Abstract

Private long-term care (ltc) insurance, which is fairly widely available in France and the USA, is not currently available in the UK. When it was available in the 1990s, the number of enrolees seems not to have exceeded 35,000. The only financial product specific to long-term currently available in the UK is immediate needs products which can be purchased on entry to residential care. They insure for the impact of longevity in a care home rather than the risk of needing long-term care.

The reasons for the absence of private ltc insurance in the UK are believed to comprise both demand side and supply side market failures. These include difficulty pricing such products accurately because of lack of suitable data, premiums which are high relative to pensions of most older people, and inadequate information about the risk of requiring ltc in old age and about the means tested nature of publicly funded ltc. This market failure was a key factor in the decision of the Commission on Funding of Social Care to recommend a cap on long-term care costs. They recommended that a cap be introduced of between £25,000 and £50,000 on life-time costs of care (not including accommodation costs in care homes). This can be seen as publicly funded long-term care insurance with a substantial excess. The Government decided to implement a life-time cap in England with effect from April 2016, but at the higher level of £72,000.

We have conducted, in studies funded by the AXA Research Fund and by the Department of health, modelling of the life-time costs of care and of the costs of implementing the Government’s reform proposals. We estimate that the life-time costs of care from age 65 are, under current patterns of care, in the range £25,000 to £35,000 at 2010/1 prices (without allowing for future rises in care costs). This suggests that a lump sum insurance premium at age 65 could lie in the range £35,000 to £60,000. We project that public expenditure on ltc for older people in England needs to rise from £12 billion in 2010 to around £25.5 billion in 2030, at constant 2010 prices, to keep pace with demographic and economic pressures. Implementation of the Government’s reforms will add an estimated extra £2 billion in 2030 to bring the projection to £27.5 billion.

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