Personal Finance: Tories care for their own

WHEN Connecticut, in the United States, launched a long-term health-care insurance partnership scheme in 1993 to fund the cost of long-term care, it had high hopes.

The aim was to give residents in that state the chance of safeguarding their assets in return for taking out insurance cover. Each dollar of cover earned the same amount of "disregard" in terms of assets when means- testing for long-term care took place.

Connecticut hoped that 50,000 people might be tempted to take out such a policy within the first five years, heavily reducing its spending on Medicaid, the highly limited US version of the NHS, for those prepared to fund their own care over a certain period.

In fact, three years after the scheme was launched, barely 2,500 have bought one of theinsurance schemes, which are similar in style to the model which Stephen Dorrell, the Secretary of State for Health, wants to introduce into this country.

The derisory number of buyers in the US gives us a small clue as to the likely popularity of care insurance in Britain.

Clearly, the British Government believes the situation will be different over here. Unlike the US, it hopes that UK long-term-care insurance will not be as expensive to take out. Moreover, Mr Dorrell is being 50 per cent more generous in terms of the benefits he will grant to those prepared to take out such schemes.

For each pounds 1-worth of cover bought, local authorities will disregard pounds 1.50 of assets when means-testing elderly people for long-term care. A one- off premium of pounds 7,000 might allow a person to protect a house worth pounds 60,000 from having to be sold before the council will help.

Other plans involve the use of equity-release schemes called "immediate- need annuities" - selling off part of your home to protect the rest, while buying an income to help fund your own care (explained opposite). The council would step in when the money runs out.

The problem, however, is that few people can afford to protect themselves in this way. The Continuing Care Conference, a professional body in this field, estimates that, at most, 30 per cent of those about to retire might benefit. The CCC says that unless unless good equity-release schemes are available, the numbers of elderly people benefiting might fall to 10-to-15 per cent.

A lot will depend on cost relative to benefits. But if the Prudential - which is championing "immediate needs annuities" - is right, they offer the best hope of protecting a portion of your home. Particularly if you are asset-rich but income-poor.

Nevertheless, those who ultimately stand to gain are a proportion, only that, of so-called "Middle England" which wants to protect its inheritance. The rest - if the US experience applies - will stay as before, unable to fund proper care, losing some or all of their assets when the time comes.

Perhaps we should have expected this. After all, what the Government hopes to do is to placate as much of its natural constituency as possible without having to fork out for long-term care itself.

Even more frightening, however, is the casual manner in which the Government dismisses calls from within the insurance industry itself for the sale of such insurance to be properly regulated.

This, Mr Dorrell's consultation paper claims, would "inhibit innovation and the development of new products".

In the mid-1980s, when moving to allow personal pensions to be sold to the general public, Government ministers rejected calls for tight controls for the same reason. We now know the consequence of that decision: up to 1.5 million people may have been mis-sold a personal pension.

Now, Mr Dorrell wants us to believe that elderly people will be able to do without such protection at a point when they are likely to be at their most vulnerable. This is truly a government which remembers nothing and sees even less.

q Steve Lodge is away.