The over 80s are now the fastest-growing section of the population, representing 2.7 million, over 5 per cent of the total.
Earlier this year, Prime Minister Gordon Brown said radical reform was needed to address the £6bn shortfall in funding for long-term care.
The Government launched a six-month debate on the future of care and support for the elderly and a Green Paper is to be published in 2009.
In the meantime, the Association of British Insurers is lobbying the Government to share the costs of long-term care with providers.
Spokesman Jon French says the current system is unsustainable and financial products such as pre-funded LTC and immediate annuities are too costly because there is no certainty of what the individual’s liability will be.
He says: “The Government needs to signal its support for a public-private link-up on this and to illustrate how this would work.”
French says one way would be to impose a limit on the length of time that the individual has to pay the costs of care. He suggests a cap of two years after which the Government picks up the tab for all future years of care.
Alternatively, the costs could be split proportionally between the individual and the Government.
The range of financial products for both short-term and long-term care is limited at present due to the huge liability that insurers take on.
Due to increasing long-evity, insurers could be pay-ing out on insurance policies for years which means few providers offer these products and those that do are expensive.
Lang & Buisson, which specialises in research on the UK healthcare market, says that of 360,000 people that went into residential care in 2007, 61 per cent were funded by the state while 39 per cent were privately funded.
Managing director William Lang says nearly all the 39 per cent who funded their own care sold their homes to pay for it. He says the number who used financial products to pay care fees is so small that figures are not available.
Symponia joint managing director Janet Davies says a public/private sector partnership would revive the care fees planning market, giving people options other than equity release or selling their homes.
She says: “If the length of time that the individual is paying for care is capped to two years, then it could regenerate the pre-funded market because companies would know they will only be paying out for a certain amount of time.”
There is another issue with people relying on their homes to pay for care. With the economic downturn, house prices are falling and equity-release providers are being more careful over lending.
Partnership sales and marketing director Ruth Clarke says: “If you cannot sell your home and if the value of your home is decreasing, how are you going to pay for care?”
She says the main problem faced by people going into care is a lack of awareness of funding options available.
Last year, a Partnership survey found that only 12 per cent of people seek financial advice before putting a relative into long-term care.
A survey of 3,207 people aged 50 and over who had put someone into care found that 43 per cent do not seek any form of advice on how to fund it, primarily because they do not know where to find the advice. It also found that many people seek advice from inappropriate sources, with 70 per cent going to their local authority where staff do not have specialist knowledge.
Clarke says local authorities are reluctant to refer families to individual financial adviser firms and will only give a generic reference that they should seek advice.
Many people turn to the internet or friends for advice on funding options.
Clarke says: “There should be a central reference point and local authorities should say here is a list of all your local financial advisers who specialise in this area.”
She says care home fees are rising at an annual rate of 9 or 10 per cent and longer life expectancy means people have more complex needs.
Prices are rising because an average of 11 care homes close each month so supply is becoming limited.
Symponia’s Janet Davies says the Government will be wary of avoiding the situation in Scotland where a higher proportion of care for the elderly is funded publicly.
The system has been widely praised and was initially a success but many local authorities are struggling to meet payments and according to Davies, some are in arrears with payments.
Davies says: “They under-estimated what it would cost them and I think Scotland is regretting it.”
French says: “The Scottish government is having a hard time of it. It is enormously expensive and they are struggling to meet the liabilities. There is no doubt that long-term care will be the biggest policy issue for the next 10 years.”