Which generation should pay for long-term care?

In a guest post, Craig Berry of the Intergenerational Longevity Centre-UK think-tank asks, can Britain’s Dilnot Commission on long-term care funding achieve intergenerational fairness?

The short answer, unfortunately, is no. But that does not mean that the Dilnot Commission is itself to blame. Equality between generations is probably impossible to achieve through public policy, and long term care funding is an issue that demonstrates this reality rather well. Every funding option available to the Commission will involve intergenerational inequity, one way or another.

What’s wrong with the current situation?

The Dilnot Commission was appointed by Britain’s coalition government in July 2010 to finally deliver a settlement on care funding; a policy area which has effectively been in stasis since the previous government rejected the main recommendation of the Royal Commission on Long Term Care in 2000 to fund free personal care for all through general taxation. The system is riddled with problems, such as unmet need, complexity, perverse incentives and a ‘postcode lottery’ – not to mention an over-reliance on informal care by family and friends. The Commission’s principal job is to deliver long term fiscal sustainability in the face of increasing demand. Yet the system is already bust, with short term cash flow problems leading to a ‘rationing’ of care services by local authorities.

Intergenerational fairness

A three-generation family - looking happyHow does this problem relate to intergenerational fairness? Around half of care recipients are older people, and an ageing society means this proportion will increase significantly in coming decades. Any public service used substantially by one particular age group has the whiff of intergenerational inequity, which is why the principle of national insurance enables older people to claim that they have invested in their post-retirement entitlements throughout their working life.

As such, we tend to believe that care is part of the implicit social contract at the root of the welfare state. But long term care was not included in William Beveridge’s vision for welfare in Britain – the services have instead emerged in a piecemeal and messy fashion – and today’s crisis results from a longevity dividend that had not been anticipated.

Today’s older people cannot therefore be said to have invested in any meaningful sense in the future costs of care. If the state were to agree to fund an expansion of care services through general taxation, by necessity it means the young paying for the old, despite younger people facing tougher economic circumstances than anything experienced by their parents’ generation.

Alternative funding models

The alternative is that we ask individuals to make greater contributions themselves (which already happens by default, given the extent of self-funding within the current system). Under a partnership model, which the Commission seems to favour, the state agrees to fund a certain proportion of the care services required, but expects individuals to ‘top up’ this support. Any system which relies on individual contributions will not, however, remove the spectre of intergenerational inequity. Firstly, it does not reduce the burden on informal care – therefore meaning younger generations will be paying with their time rather than their taxes (in providing care for their parents). Secondly, the poorest will rely on the benefits system, funded by general taxation, in order to make their top up payments.

The main alternative is a version of social insurance, whereby at retirement individuals pay a one-off fee which would cover their lifetime care costs. This system minimises the role of general taxation, but relies on the state to pool risk. The baby boomers have made unprecedented gains from property wealth, and this model therefore assumes housing wealth would be used to pay fees. The popular literature on intergenerational conflict has identified the housing market as a key battleground, and it seems fair that boomers use this largely unearned wealth to fund long term care. But not all baby boomers have access to housing wealth – they are the wealthiest cohort in living memory, but also the most unequal, which is why fees would be variable depending on means-testing. Furthermore, we know that what appears to be inequality between generations is often resolved within families. The inheritance of housing wealth by younger generations may mean that this inequality eventually resolves itself.

Unlikely equity

A recognition of inequalities within generations, and of the scale of intergenerational transfers and support within families, is central to the forensic and landmark analysis of intergenerational equity offered by David Piachaud, John Macnicol and Jane Lewis. Piachaud et al also show that intergenerational conflict has a very long history. Inevitably, there will always be a degree of misunderstanding between age cohorts; while different terminology may have been used in the past, since the birth of mass society tension and occasional antipathy have been features of intergenerational relations. Despite this, a majority in all age groups want the state to spend more on both the old and the young.

The ability of the Dilnot Commission to navigate this muddy terrain is clearly open to question. Whatever the Commission ends up recommending, it seems likely that, rather than achieving intergenerational fairness, it will simply open up a new front for different age groups to squabble over.

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3 Responses to Which generation should pay for long-term care?

  1. Interesting points! According to Consumer Reports, the average age at which most people sign up for LTC coverage is 61. If you wait much longer, you run into insurability and affordability issues. Also, only people with assets between $200,000 and $2 million should be perusing policies.

  2. bree says:

    The expensive long term health care premiums would really make it difficult for seniors or their families to pay for skilled and custodial services. However, if they are aware of ways to save on these costs, then they can make them manageable and affordable. Hopefully, this can also reduce heavy dependent on government funded financial aids

  3. Pingback: Which generation should pay for long-term care? | Craig Berry

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