Cap to Reality: The route to 2016 and care funding reform

The ‘capped cost’ reforms and
potential implications for
providers, families and the
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
 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
…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
 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
Potential scenarios…
 How will the market respond?
 Impact will depend on local circumstances,
but we could see:
 Major challenge for providers in dealing with
 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
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
‘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…
 “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
 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
 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
 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
 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
 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
 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
Strategic Society Centre
32-36 Loman Street
[email protected]
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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