Submission to Dilnot Commission on Social Care UK

Submission to Commission on Funding of Care and Support from

Oliver O’Connor Special Adviser to the Minister for Health and Children, Ireland, 2001-‐2010

28 January 2011 Summary: From an incoherent system, Ireland introduced a new scheme for financing long term residential care in 2009, providing for a new way of sharing costs between the State and individuals, while not substantially altering the proportions of State and individual cost. It involves a scaled co-‐payment according to means by the individual, with the State meeting the balance of cost. The means test assesses assets, including the principal private residence, but provisions for a deferral of contributions related to house asset value mean that no person has to sell, mortgage or rent their house to pay for care – an explicit policy goal. Many protections are included in the legislation. A significant element of choice for users is also built in. All nursing homes, public and private, that meet quality standards and value for money may take part. It was vital to start the policy process with clear propositions for the public and equally vital to iterate and refine these throughout, while keeping the essentials clear. Policy design and implementation took several years, and significant political commitment overcame some initial negative reaction. Introduction 1. I was Special Adviser in the Government for Ireland for Ms Mary Harney, T.D., from January 2001 to September 2010, focusing on policy involving finance, economics and budgetary matters. She was Tánaiste (Deputy Prime Minister) up to September 2006, and Minister for Enterprise, Trade and Employment to September 2004. From then until January 2011, she was Minister for Health and Children. I offer this input to the Commission on a personal basis.

2. The challenge of long term care provision and financing is common to all developed societies. Britain and Ireland share many common traditions and cultures in terms of health and social care provision. This paper is a summary of some of the policy choices and decisions made in substantially re-‐designing the system of long term care in Ireland, in particular, the sharing of cost between the State and individuals. I hope the Commission will find some of these reflections useful in its recommendations for policy for England. This paper itself is not written as a recommendation for policy, based on data and analysis of British care systems; it does not directly offer a view on the three questions posed in the call for evidence. Situation prior

3. Ultimately, the focus of our reform of financing was long term residential care, clearly more narrow in scope than the work of the Commission. This was a choice for several reasons:

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a. By January 2005, when we started our work, the ‘system’ of long term residential care was incoherent. Basically, over the years, a dual State role had arisen, first, by the provision of State-‐funded and operated public nursing homes under a general health statute of 1970, for which every person was ‘eligible’ to apply for, irrespective of means. In 1990, a system of means-‐tested part subvention for private nursing homes was also created. Both because of funding constraints and because of choice by some families, the stock of public nursing home places was not sufficient to meet demand. People who could not get a public nursing home place, or did not find one convenient to their needs, went to private nursing homes and applied for subvention. In public nursing homes, the co-‐payment required was 80% of the basic rate of State old age pension, for all persons, irrespective of their means. In the private nursing home, means-‐tested subvention amounted sometimes to about one-‐third of the cost, with the individual having to pay the rest to the nursing home. Over one-‐sixth of people received no subvention. Clearly, there was a substantial inequity between persons in public and private nursing home places. Those who felt they had no option but to use a private place felt particularly aggrieved. Indeed, this gave rise to litigation against the State, some of which is still before the Courts and is contested by the State. Finally, it was advised by the Attorney General in late 2004 that the charge for public nursing homes places (80% of pension), was itself illegal, i.e. it had been levied by health agencies ultra vires. This, and an unsuccessful legal attempt to validate it retrospectively, caused us (the Minister, Department of Health) to review the entire financing system for long term residential care from the bottom up in January 2005.

b. It was also the case that data on home based care was even less complete than on residential care; the sharing of costs was somewhat different (in that there was no subvention scheme) and it was only in 2005 that a systematic provision of ‘home care packages’ for older people was commenced.

c. From a public financing position, it was felt better to address one area first, see how a new system worked, review it, while preparing analysis and thinking on financing long term care needs in general, using the experience gained from the residential care side.

Process of work – starting with the end in mind

4. While we set up an interdepartmental Committee in January 2005 to gather data and process the necessary analytical work for all aspects of social care, at all times the impetus and driving force was to achieve clear statements for citizens and potential service users. These propositions were achieved at the

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end, but many were present from the beginning, leading to the system design. In short, they were:

a. There will be a clear and modern clinical assessment of medical need for residential care applied consistently for the whole country. The assessment will be done efficiently.

b. Most people can and should be cared for at home. Residential care is for people with high-‐dependency needs.

c. There is no age discrimination or qualifying age in the scheme.

d. While the State will continue to meet most of the overall cost of care (about 66-‐70%), there will be a contribution to the cost of care from individuals.

e. Your contribution will vary according to your means. Once you make your contribution, the State will pay the rest. You will not be exposed to price increases by a nursing home provider.

f. There will be an utterly fair and transparent means test, covering both income and assets.

g. You will not have to sell your home to pay for care. You will not have to mortgage your home.

h. Your family will not be means-‐tested or be required to contribute to the cost of your care.

i. You will not have to deplete your savings fully.

j. You will have a choice of nursing home provider.

k. All nursing homes, public and private, may be part of the scheme on an equal basis. The same explicit standards of care, and independent inspection, will apply to all.

l. There is no obligation use the scheme on the part of a nursing home or on the part of an individual. If people want to fully pay for care independent of the State, they may do so.

5. Some of the policy thinking for the scheme was informed by a substantial policy framework document produced by the National Economic and Social Council called ‘The Developmental Welfare State”. This analysed modernised welfare and State support in general, and described a concept of ‘targeted universalism’ – that is, a universally available service with different levels of contribution/access/prioritisation based on individuals’ needs.

6. Ultimately, new policy ground was broken by the Nursing Home Support Scheme, referred to also as ‘the Fair Deal’, in a number of respects:

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-‐ the scaled contribution according to means, eliminating discontinuities and flat charges for the poorest and wealthiest alike. The contribution is 80% of assessed disposable income (plus an imputed 5% of the value of assets, with a disregard of the first €36,000), capped by the cost of care. This was similar to the old public scheme, where a person whose sole income was the State pension was asked to contribute 80% of it to the cost of care1; the inclusion of assets was a feature of the Subvention scheme.

-‐ the use of ‘any willing provider’ which met standards and value for money, in a comprehensive way, and choice for patients;

-‐ the inclusion the principal private residence asset in means testing and choice to defer the relevant contribution arising.

The first of these two received attention in the realms of policy-‐formation debate, but the latter (the treatment of the house / land) was one that the public paid most attention to, since it went to the heart of sharing of cost between State and individual, and there is strong cultural attachment to home ownership. The problem of selling or mortgaging a home and had been one of the disliked elements of the Subvention Scheme.

Treatment of the house asset

7. As mentioned above, since 1990, there was a means test for the private nursing home Subvention Scheme. This test included the principal private residence of the person applying for subvention. For the sake of simplicity, in the case of a single person, a notional income of 5% of house value was ascribed to the house. Thus, when the average house price was €200,000, the means test would assume the individual received a rental income of €10,000 a year, or €192 a week. This was broadly the level of the State old age pension in the mid-‐ to late 2000s. The weekly cost of care varied regionally from about €650 a week to €1,000 a week. A subvention of approximately €300 per week was often available; only in a minority of cases was an ‘enhanced’ subvention reaching €600 a week given. Some people received less than €300, some received no subvention. Clearly, it left a substantial funding gap for the individual – one which realistically could only be met by relatives or by selling/mortgaging/renting the house. By contrast, a person, of whatever means, who got a public nursing home place was charged around €120 in total (by reference to the prevailing rate of State pension).

8. In our review, it was judged that it would be inefficient and inequitable not to take account of the value of the principal private residence. Inefficient: 1 Very few people in the over-‐65 age cohort have substantial incomes; the average income is only about 10% higher than the old age pension itself. However, some persons may receive no financial support for nursing home care; in simplified terms, any person with assessed disposable income over €65,000 approximately would get no financial support for nursing home care, at a price level of €1,000 per week – 80% of €65,000 being €52,000

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because clearly, house asset values (even having fallen now substantially since 2007) represented a store of wealth which was destined otherwise for inheritance – why should it not be used for a pressing need for the generation owning it? If this source of wealth were not used to finance care, another source would have to – inevitably falling on the working generation (those who would inherit the asset later intact). Using the store of wealth in housing would be less distortionary on economic activity than, for example, additional tax on labour, consumption or investment. Inequitable: because, once there is any means test for care (as distinct from a service free at the point of use for all, a policy position taken by some), it is compelling that no asset/income should be exempt ipso facto; otherwise an inherent unfairness would be built in, and opportunities for avoidance or wealth re-‐organisation would be created for those in a position to do so.

9. However, there was a strong political position taken by the Minister and Government from the outset to meet a traditional and deep concern on the part of older people not to have to sell or mortgage their house once they went into residential care.

10. We were also conscious that there was an evident degree of mistrust for commercial equity-‐release products offered by banks, notwithstanding that they were used by some people. People were fearful of total asset depletion. It was not going to be possible to force everyone to use such a device. Difficult issues like the role of the State in pricing and interest rates arose, if the State effectively created a reliance in its own scheme on commercial equity release products (some of this reasoning also applied to constructing a scheme that relied on commercial long term care insurance).

11. The conclusion arrived at was the following:

a. In the means test, a 5% imputed income value annually from the house would be added to other disposable cash income.

b. To give reassurance about total depletion, the 5% value was capped at three years’ value: i.e. a maximum of 15% house value (this was chosen because the average length of stay in a nursing home was 2.5 years).

c. The person would have a choice: to pay this portion of the contribution upfront (through e.g. sale, mortgage, family contributions) or to defer it and have the State collect it from the person’s estate.

d. We had to create a legal mechanism to put this charge on the estate, which entailed also enacting much-‐modernised mental capacity legislation and protection for both the person in care and any care representative making that the ‘charge’ decision.

e. The house valuation was professionally carried out, but could be appealed by the person after the passage of some time.

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f. The joint ownership by spouses of houses was recognized, as was the position of adult dependants (generally, people with disabilities) living with parents. The collection of the deferred contribution from estates was itself deferred until after the death of a spouse and of any adult dependant reliant on that home.

g. There is an interest rate, set at the Consumer Price Index, to take account, somewhat imprecisely, of the cost of funding to the State. Furthermore, the Department of Finance had to calculate the upfront cash cost of the scheme relating to deferrals.

12. It took a degree of political skill and courage to introduce this concept. Irish people share with British people a strong attachment to their family home. It was first approved and announced by Government in December 2006. There was initially a vigorous political and media reaction against it. The legislative and administrative process took quite some time subsequently. The scheme was enacted in 2009 and commenced in October that year. While media comment was very negative initially, service users’ views, in practice, seem to be positive, particularly because of the element of choice. Under the social partnership model then used, representative bodies were invited to make comment. Organisations like the Irish Farmers’ Association engaged on the farm/inheritance issues and the details of legislation were drafted accordingly. Statistics will become available increasingly on the choices individuals make with respect to payment upfront or deferral.

13. There are variations and details applying to the scheme, in relation to spouses (basically, assessment and ownership of assets is deemed to be half share, so that the 5% of total house value could in fact be 2.5% if a spouse lives); and in relation to farms and small businesses. These are set out fully in the Frequently Asked Questions document attached. Provider arrangements

14. It may also be worth noting briefly some features of the provider side. There was widespread private nursing home provision in Ireland before this scheme – about 63% of the 19,416 beds were in the private sector. Typically, the individual made arrangements directly with the private nursing home, but a practice also arose whereby the State purchased beds, so-‐called ‘contract beds’. This gave rise to a further anomaly whereby two patients in the one nursing home could be paying radically different contributions to the cost of their care, depending on whether they were in a public ‘contract’ bed or fully private bed (with no distinction in accommodation type or care level).

15. In the new scheme the State contracts with all private providers who want to be part of the scheme. A contracting agency, the National Treatment Purchase Fund (NTPF), bargains with all providers on a bed charge basis. There is no national tariff, since prices vary regionally, reflecting premises costs and some degree of labour availability. The NTPF pays per bed used, not to have general capacity available. It might be remarked that the NTPF has very strong pricing power over providers in this scheme. Indeed, it is a near-‐monopoly

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buyer, but it is constrained to act reasonably as a public body, and as such, it is also accountable to the Oireachtas (Parliament) through the Minister and Department of Health and Children’s Accounting Officer, and is subject to potential judicial review of its administrative decisions.

16. It is to be noted also that the NTPF does not yet pay a separate State body, the Health Service Executive, for State-‐run long term care beds in this way, although the new system has required all public nursing homes to publish their actual costs per bed (interestingly, those costs are higher in the public sector generally, even though all nursing homes are required to meet the same standards of care and physical accommodation standards). Recent recommendations from an expert group have recommended much more extensive use of payment for output/outcomes in the public sector. This would mean that public nursing home beds would then be bargained for, and purchased, in the same way as private beds are already.

17. There have been some disputes about the package of care the NTPF will pay for, and it is clear that some private nursing home operators offer their patients more than the NTPF will pay for (e.g. in the area of social activities) – and pass on charges to patients accordingly. It is an important policy objective to keep the package of purchased care adequate for the patients’ needs and not to allow a significant divergence to grow between those who can afford top-‐ups and those who cannot, within the one home particularly.

Conclusion

18. To address the issue of cost-‐sharing between the State and the individual, it was vital to start with some clear propositions for the public to guide policy development, to iterate and refine these while addressing the complexities, and to come out with simple, clear propositions at the end. There are some policy, even philosophical, choices that the analytical process can not, and will not, of itself make. Starting propositions are decidedly necessary.

19. The cost to the State of funding long term residential care was not substantially altered. Under the previous and new arrangements, it still meets about two thirds of the total cost – it was about €1bn in 2005 terms for approximately 22,000 people in care. There was an additional timing cost to the State in funding the upfront cash provision for deferred contributions, which depends on the choices made by individuals deferring or not – possibly in the order of €100m.

20. However, the private contribution portion was made more rational and fair across all individuals and all personal circumstances. Some people paid the same – effectively, those whose income was effectively the State pension and who did not have any significant assets. Some would pay less – those whose private contributions to the cost of a private nursing home place were higher than the new co-‐payment level. And some would pay more – those, in particular, who had medium to high incomes or assets, but who secured a public nursing

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home place, rather than paying for a private bed. A transition provision, however, was implemented to ensure that no person currently in care would be disadvantaged by the introduction of the new scheme. So no person actually lost; the changes were in notional cases or what a person might have paid under the old scheme relative to the new one.

21. The introduction of a rational co-‐payment mechanism for individual contributions was seen as improving the sustainability of financing long term care, even if it was not aimed at reducing the foreseeable Exchequer cost.

22. Extracting from the complexity, the following tests were used for the acceptability of using the house asset for finance:

a. Clarity of concept and rationale

b. Affordability – contributions not in excess of actual disposable income

c. Fairness -‐ as between all applicants across the country

d. Choice – upfront payment or deferral

e. Simplicity – while addressing situations like farmsteads

f. Capped depletion of house asset value at an acceptable and evidence-‐based level

g. Exemption of some savings – up to €36,000 individually

h. Protection of persons with diminished capacity while allowing for sufficient decision-‐making powers for care representatives (usually family members)

i. Protection of spouses and adult dependants

j. Non-‐commerciality of deferral/”loan” provisions

k. Administrative ease to the greatest extent possible

l. Well-‐grounded legal framework to avoid estate-‐probate complications

Other ideas for the scheme were examined, including insurance and total tax-‐based funding, but the Scheme as designed was ultimately chosen as meeting the tests of ability to fund care provision, financial sustainability and fairness.

Oliver O’Connor

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London

28 January 2011

Appendix

Documentation

Comprehensive documentation on the Fair Deal, the Nursing Home Support Scheme, is available at

http://www.dohc.ie/issues/fair_deal/

In addition:

Report of the Long Term Care Working Group, 2008 (publication date) (incl).

Frequently Asked Questions (release 2009) – when scheme is operational

Frequently Asked Questions (release December 2006) which gives statistics available at the time of the Government policy decision

Submission to Dilnot Commission on Social Care UK

Documents

Transcript of Submission to Dilnot Commission on Social Care UK