In its latest Autumn statement, the government delayed its £86,000 care cost cap until at least 2025. Peter Hamilton, Insurance United Against Dementia board member and Zurich head of market engagement, spoke to Insurance Business about the delay and potential public misconceptions – and the role insurance could play in helping future care users cover their costs.
The care cap was first mooted more than a decade ago by Sir Andrew Dilnot and had been set for introduction in 2023 before it was pushed back.
“The broad idea is that there should be a cap on what any individual needs to pay personally for care, and a cap set at £86,000 was due to be implemented in 2023,” said Hamilton.
“It relates to anyone who needs long term care, whether because of dementia or some other cause, although of course dementia will be a major factor for a large and growing number.”
More than 70% of care home residents and 60% of people who receive at-home care are living with dementia, according to figures provided by the IUAD.
Anything that “provides a degree more certainty” as to state provisions where it comes to longer term care is welcome, according to Hamilton, despite the delay.
Past criticisms of the cap have included whether it was fair from an intergenerational perspective, how funds would be raised, and whether measures could fall disproportionately on younger people.
“These remain legitimate challenges,” Hamilton said.
“There is more funding coming into the system, but initially it has gone to the NHS to help with the COVID backlogs – there are also challenges as to where any new money goes.”
Other concerns include that the cap could “defy easy explanation or calculation”, Hamilton said.
In its anticipated guise, the cap would not cover food or accommodation costs, but rather specific care costs. It is also expected to be based on local authority assessments of need, rather than necessarily what an individual has already paid.
“Where the ‘meter’ for the cap starts and stops will be critical,” Hamilton said.
In a recent interview with Sky News prior to the Autumn statement, former Prime Minister David Cameron called for Chancellor Jeremy Hunt to “look again at the issue of is there some way of providing some sort of backstop insurance so that you don’t have to sell your home to pay for care?”
The proposals as they stand, though, “won’t be able to guarantee that no-one need ever sell their home to meet the costs of care, even if that were seen as the right policy ambition,” Hamilton said.
With many individuals still expected to make a “substantial contribution” to their costs, one question for Hamilton is whether the insurance industry can help.
The current market for care-related propositions is limited, and largely made up of ‘immediate needs’ annuities (around 3,000 of these were sold last year, according to Hamilton), equity release and some “care riders” on whole-life plans.
A lack of advisers specialising in care is likely one reason for relatively low take up on immediate needs, according to Hamilton, while the equity release market is “likely to grow”.
“Key barriers to date have included lack of consumer demand and lack of clarity as to what the state will provide, with many believing care is essentially free, like broader NHS services,” said Hamilton.
“The majority of people do not make plans to pay for care, people routinely underestimate the cost of care and people are not incentivised to make plans to meet costs.”
One way for people to meet costs is to save, but Hamilton said it is “hard to conceive” that new savings vehicles are needed, though more tailoring of existing pensions and ISAs could take place.
“The 2015 pension reforms allow customers to use their pension pots far more flexibly than in the past, which can include supporting with care costs,” said Hamilton.
“There have been periodic suggestions that payments from a pension to a care provider should be tax-free, or payments to an insurance product should receive tax relief.”
A challenge here is any pervading “belief that the state would provide free care”, according to Hamilton.
“It could [be] that people start to believe that ‘social care’ has been fixed,” he said.
“More optimistically, I hope that we will see an emerging recognition by many that they will be expected to contribute a substantial amount towards their costs, and that they start to consider what this means – the deferral of the cap this week will reinforce this.”
There may not be a “silver bullet” insurance product that can cover everyone’s care costs, but Hamilton said that in time the industry may develop a wider suite of products for this “large and growing” market, particularly as it is not just people who require care themselves who may be financially disadvantaged, but also their younger family members.
Questions for them include how they might meet costs, including accommodation and food, given they still may have to spend more than £86,000 once the cap is introduced.
With one in four people expected to need some kind of care, setting premiums for any insurance solution “won’t be easy” but could be more viable for younger purchasers. Defining the “right” sum assured would though bring its own challenges, Hamilton said.
There will not be “one answer” for everyone, according to Hamilton, with individual needs varying, particularly where it comes to people at different life stages.
Questions for the insurance industry, Hamilton said, include: “How can [individuals] be helped to stay safely in their own home for longer (many will be even less likely to see a care home as a desirable option after seeing the impacts of COVID)? Could we create services linked to technology sensors, that provide alerts to potential dangers, [or] changes in behavioural patterns?
“How can we help empower more people to enjoy active, healthy, technology-assisted later years through chronic illness prevention and management, improved disability management, and mobility assistance? Can we influence the shape and nature of care homes of the future?”
Read more: What makes IUAD such a worthy cause?
Hamilton came on board at the IUAD earlier this year, along with Lloyds Banking Group protection director Rose St Louis, as the organisation sought increased engagement on the life and protection side.
It has this year called on people to sign an Alzheimers Society petition for the government to make dementia care and research an urgent priority.
“While the political environment has been turbulent, the policy calls remain clear and consistent,” said Hamilton.
The IUAD has so far raised more than £7 million of its £10 million target, with events this year having included a Sahara Trek, a 5k run, partner presentations and sign ups and dementia friend training days.
“The activity hasn’t stopped - the Insurance Day of Giving is an opportunity for the industry to unite on Thursday, December 1, to fundraise and raise awareness of dementia,” Hamilton said.