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Long Term Care – Is Private Insurance Possible? Laurence Kleerekoper 17 October 2013

Long term care - is private insurance possible in the UK?

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Topics discuss the main drivers of the need for funding of social care, including residential care, in older life, and touch on some of the difficulties of measuring and projecting these costs. Topics include a brief look at the UK’s current efforts to implement the Dilnot recommendations and efforts to reform LTC funding in France..

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Page 1: Long term care - is private insurance possible in the UK?

Long Term Care – Is PrivateInsurance Possible?

Laurence Kleerekoper17 October 2013

Page 2: Long term care - is private insurance possible in the UK?

Agenda topics

Who needs long term care insurance anyway?

Public expectations of the stateUK’s current efforts to implement

the Dilnot recommendations.Funding solutions in other

countries

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Page 3: Long term care - is private insurance possible in the UK?

Ageing Population in the UK

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UK Population aged under 16 and 65 and over

18

16

14

12

10

8

6

4

2

0

Projections

Under 16

65 and over

1971 1981 1991 2001 2011 2021 2031

Source: ONS, Measuring National well-being, Social Trends 42 – population, January 2012

Millions

Page 4: Long term care - is private insurance possible in the UK?

Ageing Population in the World

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Elderly (aged 60 and over), as a percentage of the population in 2010 and 2040

South Africa

India

Indonesia

Mexico

Brazil

U.S.

Australia

Russia

U.K.

China

France

Canada

South Korea

Germany

Italy

Japan

12.1%

15.4%

20.9%

21.7%

22.6%

26.0%

27.3%

28.4%

28.8%

29.1%

30.4%

31.0%

38.7%

39.0%

30.4%

42.9%

2040

2010

Source: UN Population Division, World Population, 2011

Page 5: Long term care - is private insurance possible in the UK?

ONS projections

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Source: ONS 2010-based Period and Cohort LifeExpectancy tables

Period and Cohort expectation of life at birth, 1985-2035, UK

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

60

65

70

75

80

85

90

95

100

Chart Title

Males- CohortMales - PeriodFemales - CohortFemales - Period

Age

Page 6: Long term care - is private insurance possible in the UK?

Is LTC an insurable risk at all?

Is needing LTC a risk or a stage of life?

Is LTC risk sufficiently well defined?Can we assess the risk of a group

needing LTC?

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Page 7: Long term care - is private insurance possible in the UK?

How would you find a premium?

Build a multi-state model, like a disability model◦prevalence rates◦transition rates

Build an inception/annuity model◦inception rates◦annuity rates

how much is paid? how long is it paid for?

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Page 8: Long term care - is private insurance possible in the UK?

Assessing the risk

The occurrence riskDependency duration riskCost of care risk

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Page 9: Long term care - is private insurance possible in the UK?

The occurrence risk

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50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 900%

10%

20%

30%

40%

50%

60%

2 ADLs3ADLs4ADLs

Source: ELSA Wave 4 data

Prevalence of males failing activities of daily living (out of 6) in the UK population

Age

Page 10: Long term care - is private insurance possible in the UK?

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What does care cost?Private nursing home care costs

£736 per weekPrivate sector residential care

costs £522 per weekLocal authority residential care

costs* £1,007 per week

10

Source: PSSRU Unit Costs of Care 2012

* Not directly comparable to the private sector costs which are derived differently.

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How long do people need care?

It’s called long term care for a reason

But actually the greatest cost arrives over a short period

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Source: PSSRU discussion paper 1675 August 2000

Month

0 3 6 9 12 15 18 21 24 27 30 33 36 390%

20%

40%

60%

80%

100%

120%

Percent surviving out of new entrants to residen-

tial care

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Who is affected?

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Figure 1: Numbers of local authority-supported and privately funded older people (65+) and younger

people (18-64) receiving domiciliary and residential care.

Page 13: Long term care - is private insurance possible in the UK?

Increasing dependencyPeople aged 65 and over who need

at least daily assistance from another person will rise from

1.0 million in 2010(11% of the population)

to1.9 million in 2030

(14% of the population)

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Source: Ready for Ageing?, House of Lords Select Committee on Public Service and Demographic Change, Page 58, see footnote 258

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When is state benefit paid?Typically, when are care services

delivered?

In the dependent person’s homeOR

In a residential OR a nursing home

Who determines when they need care?What level of care qualifies for a

payment from the state?Local authority has a four point scale:

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Local Authority Eligibility Criteria

Source: DOH Minimum National Threshold Discussion Document – June 201315

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Banding 2013 Number of Local Authorities

Critical 3

Substantial 130

Moderate 16

Low 3

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Activities of Daily LivingActivity Description Washing being able to wash and bath unaided,

including getting into and out of the bath or shower;

Dressing being able to put on, take off, secure and unfasten all necessary items of clothing;

Moving being able to move from room to room;

Transferring being able to get on or off the WC, in and out of bed etc;

Feeding being able to eat food unaided;

Continence being able to control bowel or bladder functions.

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Page 17: Long term care - is private insurance possible in the UK?

Current System in the UK

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£0

£14,250

£23,250

Income except £22 pw personal expenses allowance

Income except £22pw. 20% of assets over £14,250

Income and assets as necessary

Individual contribution

Assets (including house for residential care)

State pays

Nothing

Remaining costs (up to local authority rate)

Remaining costs (up to local authority rate)

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What’s taken us so long?

‘I don’t want [our children] brought up in a country where the only way pensioners can get long-term care is by selling their home.’ (Tony Blair, addressing Labour Party Conference) 1997

http://www.kingsfund.org.uk/sites/files/kf/field/field_publication_summary/social-care-funding-paper-may13.pdf

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Good intentions 1999 – Sutherland report “With respect to old

age” 2002 – Wanless review of NHS spending 2005 – Green paper “Independence, Wellbeing

and Choice” 2005 – Wanless review of future social care

funding 2009 – Green paper “Shaping the future of care

together” 2010 – White paper “Building the National Care

Service” 2011 – Dilnot Commission report “Fairer Care

Funding” 2012 – White paper “Caring for our future”,

Progress report on Funding Reform and draft “Care and Support Bill”

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Lifetime cost of care (UK)

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Expected future lifetime cost of care for people aged 65 in 2009/10, by percentile (2009/10 prices)

Source: Dilnot Report 2011 - The Report of the Commission on Funding of Care and Support

Source: ESHCRU/PSSRU microsimulation model

£250k

£300k

£200k

£150k

£100k

£0k

£50k

100%80%60%40%20%0%

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Main Dilnot recommendations

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Lifetime care costs capped at between £25,000 and £50,000

The upper asset limit increased from £23,250 to £100,000

Contribution to daily living costs in residential care of £7,000 to £10,000 p.a.

Deferred payment (no-one need sell their family home to buy into a residential care home)

National standard eligibility criteria for care provision by the local authority

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Impact of capped cost model

The current system meansthat some people ofmoderate wealth can endup using over 80% of theirassets paying for care

A cap limits the amountthat they could lose

The lower the cap, thegreater the level ofprotection

Source: Department of Health analysis

Currentsystem

£25k

£50k

£75k

£100k

0%

20%

40%

60%

80%

100%

£0k £100k £200k £300k £400k £500k

Assets on going into care

Indic

ati

ve a

sset

deple

tion

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The capped cost illustration

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Illustration of how much people with modest wealth in residential care might pay now and after DOH reforms have been implemented

An older person's contribution to care costs before reaching the cap

Initial Assets Contribution Amount Percent

  Current£72,000

cap Current£72,000

cap

£250,000 £177,000 £72,000 71% 29%

£200,000 £173,000 £72,000 87% 36%

£150,000 £127,000 £67,000 85% 45%

£100,000 £79,000 £45,000 79% 45%

£70,000 £50,000 £30,000 71% 43%

£50,000 £31,000 £17,000 62% 34%

£40,000 £21,000 £12,000 53% 30%

£17,000 or less £0 £0 0% 0%

Source: DOH Consultation document – Caring for our future - 2013

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The new deal – Dilnot lite?

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From April 2016, The upper asset limit increases to

£118,000Lifetime care costs capped at

£72,000Contribution to daily living costs

in residential care of £12,000 p.a.Deferred payment agreements

(no-one need sell their family home to buy into a residential care home)

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Private sector options

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How can individuals plan to meet the shortfall between state funding and the true cost of their care?◦Equity release schemes◦Immediate needs annuities◦Disability linked annuities◦Personal care savings bonds◦Other pre-funded options?

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Housing wealth in the UK

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Source: acadametrics House Price Index

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France – Social partnershipAllocation Personnalisee

d’Autonomie (APA)More than 1 million people have

received APA benefit each year since 2006 (in 2009 61% at home, 39% in residential care)

In parallel with a private insurance market (around 3 million policyholders)

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France – Social partnershipNeed is measured by 6-point AGGIR

scale15 items in the ADL list, which

simplify to 6 GIR groupsPaid to all over 60 in GIR 1 to 4, but

co-payment for all but the lowest income groups

Unlike USA, income from private LTC policies is not taken into account

Average APA benefit was around €400 per month after co-payment

Cost of residential care in France averages around €2,500 per month

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France – the case for reform

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Source: Financing long-term care for frail elderly in France: The ghost reformHealth Policy Journal (2013)

In blue (left bar for each year): total expenditure. In green (right bar for each year): state participation.

Trends in the APA and central government's share since 2002

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The whole story?Who gets the benefit?Who pays?

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Discussion

Thank you for listening

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