The idea of an opt-out is a classic ‘nudge’ approach and its nearest model is pension auto-enrolment, which has been a significant success since its introduction in 2012. Hancock is keen for the idea to be included in the forthcoming Green Paper on social care, due sometime this autumn, and you can see why it appears attractive: if it worked, it would bring new private funding into social care and reduce the need for extra government money.
Yet there are serious doubts about such an untried concept, and its late arrival to the debate does not inspire confidence in the process for developing the Green Paper so far. Nudge approaches work where people want to take an action that is in their interests – for example, saving more – but don’t do it in practice. ‘Nudge’ them towards that behaviour – for example, by auto-enrolling them in pensions schemes – and they may well decide to accept it. But, unlike pension saving, which had a decades-old history to build on, there is little to suggest many people see the need to insure themselves against social care costs. Long term care insurance has achieved no more than around 15 per cent market penetration in any OECD country (usually far lower) and in the UK the figures are particularly grim: the Financial Conduct Authority’s recent study of 13,000 consumers found just 39 currently hold long-term social care insurance. Even these are likely to be historical policies since there are no current products to buy, insurers having long ago deserted a market where there are so few potential purchasers. Government encouragement did not entice them back during the run-up to the planned introduction of the Dilnot-style cap in 2016 and they show no interest in returning now.
It is not that we are averse to insurance generally – 49 per cent of us have home contents and buildings insurance and 13 per cent insure their phones. 11 per cent have pet insurance and 3 per cent have ‘gadget’ insurance. Yet it seems we are unwilling to contemplate our future care needs or, if we do, to spend money on insuring against them. Nudging may not be enough to significantly change this behaviour.
Even if it could, there would be immense problems to overcome. If modelled on pension auto-enrolment, a scheme would take years to introduce and would not cover existing pensioners who will not have paid in to it. It is not clear how it would help working age adults with disabilities. Nor would it tackle the existing funding shortfall in social care.
So, while the idea should not be dismissed out of hand, excitement about insurance auto-enrolment risks diverting attention away from better options for creating a viable, sustainable social care funding system. Other countries including Japan and Germany have successfully implemented insurance-based schemes but these take the form of social insurance. Like the auto-enrolment scheme, it involves a payment from payroll into a dedicated, pooled fund to cover future social care costs. The key difference is that it is compulsory – there is no potential to opt out. Our recent research with Ipsos MORI suggests that many features of social insurance, particularly hypothecation, would be attractive to people in England.
The Green Paper should really examine all viable options including other successful approaches, such as tax-funded free personal care in Scotland. Otherwise it risks being, in reality, a red herring and a missed opportunity.