Friday, 19 May 2017

Social care costs: The Homeys are muddling up two entirely separate topics.

From The Guardian:

Dilnot, a former director of the Institute for Fiscal Studies, said that by refusing to implement a cap, the Conservatives would be leaving people without any protection against care costs.

“So people will be left helpless, knowing that what will happen is that if they are unlucky enough to suffer the need for care costs they will be entirely on their own until they are down to the last £100,000 of all of their wealth including their house,” he said.

“I do feel very disappointed for all of us, the millions of people who are very, very anxious about this, and I’m a bit surprised, because what social care is a classic example of a market failure where the private sector cannot do what’s needed...

“The changes just fail to tackle the central problem that scares most people. You are not tackling the big issue that people can’t pool their risks. There is nothing that anybody can do to pool their risk with the rest of the population, you just have to hope that you are not unlucky.

“It is not providing insurance. You could easily have care costs of £300,000 each if you are a couple; you are not able to cover that extreme risk which is what we all want to do faced with anything else which we can insure. That’s the market failure and these changes do nothing to address that.”

Classic bit of Home-Owner-Ism there, the bit that stings is that your wealth includes the value of your house, well duh.

Amazingly, Mr J Hunt takes the non-Homey/free-market position:

The health secretary, Jeremy Hunt, confirmed the Conservatives were planning to abandon a previous manifesto pledge to cap care costs.

Speaking from West Yorkshire, where the Tories will launch their manifesto, he told Today: “We’re dropping it because we don’t think it is fair because you could have a situation where someone who owns a house worth £1m or £2m, and has expensive care costs of perhaps £100,000 or £200,000, ends up not having to pay those care costs because they are capped. And those costs get borne by taxpayers and we don’t think that’s fair on different generations..."

When it was suggested the plans amounted to a death tax delayed, Hunt said: “It is not a tax. We are saying that the assets that you build up over your lifetime should be used to pay for your own care costs.”

Dilnot's ramblings about "market failure" and "people losing the family home" miss the point, probably deliberately, that there are two completely separate issues here:

1. Taking out insurance against the risk of ending up with expensive long term care costs.

2. Taking out insurance against falls in value of your home/estate.

Re 1, another Guardian article says that the average cost of care is £20,000, i.e. £nil for the vast majority that never need it,  up to £100,000s of £1 million for the few who do.

I'm sure that insurers can cope with that basic idea. You pay in £1,000 a year from the age of 50 onwards (or whatever) and hope for the best. The problem will be who decides whether somebody requires long term care; how much they need etc, and there will be a veritable punch up between the insurance company's assessor and the GP who makes the call. I can't see that GPs are going to appreciate wasting hours defending and justifying each and every claim.

That's not "market failure", it is just too many unknowns. Insurance companies don't want to put themselves at the whim of government employees (yes I know GPs are technically self-employed). So the only agency who can sort this out is the government itself by providing low-cost, compulsory  mass insurance i.e. taxpayer-funded 'public' services. And as we know, the best source of revenue to fund this is LVT, which completely goes against Homey principles, they want it to be funded with more taxes on workers and businesses.

Re 2, clearly, the taxpayer should not be called on to subsidise the value of other people's assets, in particular their homes. In an ideal world, land values would be taxed away with LVT, so homes would largely fall out of the "wealth" equation. That leaves other assets (which in an ideal world would not be subject to Inheritance Tax), if people could get insurance against long term care costs, they wouldn't need to worry about those assets being sold to pay for care, be definition.


Bayard said...

Perhaps the Government could run an insurance scheme to cover care costs. They could call it National Insurance, oh, wait...

DBC Reed said...

Under the cover of Brexit which is going to get her elected, Theresa May seems to be instituting her own property tax grab to pay for personal care costs. She has n't got the nerve or the brains to use LVT which a) stops property prices inflating in the first place b)allows non market forces to level out the big payments.
As I was hoping: this is a good election for Labour to lose because it will make the Conservatives clear up the mess their property owning democracy policies have caused and draw the Homeys fire onto themselves.(Remember property-owning democracy?)

Mike W said...

'As I was hoping: this is a good election for Labour to lose'

DBC Agree 100%. I am telling the youngsters not to worry about the result. Learn. They still have to take over every ward, constituency and the NEC. Plenty for them to do.

Then I ask them what they think about Labour's LVT. And the circle gets one person bigger :)

Bayard said...

Found on Facebook:

Quote from a city worker :
"The Conservatives will attempt to soften the blow by promising that pensioners will not have to sell their homes to pay for their care costs while they or a surviving partner are alive. Instead, 'products will be available' allowing the elderly to pay by extracting equity from their homes, which will be recovered at a later date when they die or sell their residence.
I have just seen this post online:
'People need to read the small print associated with this because its a lot nastier than it looks.
I work in the City. The insurance industry was approached by the Government several months ago with the aim of creating a new market for a new product.
This arrangement is a culmination of those discussions. You wont have to sell your house PROVIDED that you purchase an insurance product to cover your social care. The "premiums" would be recovered from the equity after the house has been sold and the Insurance company will have a lien on the house and can force a sale if it wants to. So your offspring cant keep it on the market for long in order to get the best price.
The real kicker in this is that in order to encourage the industry to market these products the government guaranteed that there would be no cap on the premiums.
This was in some ways "attonement" for Osborne's destruction of the highly lucrative annuties market. This means that the premiums could be up to (and including) the entire remaining equity in the property after the government has taken its cut. Compamies will be falling over themselves to get their snouts in this trough.
In short your offspring and relatives could get absolutely nothing from your estate.
If you buy one of these products you need to read the small print very very carefully indeed because there will be some real dogs on the market.
I suspect that this is another financial scandal waiting to happen, but by the time it does May will be long gone."

What happened to the idea that the family should look after the aged and infirm?

Mark Wadsworth said...

B, that's a terrible idea. Paying it out of LVT probably a good idea.

DBC, you might be right on that one.

MW, good work.

B, look like the govenrment might be rigging things in the insurance companies' favour. That really is 'market failure'.

Shiney said...

Actually, I don't see the problem with the basics of the proposal at all i.e. that people accumulate assets (wealth?) while they work... these might be in the form of pension pots, houses, cash, ISAs, BTL properties, gold, bitcoins... whatever.

When they are old and stop working they exhaust these assets paying for cars, golfing holidays, care costs... whatever. Its called 'spending the kid's inheritance' which is what my Mum and Dad are doing. On the former (well not cars) and the latter. Oh and they live next door to my Sister who will provide their 'care'... sort of and I go once a week and listen to my dad banging on about football and golf... neither of which I'm really bothered about. So we look after them as a family...

And if you haven't got any assets, the state will pick up the tab with a very basic care package to get over the 'I worked hard and saved all my life and the feckless get the same as me' argument.

Where it all goes tits-up, IMHO, is when the government gets involved by trying to rig things in favour of the FS industry (e.g. pensions). For sure the government is a great risk pooler (NI @B) but terrible at organising the actual 'insurance' (NI again which doesn't exist as such since its just another tax).

Am I wrong? Dunno... just how its seems to me. Prepared to be shot down on this.... but not in a 'party political right-left sorta way' as I think governments of all colours (Red, Blue and Pink) have ducked this for far too long.

And as @DBCR says.... LVT man sorts it out.

But @DBCR.... I'm not sure you can lay all the blame on the Cons "the mess their property owning democracy policies" - some of this (well quite a lot actually) was down to Lab in govt.

Bayard said...

Mark, my first post was TIC. There's a lot of wailing now on FB andother places about "losing your house if you have to go into a nursing home", which, AFAICS, logically prompts the question, if you are in a nursing home, why do you need a house?
Of course, all this has only come about because of land price inflation. Take two scenarios, the first being where we are today, with lots of people being faced with selling their house to pay for their old age care. As a result, the heirs are likely to inherit no more than £100,000, not a house worth, say, £300,000. Now imagine that there hasn't been any land price inflation and that £300,000 house is only worth £75,000. The elderly homeowner now enjoys free old age care courtesy of the state and their heirs inherit the house which they haven't had to sell. As a result, by Homey logic, they should be a lot happier, not having had to sell the "family home" (a three-bedroom detached house on an estate which their parent bought ten years before), despite being £25,000 worse off.

Mark Wadsworth said...

S, agreed with all that.

B " if you are in a nursing home, why do you need a house?"

You don't.

Your £75,000 example is impeccably correct. I have tried using this argument and the Homeys just say "Don;t be stupid, house prices have gone up and that's the end of that."

Lola said...

As someone actually working in the financial aspects of this I will add my tuppenyworth.
There were last time I looked two companies offering immediate care annuities. These had yields of about 30% and are underwritten in depth on application. These are whole of life products and in effect cap the cost of LTC. There were (are?) other schemes using other insurance products that meant that any 'income' drawn from them was a claim not income and paid direct to the care home.
I had one of my people look at the incidence of LTC and its duration. Broadly the maximum stay in a care home was about 2 to 5 years and the maximum stay in a nursing home was about 2 years. There are of course outliers - my godmother for example who was in for about 10 years. And very rarely do a couple both go into LTC.
Equity release products abound. It is perfectly possible to release equity to fund LTC for one partner while the other stays in the family home.
Also ER can be used to fund domiciliary care which IMHO is the best as it keep people in the own home.
The LTC products out there are u/w on Activities of Daily Living which means that arguments between doctors and insurers are constrained.
Dilnot is right and wrong about market failure. Clearly it is not possible to post insure for a claims even - duh. But as you can see from the foregoing the market is succeeding - where the Government does no bugger up the market - proving solutions, at a price.

And most people (and their children) now accept that their home must be used to fund LTC.

DBC Reed said...

Typically, Theresa May has reneged on her principled position as celebrated by Polly Toynbee(original'83 Soc Dem!) in Guardian last Thursday "At least May takes the bold step of recognising where the money is : among the majority of the older generation who have done so well out of a housing boom." She meant: where the money was that could be taxed and recycled into the economy; it now appears that May has recognised anew the electoral power of this tyrannical, asset rich group.
She has blown her cover story of being the only possible negotiator for Brexit talks, which are bound to be more difficult than dealing with pensioners: she now looks hopelessly irresolute and unprincipled.The danger is that there is now going to be a competition between Labour and Conservatives to be nice to all the poor old pensioners in £800,000+ houses and a close-down of the project of accessing all the money uselessly off-bounds in economic limbo.

Lola said...

Dbcr. Ffs lad, stay on topic

Mark Wadsworth said...

L, this time DBC was on topic and correct.

Lola said...

Mw. I stand corrected.