Published by Danail Vasilev on 13 March 2017
- Our Work
- The Reformer Blog
22 June 2017
When the Conservative manifesto was published, its plans for social care were hotly debated. The proposed changes included a different means test for council financed social care and a rejection of a cap on care liabilities. Despite intense media attention, there was little analysis of the implications for eligibility or who would be affected.
This extended blog explores data from the English Longitudinal Study of Ageing to provide that detail. While the manifesto may not be implemented in full, analysing how the older population would be affected presents important findings for the social care debate.
Conservative manifesto proposals: a shift from community to residential care
There is currently a means test which determines eligibility for council-funded care. The Conservative manifesto proposed a change to this means test which would make residential care more accessible, but eligibility for domiciliary care, i.e. care provided at home, would be restricted. The old and new eligibility rules are compared in Table 1.
According to the data, 1.9 million people would lose eligibility for immediate council support
When the current means test is applied to a representative sample of older English residents, Reform finds that 13.6 per cent of the over 65’s would be able to receive council funded residential care if they developed sufficient care needs. The proportion eligible for domiciliary care is 46.8 per cent.
It is important to note that currently anybody eligible for residential care would be eligible for domiciliary care as well. Therefore, comparisons between the old and new means tests are easiest to make based on eligibility for domiciliary care.
Under the manifesto proposals, those eligible for care at home comprise 27.5 per cent of the total cohort. In a similar piece of analysis, using the same data, IFS found that for people aged 70-79, eligibility will be between 20 and 31 per cent of the total cohort, which agrees with Reform findings. Reform figures imply that the number of potential beneficiaries will decrease by 1.9 million (41 per cent of those currently eligible) under manifesto policies.
A summary of these figures is given in Table 2.
Research by NHS digital reports that in 2015-16 £2.03 billion was spent on long-term home care for the over-65s. If the 41 per cent decrease in eligibility translates to 41 per cent less spending, the policy may result in savings of £832 million.
This however, should be treated as the very upper bound on savings, as many people will not be initially eligible, but will receive support after they deplete their savings. Furthermore, eligibility for residential care – which is more expensive than home care – will increase, putting an upward pressure on spending.
Up to 5 million over-65s can gain eligibility for a Deferred Payment Agreement
In addition to a new means test, the Conservative party has proposed the rollout of Deferred Payment Agreements (DPAs). DPAs are a product which allows a person to receive council-funded care, but after they die the council recoups the incurred cost from the value of the recipients house. Currently, DPAs are only available to people receiving residential care, but under manifesto reforms, DPAs will be used to pay for domiciliary care too.
The manifesto is not clear on how eligibility for a DPA will be determined. Currently, they are available to people with less than £23,250 in financial savings and who live alone in their home. The analysis here assumes that DPAs will be available to individuals with less than £100,000 in financial savings. With this in mind, two scenarios are considered: when only single people are eligible, and when people living with a spouse or a dependent are also eligible.
If DPAs are only extended to those who live alone in their house – as is currently the case – around 540,000 more people will gain eligibility. This scenario is close to the one analysed extensively in a previous paper by Reform.
However, if those living with their spouse are also made eligible for a DPA, there will be a dramatic increase in the number of potential beneficiaries. The total amount of people eligible will be half of the entire cohort. The changes to eligibility for deferred payment agreements are summarised in Figure 1.
2.1 million homeowners will have to liquidate assets before they get council support
The combined effects of tighter eligibility for council support and extended DPAs effectively means a shift towards funding care through housing wealth, rather than general taxation. Those who have moderate savings are expected to contribute to their care, but state support guarantees that nobody will be left with assets of less than £100,000.
To look at these issues in more depth, this section compares the assets of different stakeholders. Figure 2 presents the median income, housing and financial assets of older people. Among the over 65’s, half receive less than £314 per week; half have housing wealth of less than £160,000 and half have financial savings of less than £42,000.
The group eligible for domiciliary care under the current arrangements is significantly worse-off than the general older population. Among this group, half receive less than £250 per week, half have a house worth less than £106,000 and half have less than £7,350 in the bank.
Since the proposed means test is more restrictive, it is no surprise that the new beneficiary group is even worse-off. In fact, more than 50 per cent of this group will not have any housing wealth. Furthermore, the non-housing assets of this group are significantly smaller than that of the total older population – the median savings are just 14 per cent of the median among the total cohort.
When compared to the group currently eligible, the most significant difference between the two groups is the home ownership status. Income and savings do not differ by much across the two groups, but there are virtually no homeowners in the new eligible group.
The final group considered is people who lose eligibility, i.e. the group that passes the current means test, but would not be able to immediately receive support under the manifesto proposals. Our estimates put the figure at 22 per cent of over 65s, or just over 2 million people. This aligns with IFS estimates of “between a quarter and a third” for the over 70s.
For this group, the median income is £269 per week, while the median house value and financial savings are £169,000 and £12,000 respectively. These figures indicate that the group losing eligibility generally has less financial savings and smaller incomes than the general population, but is somewhat more housing-rich compared to the general population.
Discussion: shifting liability to the individual is fairer to younger people, but less economically efficient
In examining the data from the ELSA dataset, Reform has shown how eligibility for council-funded social care is likely to change if the proposals in the Conservative manifesto are carried through. The overarching conclusion is that changes in the means test will effectively require every home owner to use the wealth stored in their estate to fund their social care.
It has been demonstrated that the group that loses eligibility for immediate council support, albeit poorer than the general population, has considerable housing wealth. In order to become eligible for financial support from the council, this group would likely have to sell their home, or use another form of equity release. Alternatively, a DPA would be available to them, decreasing the likelihood of selling their house in their lifetime to fund care.
The overall effect of the proposed changes to the means test is to shift liability from the state to the individual. The reforms guarantee a minimum amount of assets that people will be able to keep, while reducing the state’s liability for social care and potentially improving government finances. The burden of the reform will fall on a group that has moderate savings (in the form of housing equity).
However, these proposals should not be the end of social care reform. People do not want to sell their home, yet they may not have any other option due to the lack of insurance products. The proposals therefore do not address the main problem from the point of view of the service user – eliminating the risk of catastrophic costs. As a result, people will have to prepare for higher care costs through excessive saving. A social insurance model that offers an adequate level of coverage may prevent high up-front payments for care before the government safety net kicks in.
But justifying more tax money being spent on social care is hard. After all, the beneficiaries have been shown to be moderately wealthy homeowners. At the same time, the generation that is providing the tax revenue is in fact relatively poorer. This makes for a significant intergenerational transfer of wealth.
A solution which is both equitable and delivers a low-cost alternative is the pre-funding of care liabilities. In an upcoming paper, Reform shows that such a system can provide adequate coverage, pool risk, but also be fair to the younger generation.
Danail Vasilev, Researcher, Reform