Wednesday, 15 July 2009

Old-age care

I am in a state of shock. The government has got something right. They have initiated a debate about how care for the elderly should be funded. At the moment those with assets have to pay for residential or nursing care and must sell their home (or one of their homes if they were once Members of Parliament) if it is the only way to raise the cash.

The present system lays bare a fundamental issue. Who is responsible for my well-being, me or the State? If, as I believe, it is me then I should pay for any care I need in my dotage just as I pay for my miserable existence today. If that means there is less in my estate when I fall off the twig, so be it. My estate comprises my assets and it is hard to see why others without such assets (or, indeed, those with greater assets) should pay for my needs when I can pay for them myself.

But then those with no realisable assets get care for nothing, so why should I not receive the same value of care as them out of taxation and only pay for any additional services I might desire?

The simple fact is that there is an equally strong case for (i) those with assets paying for their care and (ii) everyone receiving a minimum standard regardless of assets. Neither position can be said to be plainly right and neither is plainly wrong. Where difficulty arises is in frustrated intentions. Mr & Mrs Ordinary who scrimped together the deposit for a small house and worked hard to pay-off the mortgage did not do so just for the fun of it. They did so to provide themselves with secure housing throughout their lives and so that they could pass something on to their children. It is politically unpalatable that the asset they have taken thirty or more years to acquire should be paid over to the State in return for nothing more than the same old-age care received without additional cost by those who liquidated their wages into the latrine at the Dog & Duck every Saturday night.

As with so many problems that arise in relation to health care, the solution comes sixty years too late and at far greater cost than it should. The NHS was intended by its architect, William Beveridge, to be based on insurance with premiums reviewed annually to ensure sufficient was being put into the pot to provide not just for current expenditure but also to build a reserve. An insurance company that raises only enough in premiums to pay administrative costs and likely one-year expenditure would soon go to the wall because the very nature of the business is that the risks being insured are variable. In the real world governments who inherit a pot of cash raid it if they can to pay for their pet projects with a view to winning future votes. No substantial reserve pot was ever created, instead the NHS, including old-age care, was treated as a call on current tax receipts year-by-year.

And so we are where we are. The new government initiative finally grasps the nettle by realising there are three ways in which old-age care can be provided by the NHS. Each presupposes a basic level of care available to all without charge, the debate is about how a level of care above the basic level should be funded. One option is to simply leave it to individuals to pay as and when they wish for some optional extras. The second is to apply a levy of around £20,000 at retirement age on all those who can afford to pay it (no doubt operating by way of a lump-sum confiscation from private pension plans). The third is to establish an insurance system into which people can pay over time to receive care later. The first two concentrate on those who are at or near retirement age, the third makes most sense if applied throughout a working life.

Criticism from the Opposition that the government should not be launching a discussion document but putting forward a firm proposal is unpersuasive. The three options all have their merits and need to be reflected upon and thought through. It is churlish to criticise a government that has too often launched hasty and ill-considered initiatives when for once it has done the sensible thing and shown willingness to engage in debate on a difficult and important topic.

I find this issue fascinating because it links into themes I have waffled about over the months. One of my themes is that too many people live beyond their means and by doing so store-up problems for the future. We are witnessing an intense example of that at present as many of those who borrowed against fictitious equity in their homes to enjoy temporary frivolities are now paying a very dear price. We see it in a different way in the enormous levels of government debt which, in some quarters, is causing long-needed focus on what government can really afford to do. And we see it too in the inadequacy of funding for pensions in both the private and public sectors. In all these areas current spending by both individuals and government has had priority over saving to pay for future costs. Isolating old-age care as an issue should help to illustrate that it is a normal incident of life and is so expensive that it needs to be saved for, just like a decent pension.

Perhaps someone has prepared figures about what proportion of our incomes we should all save throughout our working lives to cover future contingencies like pensions and old-age care, I know not. At a rough guess I would say ten percent for a pension and maybe two or three percent for care. In a way it doesn't matter whether that saving takes place individually, through an employer-run scheme, through an insurance company or through taxation. What does matter is that a pot of money is built up and kept safe specifically for these areas of future expenditure. In practice that rules out taxation because no government can be trusted to leave the pot unraided. It might also rule out insurance companies because their huge assets always make an avaricious Chancellor of the Exchequer salivate like a vicar in the choirboys' changing room.

The difficulty is in ensuring that voluntary top-ups remain just that. It would be easy for a future government to say that the NHS will fund care only for those who have not made their own provision, particularly if insurance becomes the norm. That cannot happen for many years and should not be the focus of attention today. What should be the focus of attention is the necessary shift in attitudes away from "the State will provide" to "the State will provide a basic safety net, anything else is down to me".


sobers said...

Alas the shift from 'the State will provide' to 'the State will provide a basic safety net only' is a Catch 22 situation. The basic safety net has to be basic enough to make people think 'I don't want to end up like that!', but not so basic that people who don't make any provision for themselves end up dying on the streets. A very difficult tightrope to walk.

There will always be hard cases, that cause politicians to take the easy way out and provide extra money. And there will always be feckless people who make no provision whatsoever for their own future, and rely entirely on the State to provide for them. Unless we as a society are prepared to let people suffer real hardship, and even possibly die, as a result of them not making provisions for themselves, there will not be any increase in self reliance.

We have removed the consequences of bad decision making in our society, and we collectively have to pay for the bad decisions of a significant proportion of the population. This will not change until we reintroduce the consequences for feckless behaviour.

Mark Wadsworth said...

The answer is inevitably "(ii) everyone receiving a minimum standard regardless of assets."

Means-testing is a spiteful form of taxation. Benefits should either be flat-rate, non-means tested and basic, with voluntary private top-ups, or not at all.

As ever, I have no idea why you caveat it with this:

"Mr & Mrs Ordinary who scrimped together the deposit for a small house and worked hard to pay-off the mortgage did not do so just for the fun of it."

What about Mr & Mrs Ordinary Tenants who scrimped and saved and built up a pot of cash instead, which hasn't gone up tenfold in value in the last thirty years? Are they somehow less deserving?

If the idea is to "allow people to keep their homes", would anybody in his right mind suggest that the stays pays the rent on Mr & Mrs Ordinary Tenants' rented house for x years while they are in care, on the off-chance they want to return to it again?

Chris said...

May I suggest a few twists to this, so that citizens remain in control of their own funds? These ideas are in use in Singapore's health service and promoted in Harford's The Undercover Economist.

1. Give a tax rebate of £X/year and compel citizens to save that into a designated fund (like an ISA) and to take out catastrophe insurance (e.g. if you come to need 24hr care).

2. For citizens who do not pay £X/year in tax, the state tops up the fund.

3. The individual pays for his care using his own fund. The state need pay for nothing.

The underlying idea is that individuals will be careful with their money and cuts out the waste inevitable in insurance and state schemes.

TheFatBigot said...

What jolly clever people they are in Singapore, riddled with common sense. Perhaps we could start with a ban on chewing gum (one of my pet hates) and then adopt their excellent compulsory savings scheme.

sobers said...

The Singapore scheme sounds like a good idea. One teeny problem however - our populace is so wedded to the concept of 'Cradle to grave', and so badly educated, that there is a hard core of people, probably 10%ish, that would not manage their fund at all. They would do their best to get something out of it to spend now, and if that wasn't possible, just ignore it totally. What would happen if their fund ran out of money? Would the State step in and pay? Or would it let them die in the street?

I have personal experience of people such as this. It doesn't matter what they do, the State ALWAYS steps in to provide shelter, and money for food and clothes. Drink, drugs, criminal behaviour,no problem, you still get the cash. The only way to change the current perception is to draw a line, and say 'Beyond this, we (the State) don't provide for you anymore.' And mean it, even when there are people begging on the streets, suffering because of THEIR decisions. Cruel to kind and all that. If you always protect people from the consequences of their own decisions, you get child like behaviour. You will never get self reliance.

Chris said...

Good point, Sobers, and the book doesn't answer this point. The Nanny State turns its dependants into children, doesn't it?

Perhaps any portion of your fund that the state contributed remains controlled by the state and prevents you blowing it on imprudent levels of care.

Just a thought.