Lifetime Caps on Aged Care Costs: The Shifting Paradigm in Social Care

Ensuring the wellbeing and dignity of our elderly population has become of paramount concern for societies worldwide. However, the rising costs associated with aged care services pose significant challenges for both individuals and governments.

Comprehensive social care reforms are planned in England, encompassing revisions to state funding regulations, with a key focus on introducing a 'care cost cap'¹.

In 2021, the UK government announced significant changes to the social care system in England. Among these reforms was the introduction of a social care cap, restricting lifetime personal care expenses to £86,000 per individual. Initially scheduled for implementation in October 2023, it has been extended to October 2025².

Postponing the implementation of the social care cap and the associated reform of the means-test for care from October 2023 to 2025 will result in government savings of approximately £2 billion. Furthermore, if the government delayed its accompanying drive to ensure councils paid providers a fair cost of care, an additional £1.2 billion could be released between 2023 and 2025³.

So until the revised date arrives, the existing funding regulations will remain in effect.

The current limits and the changes in the social care proposal

Currently, the social care financial limits are:

• £23,250 for the upper limit of assets
• £14,250 for the lower limit of assets

Those with assets above £23,250 who do not meet the criteria for NHS support are currently responsible for covering the total cost of care fees. If an individual’s assets are below £14,250, the local authority will assume the responsibility for care expenses, and any income received will contribute to covering a portion of the care fees.

For individuals whose assets fall within the above range, there is the potential to receive a level of assistance from the state.

The government is proposing several critical changes to social care in England from October 2025:

• The establishment of a 'care cost cap' that limits an individual's lifetime expenditure on personal care to £86,000.
• For individuals with savings and assets below £20,000, state funding will cover their care expenses without affecting their assets or savings. However, they may be required to contribute a portion of their income towards their care costs.
• Individuals with savings and assets ranging from £20,000 to £100,000 may qualify for state funding, subject to a means test. They will receive an 'independent personal budget' that will be reviewed annually, and their care expenses will be monitored. These individuals may be expected to contribute a maximum of 20% of their assets per year towards their care costs.
• If an individual's assets total £100,000 or more, they will be responsible for self-funding their care until their assets drop below £100,000 or they reach the £86,000 care cap.

Significance of the proposed changes

Residential care costs have surged by 11%, reaching nearly £46,000 per year — without including nursing expenses. In cities like London and Brighton, the annual cost can exceed £50,000⁴. These changes aim to alleviate the burden of high social care costs and reduce the need for individuals to sell their homes to fund care.

These changes aim to alleviate the burden of high social care costs and reduce the need for individuals to sell their homes to fund care.

The living costs

Due to the complicated nature of the care fee cap calculation, many will still pay tens or even hundreds of thousands of pounds beyond the cap to cover daily living costs: rent, food, and utility bills — this will apply equally to those in a care home as to those in their own home. Individuals would be responsible for covering these costs, even after reaching the cap.

As per the government's statement, the estimated living costs, over and above care home expenses, could amount to approximately £200 per week⁵.

Implications for business and insurance

The caps on aged care costs could have several implications for businesses and their insurances. While the specific impacts may vary depending on the details of the policy and regulations, here are some potential effects to consider:

1. Risk management and insurance premiums: Businesses operating in the aged care industry may see changes in their insurance premiums. The introduction of lifetime caps on aged care costs could influence the risk assessment made by insurers, potentially leading to higher premiums.
2. Insurance products and coverage: Insurance companies that offer products related to aged care, such as long-term care insurance, may need to adjust their policies and offerings to align with the new regulations. They may need to develop insurance products that cover costs beyond the lifetime cap.
3. Regulatory compliance: Businesses will need to adapt to the new regulations, ensuring they comply with the lifetime caps. This may require changes in how they manage and report financial information, potentially affecting their operational costs.
4. Consumer expectations: Consumers of aged care services may have different expectations and preferences in a capped-cost environment. They may seek providers and insurance policies that offer the best value for their money within the constraints of the caps.
5. Risk mitigation strategies: Businesses may need to develop risk mitigation strategies to manage the potential financial impact of exceeding lifetime caps. This could involve partnerships with insurers, financial planning, and cost controls.

Plan to be prepared

While the social care cap's exact details and implementation timeline may evolve, preparing for these changes can help individuals make more informed choices.

For businesses, it is important to closely monitor regulatory changes and adapt their strategies and operations to navigate the new landscape created by lifetime caps on aged care costs. Consulting with legal and financial experts can provide valuable guidance in understanding and complying with the evolving regulations.