Money: Caring for the elderly: who will pay?

Private insurance may play a bigger role, says Clifford German

From 6 April old people who need to go into homes will be able to claim some Government help to meet the cost of care in residential and nursing homes when they are down to pounds 16,000, which is double the current limit, and to claim the full costs when they are left with just pounds 10,000.

The previous limits were pounds 8,000 and pounds 3,000, so this is a small mercy to be thankful for. But the concession, announced in the Budget last November, will do nothing to stop the controversial forced sale of assets, which already leads to an estimated 40,000 family homes a year having to be sold to pay for care of the old.

Thousands of mainly middle class families who face the prospect of the family inheritance being lost will have to wait a while longer to see if help is at hand. The Government's consultation document on the future financing of long-term care is now expected "after Easter". It is expected to favour a form of partnership plan which promises people who take out a private long-term care insurance policy that once the policy is exhausted they will be eligible to claim state help with more of their assets still intact.

In effect, if they take out a policy paying out pounds 40,000, which is likely to pay for perhaps two and a half years of residential care, - less in the London area - they will be able to claim state help as soon as their remaining assets reduce to that figure (plus the new pounds 16,000 threshold which applies to everyone).

Alternatively, the Government might opt for private healthcare policies to pay for care for a specific period, say two or three years before the state takes over. Either way the obligation on the insurance company would be limited, the cost of a long-term care policy could be cut, perhaps by half, and private sector provision could get a kick-start.

All existing long-term care policies pay at least part of the cost of residential care, which could be pounds 18,000 a year or nursing home care, which could cost another pounds 5,000 a year. The policy rules determine when a policy-holder is entitled to claim, depending on a scale of six specific disabilities. Although the average stay in a home is relatively short, perhaps three or four years, the benefits under existing policies are open-ended, and some old people may survive for eight or 10 years or more.

As a result, a single premium costs currently a minimum pounds 5,300 for a man at 65, and pounds 7,800 for a woman, and the average pay-out perhaps pounds 1,000 a month which in most cases still leaves the pensioner to pay part of the costs out of other forms of income.

In the circumstances it is not surprising that only about 15,000 policies have been sold to date, many of them by PPP Healthcare, the market leader. Other providers are Commercial Union, Scottish Amicable European, Hambro Assured Care and Prime Health.

Partnership should make the idea of private provision more affordable. What it is unlikely to do, however, is to give the policy-holder a blank cheque to pay for care and shelter all their remaining assets. If the preferred system follows either of the precedents operating in four US states, claimants will almost certainly be expected to contribute whatever they can from pensions or other income when their policy benefits are exhausted, if not before.

There will also still be a limit to the value of the assets which can be protected. It is possible that the cap will be set at or below the average value of a house in the UK, which means that wealthier individuals with houses worth above the average will still have to surrender them if they live long enough in a home to spend the proceeds of the policy and their other savings.

There is also an outside chance that the Government will put rival methods of care on the table for further discussion. They include partial equity release, which allows pensioners to "sell" part of their home to an insurance company in return for allowing one or both partners to live rent-free for life, claim the cost of residential or nursing care when it becomes necessary, and hand the equity over to the insurance company only when both partners have died or moved into care. Four companies, Stalwart Assurance, Home & Capital Trust, Carlyle Life and Allchurches presently provide such policies.

A third and more controversial option is to allow pensioners to tap their pension plans to pay for long-term care. Holders of personal pensions already have the right to take up to 25 per cent of the value of their fund in cash on retirement, but relatively few personal pensions have matured or are likely to do so within the decade, while many companies are reluctant to see occupational schemes tapped for cash which would inevitably reduce the pension income.

Another option would be an increase in state help for family members to encourage them to care for elderly relatives at home, but even this could require tax and other concessions which would either have to be controversially means-tested or would be costly to the Exchequer or both.

But until the Government reveals the extent of its willingness to help, the market in policies is likely to remain minuscule while the problem is growing exponentially as people live longer but require care for a proportionally greater part of their lives, while family units which used to provide most of the care needed continue to break down and the number of children to provide care decreases.