Update: How might changes to social care funding affect different service users?

The government has recently announced how the cap on social care costs will work in practice. Individuals with low levels of wealth are likely to see limited benefits from the policy.

In September 2021, the UK government announced its plans to reform funding for adult social care, the likely effects of which were discussed in an earlier Economics Observatory article. Subsequently, the government has released more about how the cap will be implemented. The details indicate that low-wealth individuals will receive little benefit from the policy, while high-wealth individuals, who face very considerable care needs, are likely to benefit the most.

The headline policy was to introduce a cap of £86,000 on contributions, and to bring in a new means test. Under the cap, for wealth between £20,000 and £100,000, the maximum that a service user would need to pay would be 20% of that wealth per annum, with the remainder paid for by the local authority. So people with wealth of £100,000 would have £80,000 in the range between £20,000 and £100,000 and the maximum that they would need to pay would be £16,000 each year. Individuals with wealth of less than £20,000 will not need to pay anything. The important new detail is how individuals progress towards the cap when they are in the means-testing range.

Because costs to individuals are limited at 20% of their means-tested wealth per year, they may be contributing less than their cost of care. In 2011, the Dilnot report proposed that progress to the cap should be measured by the actual cost of care. So if service users require £40,000 worth of care, this will amount to £40,000 of progress towards the cap, even if they have only paid £16,000 for that care. This version of progress towards the cap is discussed in the previous article.

The second method of calculating progress towards the cap is to calculate the actual contributions that a service user makes. This would mean, in the example above, that the progress would be £16,000. The implication of this policy is that because individuals are only going to pay for care until their wealth is diminished to £20,000, in effect, they will never reach the cap of £86,000, and will need to keep contributing towards their care until the end of their lives.

Under Dilnot’s proposal, because it is the actual cost of care that determines progress towards the cap, individuals with the same care needs will continue paying for their care for the same length of time, irrespective of whether they are rich or poor. But Dilnot’s policy did raise the issue that low-wealth individuals with long-term, low-cost care needs would have to contribute significantly more than individuals with similar initial wealth but much higher needs.

Who benefits from the new policy?

To illustrate the impact of the new policy, let’s consider two different care costs: £100 per week and £500 per week, for either six months (short-term care) or ten years (long-term care).

Figure 1a: Percentage of assets used to pay for care with costs of £100 per week for six months

Figure 1b: Percentage of assets used to pay for care with costs of £100 per week for ten years

Source: Author’s simulation

In the case of £100 per week, the only beneficiaries of the new policy are low-wealth service users. With six months of care, the maximum that any service user would need to contribute under the current system is 10%, and this would be reduced to 6% under the government’s revised policy.

Even with ten years of care, the only beneficiaries are individuals with relatively low wealth, and there is no difference between the methods of calculating progress towards the cap used by Dilnot and the government. The reason for this is that even after ten years (520 weeks), no service users would have reached the cap with only £100 worth of care each week. In other words, they would have contributed £52,000.

Figure 2a: Percentage of assets used to pay for care with costs of £500 per week for six months

Figure 2b: Percentage of assets used to pay for care with costs of £500 per week for ten years

Source: Author’s simulation

Repeating this process with a weekly cost of £500 reveals a similar picture for short-term care. But for long-term care, big differences emerge, depending on how progress to the cap is calculated. For long-term care, richer service users have a large proportion of their assets protected, but those with relatively modest wealth have limited protection, with some service users still needing to contribute over 70% of their wealth towards their care. Under Dilnot’s proposals, because those with low wealth progress towards the cap more quickly, a greater proportion of their assets are protected.

The major differences we see emerge because of when the cap starts to bite. Under the government proposals, irrespective of the cost of care, some service users will never reach the cap, and so will pay until either they no longer need the care, or until they pass away.

Table 1: Length of time for service users to reach the cap

Weekly cost of care	Initial wealth £100,000	Initial wealth £110,000	Initial wealth £120,000	Initial wealth £186,000	Initial wealth £500,00
£100	Never	1079 weeks (20.75 years)	886 weeks (17.04 years)	860 weeks (16.53 years)	860 weeks (16.53 years)
£500	Never	718 weeks (13.8 years)	446 weeks (8.6 years)	172 weeks (3.30 years)	172 weeks (3.30 years)
£1000	Never	708 weeks (13.6 years)	426 weeks (8.2 years)	86 weeks (1.65 years)	86 weeks (1.65 years)
£2000	Never	703 weeks (13.5 years)	416 weeks (8 years)	43 weeks (0.83 years)	43 weeks (0.83 years)

Under Dilnot’s proposal, with high costs of care (say £2,000 per week), everyone would reach the cap after 43 weeks. For those with reasonable costs of residential care (£500 per week), it would take roughly 3.3 years of care for anyone to reach the cap.

While the new means test provides some elements of protection for individuals with low levels of wealth, the interaction between the means test and the cap means that for individuals with high care needs, those with higher levels of wealth will be much more protected than those with relatively modest wealth.