The cap on care costs: what does the government proposal mean?

Later this month, peers and MPs will vote on a key change to the proposed social care cap. It’s a technical change, but one with a really profound impact on people. This blog attempts to set out as simply as possible what the change is, and why it matters. Put simply, it means that some people will still face what are, to them, catastrophic care costs and could need to sell their home to pay for care: people with lower levels of wealth, which disproportionately affects people in some geographies in the North and Midlands, and working-age adults with long-term disabilities.

The current system

Unlike the NHS, social care has never been free at the point of use... Only if someone’s needs are high enough and their wealth low enough do they qualify for financial support from the state.

Care needs are unpredictable – some people will be lucky enough to need no care or only very little amounts in later life. Others may be unlucky and face costs of care of more than £100,000.

The current system is not well understood by the public but when it is experienced or explained, it is widely considered to be unfair and in need of reform. Generations of politicians have talked about the unfairness of the current system in terms of people having to sell their home to pay for their care, often framed in terms of protecting inheritance for their children. But for people with low levels of housing and other wealth this is more fundamentally about them not having to surrender everything they have worked hard for to pay for care. Since the late 1990s, successive governments have promised change, but until now no substantial change has been implemented.

The Dilnot Commission: the cap and floor

The system being debated now is based on recommendations from an independent Commission chaired by Sir Andrew Dilnot, which reported in 2011.The Dilnot Commission argued that it was reasonable for everyone to plan and prepare for some costs of social care in later life, but it wasn’t reasonable, fair or economically sensible for everyone to have to prepare for the potential worst case of facing very high costs of care. They also concluded – like every other independent review over the past 20 years – that private insurance wasn’t a viable alternative.

Dilnot proposed a cap on the costs of care someone should pay over their lifetime. That would mean everyone was responsible for their care needs up to a certain level, but that if your needs were higher than that – if you were unlucky enough to have lot of care needs over a long period of time – the state would step in and pay for your care. Most people will never reach the cap as their care needs will be less than this, but giving everyone the peace of mind that they had protection against the risk of very large care costs was one of the main motivations for introducing it.

This was the system that was legislated for in the Care Act 2014 but in 2015, the Conservative government delayed, and then eventually shelved, implementation.

There are a couple of important pieces of detail about those recommendations back in 2011.

The Commission chose to use a financial limit – the maximum amount people should have to spend on their care – to set the cap. But it’s important to consider what that financial amount represented: it was the simplest way of measuring accumulated care needs, that is, how much care you have been assessed as needing over your lifetime. If your care needs over your lifetime reached a certain level then you should be entitled to free care as it was no longer a reasonable scenario for you to have planned and prepared for.

Secondly, the proposed cap was to go hand in hand with a much-extended means test. The means test thresholds have been stuck at £14,250 and £23,250 since 2010. If you have more than £23,250 in assets you receive no financial support; between £23,250 and £14,250 you are eligible for partial contributions; and below £14,250 you receive full financial support. Even if someone qualifies for state support, they may well have to contribute towards the cost of their care from their income. Making the means test more generous would mean that more people would get a bit of financial support from the state during their care journey. Critically, it meant people with lower levels of wealth would get financial support from the state even before they reached the cap. Why is this important?

People often talk about catastrophic costs in social care, but what is considered catastrophic is not a single number – it’s a relative, not absolute, concept.

People often talk about catastrophic costs in social care, but what is considered catastrophic is not a single number – it’s a relative, not absolute, concept. As an example, let’s use £86,000 – the level the government has now set the care cap at. To someone with low levels of savings and housing wealth, £86,000 is catastrophic as it will mean care costs would take all or most of their savings and wealth, and as for many of these people their wealth is tied up in the value of their home, it means selling their home. To someone with a house worth more than a million pounds, £86,000 wouldn’t be catastrophic – it would be a small proportion of their wealth.

By combining a cap with the extended means tests, the Dilnot Commission recognised that for some people it would still be catastrophic if they were responsible for all of their accumulated care needs up to the cap level. Extending the means tests would mean people with lower and moderate levels of wealth would get more help from the government towards their care costs and crucially, under the original proposals this government support also counted towards the cap so they wouldn’t need to pay all of the £86,000 out of their own pocket, as to do so would be catastrophic for them.

The government’s manifesto commitment

When Boris Johnson became Prime Minister in July 2019, he stood on the steps of Downing Street on his first day and promised to fix social care. Later in 2019, the Conservative Party manifesto stated ‘the prerequisite of any solution will be a guarantee that no one needing care has to sell their home to pay for it’.

The government’s amendment

In September 2021, the government announced it would finally implement a cap and an extended means test – the core components of the Dilnot recommendations. They set the cap at £86,000. But just over two months later, they announced their intention to change how the cap and the means test work together. The government now plans to stop any care that has been funded through the means test counting towards the cap. The government announced this change in November, giving MPs just five days to scrutinise the proposal ahead of voting, with no impact assessment published at the time.

The government claims this change is fair because it means everyone pays the same from their own pocket (£86,000). But this is not a definition of fairness that many people would recognise and, indeed, the Dilnot Commission considered and rejected this proposal in 2011. Let’s go back to our earlier concepts of accumulated care needs and catastrophic costs to see if the impact is ‘fair’.

If this change goes ahead, for people with lower levels of wealth it means that they will face much higher accumulated care needs over their lifetime before they can benefit from the cap. Analysis from the Institute for Fiscal Studies and the Health Foundation shows that people with the same level of need for care but different levels of wealth will reach the cap at different points. In one example, a wealthy person would reach the cap after 3 years and 4 months whereas someone with less wealth would take almost twice as long to do so, 6 years and 5 months – almost double the need for care before getting the same financial support as the wealthy person.

The proposed change to the system is unfair as it is no longer based on the same level of accumulated care needs over your lifetime...

The proposed change to the system is unfair as it is no longer based on the same level of accumulated care needs over your lifetime – some people who are poorer will need to have much higher levels of need over their lifetime before getting full financial support.

So instead of this important concept of accumulated care needs, reaching the cap now is determined by the spend of an individual in meeting their assessed care needs. To receive free care after reaching the cap, everyone would have faced £86,000 of costs they need to fund themselves. As the chart below shows, some people could still see more than 70 per cent of their savings and wealth go towards care costs. A proportion many would consider to be catastrophic and would mean they would need to sell their house to pay for care, breaking the promise the Prime Minister made in July 2019.

Who loses out?

The chart below illustrates the impact of this change powerfully, comparing the current system with how the capped cost model was intended to work as legislated for in the Care Act and the most recent change from Government. When compared to the existing means tested system, all groups are marginally better off with the Government’s latest proposal because of the increase to the means test threshold – everyone is left with at least £20,000 rather than £14,250 today. But for many people the latest proposals are considerably less generous than the Care Act, as many people could still face losing more than 70% of their assets to pay for care. For these people they are not getting any protection from catastrophic costs and still face the prospect of losing almost everything – including the value of their home - to pay for care.

While the government says everyone paying the same is fair, understanding what this means for both accumulated care needs over your lifetime and for catastrophic costs clearly shows this change is unfair for many. The analysis by the Institute for Fiscal Studies and the Health Foundation shows that people in the North East, Yorkshire and the Humber and the Midlands would be most disadvantaged by this change, whereas people living in the South East will see no difference in the benefits they receive from this amended policy.

While the analysis focuses on older people, it’s important to reflect on the impact on working-age adults. Working-age adults with care needs tend to not have the same opportunity to earn similar income levels to the general population and this means that many receive financial support through the means test. Under the proposed change, this support won’t count towards the cap. This will mean it will take much longer – a much higher amount of accumulated care needs – to reach the cap. This is critically important as it means for all that additional time, the working-age adult is contributing to their care costs from their income.

Who wins?

The government have been clear that this change saves it money – from 2027/28, the saving is around £900 million a year, reducing the cost of reform by around one fifth. The saving it generates for Her Majesty’s Treasury happens because poorer older people, those living in the North East, Yorkshire and Humber and the Midlands, and working-age adults will now be required to pay more towards the costs of their care than under the original proposal.

Conclusion

The Prime Minister guaranteed that no one needing care would have to sell their home to pay for it. The change the government is pursuing would mean this promise is broken for older people with lower levels of wealth and for those living in the North East, Yorkshire and the Midlands. It would also significantly reduce the benefits to working age adults. Whether you support the change comes down to whether you think this is fair.