Using the wealth of older people to ensure the affordability and quality of their health and social care

The heaviest users of the NHS are children and older people though it is mainly those of working age who staff and fund it. In the early days of the NHS its expenditure on older people was restricted by the limited range and effectiveness of treatment available and the relatively low life expectancy following retirement. For a while therefore it was feasible to rely on a funding formula based on general taxation (especially with the prevailing steep tax bands and death duties).

Over the succeeding decades the steady rise in life expectancy and the dramatic expansion of the range and cost of medical and surgical interventions applicable for older, and even very elderly, people upset that balance. The extra demand built in a 1-2% per annum multiplier to NHS expenditure which general taxation (even before the recession) was unlikely to match. That mis-match will increase as the large baby boomer generation moves from productive membership of the workforce into retirement.

It has become increasingly obvious that the only sustainable formula for plugging this gap is for each cohort of older people to pay its excess cost. A levy on pensioner income (which falls, often severely, in retirement) clearly wouldn’t work. On the other hand most of this country’s net personal wealth (several trillion pounds) is held by those currently over 50 (ie the baby boomers and existing pensioners). Diversion of a modest proportion of that aggregate capital would be a simple and sustainable way to plug the “care funding” gap. Although a large number of pensioners have little if any capital this is amply offset by those at the upper end of a widening wealth gap. For most in the middle the main asset is their home though this is usually tied up till close to or after their death.

To match the widely accepted formula for NHS funding (contributing by ability to pay to ensure free provision at the time of need) the fairest arrangement would be to identify and subsequently collect a flat percentage of every pensioner’s capital assets, possibly subject to a starting threshold of £10-20,000. To underline that this would be an insurance against the health costs of old age the logical point for assessing and invoicing the premium would be 65, or the prevailing statutory retirement age. To get the scheme up and working reasonably quickly it would need to include those already past that age and their levy would need be based on wealth at the time of its inception (or legislation). This sort of arrangement was one of the options proposed in the 2010 White Paper on social care, with a levy of 10% of one’s capital asset the favoured option. To use the same approach to plug the gap in health care funding, removing the artificial boundary with social care and running both by the same rules it would be realistic to raise that figure to 15%.

There would need to be a clear definition of “capital wealth” (normally one’s home  or share of it, other property and investments and pension funds above a certain threshold ) and what constituted fair play in terms of anticipatory financial planning and family trusts. The key principle of such a scheme would be that it was a collective insurance by each cohort of pensioners against the extra costs of its care in old age. As the first generations to share (and help pay for) the benefits of the NHS (only to see them undermined in the social care arena by random injustice they thought NHS had made history) this ought to be quite acceptable. As they engage in this solidarity within their own generation the heavier contributors (ie those at the upper end of a very inequitable wealth distribution) should be able to console themselves that they had been the biggest beneficiaries of a prolonged housing boom, generous tax relief on savings and pensions and free higher education. By paying its way each older cohort will also staunch the otherwise growing bill landing on their much less cushioned juniors.

Much of the anger around the present state of social care funding relates to people having to “sell up their homes” or “use up their hard earned savings” to pay for nursing home care. This, with the diagnostic lottery whereby cancer costs are largely picked up by the NHS while Alzheimers Disease will frequently saddle you and your family with a bill for £50-100,000, clearly cries out for risk sharing insurance. By capping that risk the Dilnot Commission attempted to create the conditions for an insurance market but the recent Coalition proposals (especially the small print) would restrict that to the very well off and possibly spawn the next wave of “miss-selling”. The advantage of the scheme proposed here is that even a 15% levy would rarely tap into “hard earned” savings, especially for those at the wealthier end of the spectrum. Even allowing for the big fall in the housing market after the credit crunch most home owning pensioners will still be sitting on an “unearned” windfall well in excess of 15%. For those higher up the market the percentage gains would be much greater, not to mention the higher rate tax relief that boosted their savings and pension contributions. It seems better to use some of that windfall (ie “unearned savings”) to insure themselves and their contemporaries than pass it all on to perpetuate inequality in the next generation.

These arguments are summarised and illustrated in what may be a more digestible form below:

  • Baby boomers and pensioners have huge collective capital wealth
  • The wealthiest tenth of households owned more than 40% of overall wealth and were over 850 times wealthier than the least wealthy tenth of households
  • Over half of the combined wealth held by the top 10% of households was private pension wealth
  • Probably a third of these assets comprise a windfall from house price inflation and favourable tax relief on savings and pension contributions; the proportion of that unearned bonus is highest at the top end of the wealth scale
  • For most older people disposable (and taxable) income drops sharply at retirement, making capital the main resource for funding care or for insuring against the cost of care in old age
  • Any scheme for pensioners to share the risk and cost of their health and social care would need to base their contributions on capital wealth not income
  • The fairest way to collect those contributions would be to assess each person’s capital wealth at the age of 65 from which a fixed proportion (10-15%) would be pooled to ensure future care free at the point of need
  • Wealth would comprise the value of one’s home (or share of it), any further home ownership, savings and investments and pension funds in excess of, say, £0.5 million.
  • Because for most people that wealth would be tied up in their home their contributions would generally be collected from their estate after death
  • Although a compulsory insurance and not a tax HMRC would be best placed to assess and collect contributions, with clear rules to minimise avoidance
  • A national board, with ample pensioner representation would set criteria and standards for allocation of this hypothecated  “fund” and for linking across into the NHS
  • The fund would cover personal care and measures to promote independence for older people disabled by illness but to support care at home it would not cover “hotel” costs in residential and nursing homes
  • It would not provide for the social care of people under 65 (which would remain a function of general taxation), the quid pro quo being that those not living to that age would not have to subsidise those who did

The main benefit of this collective funding by each cohort of its care in old age would be:

  • Fairness within the cohort (sharing cost by ability to pay along the lines of the NHS but substituting capital for income to recognise that this is the main proxy for wealth in retirement
  • Removal of the diagnostic lottery in the cost to the individual of major illnesses in older age: eg. cancer care almost entirely covered by the NHS while Alzheimer’s and similar neurological conditions cost individuals £50-100,000
  • Provider tariffs would be set by need, removing the current inequity, indeed iniquity, whereby many nursing homes charge substantially higher fees (often £1-200 a week) from paying residents to subsidise the lower rates contracted for residents funded by local authorities ( the small print of the recent Government proposals ensure that this anomaly whereby you don’t just pay for your Alzheimer care but for your neighbour’s too)
  • Matching supply (number of people passing 65) with demand (the predictable proportion of them subsequently needing expensive social care) within each cohort – growth in care cost therefore balanced by growth in payer numbers and not falling on the next generation
  • With each generation  footing its own bill it would have a legitimate say in the range, focus and quality of services to be provided
  • By cutting off the increasing overflow of their social and health care cost onto the general tax bill pensioners will remove a growing source of resentment by the younger working age population;  a group increasingly aware of missing out on the perks enjoyed by those currently over 50 (eg. free higher education, improving public health, high levels of employment, expanding home ownership and the windfall of a prolonged period of house price inflation and generous tax relief on savings).
  • Investing some of the older generation’s windfall to repair its own solidarity and social justice would certainly be preferable to preserving it to reinforce the inequality that the “bank of Mum and Dad” is already fostering in the next generation down.

These observations are based on interest and experience based on years working in the health care of older people and observation of the steady exclusion of large elements of that care from the NHS as politicians of all parties put their heads in the sand rather than seeking consensus around a fair and sustainable solution.