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A new state of affairs

The debate on funding Britain&#39s crumbling public services has not abated since the general election, with healthcare having a particularly high profile.

After years of discussion and a royal commission, free nursing care for long-term care patients has finally been introduced in England, with the devolved assemblies expected to follow in April 2002. But while there is now some degree of certainty, the situation is far from simple. Confusion has hampered the industry, which has seen the number of LTC policies decrease from 5,548 in 1999 to 4,895 last year as potential policy purchasers took a wait-and-see approach. Norwich Union long-term care strategy manager Sandy Johnstone says this was a direct effect of the Government&#39s hesitation.

Since the beginning of the month, a state benefit has been available for people receiving care in English nursing homes. The benefit is not means-tested but is banded according to the severity of health problems. Residents are entitled to £35, £70 or £110 a week.

PPP Lifetime Care marketing manager Paul Bennett believes the full impact of the introduction of free nursing care will not become apparent before early next year, as it will take some time for people to be assessed by the relevant agencies.

Skandia senior marketing manager Lynda Cox stresses the benefit will only apply to people in nursing homes while research shows the majority would rather live in their own home. If people want to receive care at home, LTC insurance is still the way to go unless they have substantial means of their own. In Scotland, money has been earmarked for more a comprehensive level of benefits and the proposals are being debated by the health and community care committee. Implementation is not expected before April, when Wales and Northern Ireland are set to bring in their own measures. The Scots will receive £65 for nursing care and £90 for personal care.

But Cox questions Scotland&#39s ability to pay for what it has promised while Bennett says the impact could be considerable and test the coffers of the Scottish Executive.

The Welsh Assembly is considering the choice between the English model or a single level of payments of £90 a week. Northern Ireland may offer no free nursing care at all.

Nowhere are the long-term implications of devolution more apparent than in the issue of LTC funding. Nevertheless, Johnstone points out that regional differences in the cost of care have always existed. He says: “IFAs have long been able to cope with regional variations. Now the rules are clear and advice can be clear.”

But Bennett thinks it is unlikely that people will move across borders to take advantage of different levels of funding, other than perhaps those who already live in border areas.

Earlier this year, the Treasury issued a consultation document outlining issues regarding the regulation of LTC insurance. The document made clear the Treasury&#39s preference for option three, which would entail FSA regulation of LTC but not any other protection products. This was also the option supported by most of the industry, which submitted responses in March this year.

Cox says it is disappointing that the Treasury has not yet been able to give this area the consumer security that regulation offers. Johnstone points out that Cat standards, one of the options proposed, could be introduced relatively quickly. The Treasury says an announcement will be made soon.

Meanwhile, the debate around private medical insurance has remained largely static. For the Labour Government, the focus has been on private financing of hospitals rather than patient self-funding – PFI rather than PMI. In the other main political parties, a move to social insurance on the European model has been mooted by various MPs.

PMI has had a difficult time over the last five years, with the market remaining largely static. According to a recent survey by Datamonitor, last year some six million people had private health cover, only 200,000 up on 1995. While there has been an increase in corporate cover, this is counterbalanced by a decrease in individuals purchasing PMI.

Personal policies have suffered as a consequence of steep premium increases over and above the rate of inflation. Datamonitor records a mean yearly increase of 6.9 per cent. Group policies have seen a much more modest annual increase of 2.8 per cent.

Demographic change is blamed, with a disproportionate number of ageing policyholders taking advantage of the increased scope of private treatment. Meanwhile, the expense of cover is putting off new entrants into the market. Datamonitor&#39s report says: “A static customer base is demanding more of its private medical insurers, leading to increasing costs per policyholder.”

But this has also led to a different perception of PMI, which is no longer that of a luxury product but something that offers immediately apparent benefits.

At last week&#39s Conservative party conference, a new open-mindedness about healthcare funding was expressed. Shadow health secretary Liam Fox said: “As long as better healthcare is available to all, and free at point of use, then, frankly, people in Britain are not concerned how it is provided.”

However, at the same conference, Shadow Chancellor Michael Howard referred to the withdrawal of tax relief on health insurance as “spiteful”, suggesting future party policy could continue to encourage PMI.

Bupa head of intermediary sales Martin Noone suggests IFAs can take advantage of poor publicity surrounding the NHS to sell PMI although he admits there is a need for creative thinking from providers to offer affordable policies. He says IFAs should include healthcare as part of the fact-find. “It is a good marriage with general retirement planning,” he says.

PMI Independent Financial Adviser director John Stewart says his firm actually sells very little in the way of PMI and LTC insurance. He says: “It is not because we avoid the market but because there is very little interest in it. People take the view: &#39It will not happen to me.&#39 It comes low down the list after pensions, investments, life insurance and critical illness. I try to put the arguments over but there is little motivation.

“When you explain people are being for-ced to sell their homes to fund LTC, they just take the approach that it is their children&#39s problem. In any event, PMI is expensive and many people are members of company schemes, so there is little scope for advice.”

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