nearly 1 in 7 of those aged 85 years and over. Residential social care is expensive, though most people will not need it. The majority of those who are in care homes suffer from dementia or severe memory loss.
As people are living longer, there is pressure on governments to ensure that it is adequately funded, and several different approaches have been suggested to achieve that to ensure that everyone who needs residential care will receive it.
One proposal is to copy the NHS, and have a state-run service paid for out of taxation and free at the point of consumption. A problem with this is that the cost in higher taxes might be more than people are prepared to pay, and more that they are prepared to vote for. There is the added problem that if it were done in this way, demand would rise, perhaps steeply. People currently ready to make sacrifices to care for elderly relatives in their homes would expect the state to take care of them instead. There would probably be self-selection as people opted to receive the free state care, and perhaps even “granny dumping” as people shifted the burden of care onto the state. The costs, like those of the NHS, could be expected to spiral.
An alternative method, proposed by Theresa May’s government, would be to have those with assets and incomes, including their homes, above a certain level, paying towards the costs of their residential care. The proposal was reckoned to have been an electoral disaster because elderly people want their assets to be handed down to their children rather than being consumed in what might be years of residential care. Their children, not surprisingly, take a similar view. The plan, dubbed a “granny tax” was reckoned to have contributed to Mrs. May’s loss of her Parliamentary majority, and future plans incorporating the same principle are unlikely to find favour with politicians.
Another method could be to have residential care funded on an insurance basis, with people paying premiums throughout their working lives to cover residential care should they later need it. It would have to be compulsory to prevent non-payers who needed care becoming a state liability. Such insurance would have to be handled by private providers rather than government, or it would simply become taxation by another name, and subject to all the drawbacks that has.
More attractive still might be a plan like a pension fund that people would build up over their working lives, so that it could pay the care home costs of those who needed it, while remaining the property of those who did not. For the most part, the people funding their residential care if needed would be themselves when younger, in employment, and paying into their fund. It does involve people paying more out of their earnings to build up the funds, but unlike taxation they would not see it as money taken from them because it would remain their property and would be passed on as part of their inheritance when they died.
The difficulty lies in the transition to such a system. It might be fine for young and middle-aged people to build up such funds, but some provision has to be made for those approaching the time when they might need residential care but haven’t had time to build up sufficient funds. There is no easy answer to this, but a massive sell-off of state assets, especially land, might be used to pay into people’s funds to build them up quickly to an adequate level.
There is also the political problem that this is a long-term solution, whereas politician have time horizons that reach only to the next election. Politicians might find it easier to offer people money that will be paid for by future earners long after the present politicians have moved on. And those private funds might well attract future Chancellors looking hungrily for new taxes.