How can private long-term care insurance supplement state systems? The UK as a case study

How can private long-term care insurance supplement state systems?

Raphael Wittenberg
Principal investigator of the AXA project “Long-term care insurance”
LSE, UK

Long term care financing is a hot political issue in the United Kingdom. But what role can private insurers play in the future? Raphael Wittenberg and his colleagues have launched a study to help decision makers address this question.

The British population is ageing fast. The number of people over state pension age is projected to rise by about 50% in the next 25 years in the United Kingdom, while the number aged 80 and over is set to more than double. This has raised concern over the future affordability of long-term care and pensions, fueling a debate about the appropriate balance between
public and private funding.

So far, private long-term care insurance has not been very successful in the UK. There have been few enrolees in such products and most of the providers have ceased to offer them. “One problem seems to be that insurance products have not proved easy to price, because future trends in health and disability are uncertain. Another issue is that the publicly-funded system is complicated which may lead people to believe mistakenly that social care is free at point of use rather than means tested”, says Raphael Wittenberg, who leads the Personal Social Services Research Unit (PSSRU) programme on the financing of long-term care for older people at the London School of Economics.

But the issue is high on the political agenda. After conducting a long review of funding arrangements in England, the previous Labour government announced just before they left office that they wanted to move in stages towards free care. The Coalition elected in May has taken a different stand. The Conservative Party favors promoting private insurance, particularly to help people protect the value of their home. The Coalition government has set up a new independent commission, due to report in July, and promised a “white paper” at the end of this year. A recent major project Raphael Wittenberg and researchers in four other universities just completed will certainly help inform the proposals. Called MAP2030, this study, funded by the UK Research Councils, models future trends in the numbers, resources and needs of older people in the UK (see below).

Since last spring, Raphael Wittenberg and his colleagues at the PSSRU, Nuffield Trust, University of East Anglia and University of Barcelona, have taken a new step, with AXA Research Funding, to study more precisely the role private insurers could play in the future : how long-term care products could interact with state funding, what the expected life-time costs of care could be for older people, possible premiums and pay-outs and their attractiveness, and estimates of social care expenditure under different insurance schemes. The project will last 28 months. “We have reviewed published literature and consulted experts on long term care insurance, looking at barriers, opportunities, and in particular what is or isn’t working in other countries, says the economist. We are about to make our paper available to decision-makers”.

THE CURRENT LONG TERM CARE FINANCING SYSTEM IN THE UK

• Health care is free of charge at point of use
• Nursing care in nursing homes attracts a non means tested flat rate allowance
• Personal care (such as eating, dressing) is free in Scotland (fully free for home care and a non means tested flat rate allowance for residential care) but subject to user charges in the rest of the UK
• Hotel costs in care homes and domestic help are subject to charges
• Disability (cash) benefits are not subject to a means test.

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