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Look beyond insurance for LTC, says thinktank

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A public-private partnership scheme to fund long-term care is the best way for the financial services industry to encourage people to save, according to the Strategic Society Centre.

The thinktank published a report last week that examines the role of pre-funded insurance in funding long-term care. There are around 36,000 pre-funded LTC policies in force in the UK. Partnership was the last provider to withdraw from the pre-funded market in 2010, citing a lack of demand.

The report sets out the barriers to the pre-funded LTC market in the UK, including limited profitability for providers, the cost and complexity of products, the belief that care is provided by the state and a shortage of qualified financial advisers.

Strategic Society Centre director James Lloyd believes the answer may lie in a form of public-private partnership, delivered through financial services.

He says: “The biggest commercial opportunities for the financial services industry may be in delivering and servicing an innovative state-sponsored, public-private partner- ship, rather than a reborn pre-funded long-term care market.

“Rather than a market of tens of thousands, such public-private partnerships would result in participation levels measurable in the tens of millions.”

It is not just the UK that suffers from the limited pre-funded LTC market. Lloyd points out that the same issues are common across LTC markets abroad.

France has the highest take-up rate for LTC insurance in the world at 15 per cent. Lloyd says even if England and Wales were to match this, the care system would still be severely underfunded. Scotland offers a universal free care system.

A tax relief on income has been suggested as one of the key ways in which to boost the LTC market but evidence from the US shows take-up has struggled to rise above 10 per cent despite tax breaks. France has achieved its high take-up rate without tax incentives.

Care Fees Investment managing director Andrew Dixon-Smith says: “The only effective way of ensuring people contribute some of their own money towards the potential cost of their care is to make it compulsory, either through the tax system or National Insurance contributions.

“If it is left to individuals to volunteer, they are simply not going to.”

Singapore - ElderShield automatic

Singapore offers automatic long-term care provision under its ElderShield insurance scheme. ElderShield is run by three insurers and Singapore citizens are automatically covered at the age of 40.

Premiums are determined when people enter the scheme, they do not increase with age and are payable until age 65.

There are two options - a payout of $300 a month for a maximum of 60 months or a payout of $400 a month for a maximum of 72 months. Policyholders can claim benefits at any age for the rest of their lives once they have paid the premiums.

US - the partnership approach

The US has been running its partnership approach since the 1980s, which increases the means-tested threshold of assets at which policyholders can claim for long-term care depending on premiums paid but take-up has struggled to exceed 10 per cent.

The US Government is now planning to implement a state-sponsored national workplace insurance scheme for long-term care instead. It has until October 1, 2012 to provide details on the community living assistance services and supports scheme.

Enrolment will be voluntary, available to most working adults and pre-existing medical conditions will not exclude individuals from enrolling.
To receive the benefits, people will have to meet specific requirements regarding earnings and premium payments.

France - the pre-funded success story

France has the world’s most developed pre-funded LTC market, with a take-up of 15 per cent. This was achieved without the use of tax incentives. Analysis of the French market links buying LTC insurance with living with a partner and having children, suggesting that purchase of LTC insurance is driven by not wanting to burden family with responsibility for care.

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Readers' comments (2)

  • I have long held the view that the best way to encourage take up of protection of this type will be to allow tax relief on the premiums, with a margin for the cost of advice.

    Tax relief would signal that the government is serious about helping people to address the issue and a margin for the cost of advice would encourage advisers to sell it.

    Has this thinktank investigated why the take up of prefunded policies was so poor? The message should and could be very simple ~ pay £100 p.m. (or whatever) or risk virtually your entire estate being consumed by care costs. Is that what you want, Mr Client?

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  • If this were an easy nut to crack, it would have been done by now. Like many insurance &/or Protection purchases, there needs to be some kind of 'trigger'. For many, it's marriage/the birth of a child &/or the need to cover a debt i.e. mortgage, or perhaps the purchase of something you can't use without cover i.e. a car. With LTC, the need arises (generally) in later life so there's no perceived trigger when people are young and it's affordable. Not to mention competing priorities like housing, education etc. The people who stand to lose most are those who stand to inherit, as their inheritance is in danger of disappearing in care fees. Interestingly enough, the typical life expectancy in a care home (in the UK) is around 4 years, so the Singaporean product isn't that unreasonable, except for the escalating costs of care. This seems to be the biggest factor influencing costs in the long term.

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