Long term care: A problem without an adequate solution?

THE way that Jersey cares for the elderly would be revolutionised under major reform plans. A Long-Term Care Fund made up of extra Social Security charges and topped up by taxpayer funding could be established by the States and would stop old people being forced to sell their homes to pay for care. Social Security Minister Ian Gorst says that the proposed system would remove financial uncertainty for the elderly and give people choice in how they are cared for. (1)

The premise of the proposition is dealing with the care of an ageing population, but it seems to be a general provision.  You do have to be over 18, and meet some residency rules. You also have to have paid into the scheme for 10 years to claim. The scheme  will be paid for  by some States money, and a compulsory 1.5% on  earnings of the employed, self-employed and pensioners. There is a ceiling : annual earnings up to the upper earnings limit of £150,000 if proposals currently before the States are adopted. I have numerous concerns about the proposition. (2)

This proposition has come under detailed fire from Mark Forskitt, who presents extremely good arguments against it as being "morally indefensible".  Among other matters, he asks about how the transitional period will work out and how assets are going to be valued:

What is the position of those who need care within 10 years of the scheme starting. It covers those in care when the scheme starts, but not I think the transition.  Who values assets, and how?  Are the beneficiaries of trust funds and foundations to have the trust valued? (Stop laughing).  etc etc etc.

But here is the really iniquitous, morally indefensible bit: For homeowners, acknowledging the special status of the main residence, family homes worth up to £750,000 will be disregarded from the assessment of assets, with homeowners allowed to hold other capital of up to £25,000 and still be eligible for financial assistance with the co-payment.  Where the main residence is worth more than £750,000, an individual will be given assistance with the co-payment for the initial 3 months of care to allow time for families to make arrangements to meet the co-payment.

For non-homeowners, assistance will be provided if their capital and savings are under £100,000. They would be expected to use any sum above this amount to meet the co-payment before qualifying for assistance.

So there you have it. A compulsory insurance scheme (unless you are independently  wealthy, living off investment income) that protects homeowners over seven times as much as it protects those who are not homeowners. And the main reason most people are not homeowners is of course they cannot possibly afford to do so on median pay in Jersey.

So just who do you think is subsiding whom here? And just for the avoidance of doubt, I am a homeowner.

The reason Ian Gorst is bringing the proposition is laudable, but it is driven by the need to seek a solution to the prospect of the elderly losing their homes. This is a concern for the home owner. For those who rent, the same problem simply does not arise. The JEP article at the beginning simply side-steps this issue

However, the demographics suggest that the increased care needed will put pressure on the funding of care homes by the Parish or by the States, and this cannot be funded from current revenues.

I know one lady whose husband had to go into care, and despite the fact that she was in her 70s, she was faced with the prospect of losing her home and having to find rental accommodation. When you are that age, being told that by the Parish or the States, at a time when you are already suffering considerable anxiety about your husband, is an extra burden on the individual that one could do without.

So what is the best way to fund it - and the fairest - that is the question. As home owners benefit the most, but occupiers of rental property will also need to have long term care funded, I would suggest that the better form might be an extra increment on the rates.

An owner / occupier would pay more, and because owners would also pay the owner component of rental property, it would also provide a progressive means of taxation, rather than a regressive one. And if I live in a huge house, with a high ratable value, then I pay more.  If I own a substantial property portfolio, and have more property assets, I must also pay more. But if I am just an occupier, paying rent, I pay much less.

The outcome that this would "stop old people being forced to sell their homes to pay for care" would be fairer, because the owners would have to pay more than mere occupiers.

The disregard of capital up to a ceiling of £25,000 could, however, remain, because it would ensure that anyone with substantial assets who chose never to buy property but always to rent would still be assessed on those assets when the cost of care was needed. It should also be noted that if they have substantial assets then the likelihood is that the occupier component of the rate will be proportionally higher, so they won't escape entirely from paying before. The ceiling will benefit the poorer rather than the richer.

I would comment about the ceiling that if it is introduced, it should be indexed linked, so that it can increase in real terms. Inheritance tax was introduced with a ceiling in the U.K., but by the insidious practice of allowing no real increase in its value commensurate with rises in median property prices, what was a tax to net the very rich now has become a tax into which many home owners are caught. Unless it is linked in some way to inflation, any ceiling will soon become worthless, and not do what it was original intended: to allow the individual to retain a workable proportion of their capital.

It is also not clear how the ceiling works when the capital is in joint names - a joint bank account, for example, and how this can be made fair so that if there is an age gap between two married people (for example), one does not suffer unfairly when the capital is assessed over two individuals who each had their own bank accounts.

I think Ian Gorst has correctly identified the problem, but I'm not convinced he has provided a good enough solution. I think some kind of property rates based mechanism would be better.

Links:
(1) http://www.thisisjersey.com/2011/06/14/new-fund-to-pay-for-elderly-care/#ixzz1PKIgmJ9g
(2) http://st-ouennais.livejournal.com/132704.html