The ‘capped cost’ reforms and
potential implications for
providers, families and the
market
RCPA LTD Annual Care Seminar
James Lloyd, Director, Strategic Society Centre
Wednesday November 26th, 2014
Key messages
 Implementation of the Care Act could see
significant changes to operation of residential care
market in England
 Longstanding operating assumptions may be
challenged
 Potential scenarios range from benign to scary
 DH now seeking to model potential impacts, but
‘muddling through’ likely to dominate
 LAs and providers may be on their own
 Providers need to think through scenarios and be
prepared
…Where are we now?
England’s residential care market is
already challenging environment
 Pressure on provider sustainability
 Especially in LA market
 Polarisation trend: providers exiting/not investing
in poorer areas with fewer self-funders
 Variable link between price and quality
 Price discrimination by providers
 Different prices charged to different users
 Cross-subsidy from self-funders to LAs
…So how does the Care Bill change
the market?
Key changes stem from ‘capped
cost’ reforms to care funding
 Government accepted ‘Dilnot Commission’
proposals for ‘capped cost’ funding
reforms in England
 All individuals with LA eligible needs will
have their notional costs ‘metered’ via a
Personal Budget and ‘Care Account’
 In theory, all self-funders in residential
care in England will have Care Account by
April 2016
Key changes stem from ‘capped
cost’ reforms to care funding
 As part of the reforms, the LA means test
thresholds are being changed:
 Residential care: £17,000 and £118,000
 However, until around February 2014, no
one really thought through potential
impacts on residential care market
Key drivers of change in Care Bill…
 Price information + enhanced rights
 Universal knowledge of ‘local authority rate’ for
residential care
 ‘New’ self-funders
 Far more people in residential care to receive
some LA funding
 Likely extension of ‘3rd-party top-up’ rules to ‘new
class’ of self-funders
 Public interest
 Enhanced public engagement with price of
residential care
…Price information
Universal knowledge of ‘local
authority rate’…
 By April 2016, ‘capped cost’ reforms will see
all self-funders (c.125,000) in England given:
 Means and needs assessment
 Independent Personal Budget and ‘Care Account’
 For first time, all self-funders + their families
will know the LA ‘usual cost’ rate
 Result? Price discrimination + cross-subsidy
in market will become far clearer
 Especially in ‘mixed’ care homes
Potential scenarios…
 Disputes between families and care
homes armed with knowledge of LA rate
 Attempts to renegotiate fee rates by selffunders and families
 Families requesting LA arrangement of
care to access LA rate
 Although DH now questioning whether
families will have this right
Example…
 Imagine articles in 2016:
 'I cut Mum's care home fees by £15,000 a
year’… A Telegraph reader challenged her
mother's care home and it agreed to cut its
fees by £289 per week. Here is how you can
do the same
 NB: these articles are already being
published
Potential scenarios…
 How will the market respond?
 Impact will depend on local circumstances,
but we could see:
 Major challenge for providers in dealing with
complaints/renegotiation?
 Providers less able to extract cross subsidy?
 Local authority rates increased to avoid
provider failure?
…Top-ups rules and ‘new’ selffunders
‘Top-ups’ in current market…
 3rd-party top-ups have grown in use in
English residential care market
 175,000 self-funders
 143,000 funded by local authority
 56,000 individuals who ‘top-up’ the local
authority funding they receive via ‘3rd-party
payments’
Source: Laing & Buisson
Some of the current rules on ‘topups’…
 A local authority’s ‘usual cost’ rate must always be
adequate to procure appropriate accommodation in
the local market
 A local authority’s ‘usual cost’ rate must not assume
that top-ups are available
 If a local authority cannot procure appropriate care at
its ‘usual cost’ rate, the council must pay the extra
amount rather than seek top-ups from individuals or
their family
 Local authorities should ensure that top-up
arrangements are sustainable
 A local authority must never encourage a care home to
seek top-ups from the family of an individual
 …However, rules are poorly applied
‘Capped cost’ reform changes…
 ‘Capped cost’ reforms will create new
class of ‘self-funder’ top-up payers entitled
to LA financial contribution:
 1. Individuals reaching £72,000 ‘cap’
 2. Individuals below £118,000 higher Upper
Capital Limit entitled to some LA contribution
 Estimated to be 35,000 existing residents in April
2016
‘Capped cost’ reform changes…
 Duties and regulations set to be finalised
 However, likely that existing 3rd-party rules
on ‘top-ups’ will apply to self-funder topups
 But, the impact on market of applying topup rules to this group is unclear…
Example
 “If a local authority cannot procure
appropriate care at its ‘usual cost’ rate, the
council must pay the extra amount rather
than seek top-ups from individuals or their
family”
 How will this apply in April 2016 to existing
resident becoming a ‘self-funder top-up’
who is unwilling to move?
 Will LA negotiate down rate?
‘Capped cost’ reform changes…
 Ultimately, applying top-up rules to this
group may compel LAs to ensure ‘selffunder top-ups’ are not charged higher
fees
 In effect, LAs may have to eliminate the
cross-subsidy from the market on which
they rely
…Public interest
Enhanced public engagement with
price of care…
 2015-16: major government PR campaign
around ‘capped cost’ reforms
 Drive to raise awareness of changes
 Encouragement to ‘plan ahead’
 Media coverage of “what it means for you”
Enhanced public engagement with
price of care…
 Multiple large media organisations planning
engagement with issue
 Internet guides, e.g. Good Care Guide
 So, increasingly ‘savvy’ consumers coming
into system?
 Upscaling of activity by consumer
organisations
 Which?, Age UK, Independent Age
 Some may advise self-funders: “always ask the
local authority to arrange your care as first step”
And its impact?...
 New levels of transparency forced on market
 Public debate on price discrimination
 Can current ‘self-funder premium’ survive
‘court of public opinion’?
 If no, implications for providers, LAs and average
rates?
 Key variable: Politics
 Price discrimination in care fees has potential to
be front-page campaign for Mail, Telegraph, etc.
 So, clear risk of knee-jerk legislative response
So bringing everything together…
What will happen in 2016?...
 Changes in market could be slow/fast
 Difficult to predict
 Variation in market responses across country
 Emboldened, better-informed users and
families:
 Wave of disputes?
 Impact on care homes?
 Price discrimination made unsustainable?
 Less cross-subsidy  higher LA rates?
What will happen in 2016?
 Continued polarisation of residential care
market:
 Implications for investment/quality/capacity
 Growing public attention paid to how price of
residential care is determined
What will happen in 2016?
 Providers will explore range of
ameliorating responses:
 Refusal of entry/long-term fee contracts for
users worth less than £200,000?
 ‘Contrived differentiation’ within care homes to
justify fee differences?
 Are care home staff prepared for this?
On a positive note…
 Opportunity for policymakers, LAs and
providers to completely rethink way in which
price of care is determined
 Policymakers can try to cling on to crosssubsidy…
 … Or we can move toward open-book
accounting, agreed rates of capital returns for
providers, and fair prices paid by LAs
 But this could change the nature of the sector
completely
Strategic Society Centre
32-36 Loman Street
London
SE1 0EH
strategicsociety.org.uk
[email protected]
@sscthinktank
The Strategic Society Centre is a registered charity (No.
1144565) incorporated with limited liability in England and Wales (Company
No. 7273418).
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Cap to Reality: The route to 2016 and care funding reform