It’s a constant source of disappointment that the Prime Minister, and her advisors, frequently identify an important problem, and then seem to have zero practical imagination with which to solve it.
The latest example is the so-called dementia tax – getting old people to pay for care from their wealth. The really radical solution to this, which is so radical that Theresa’s advisers couldn’t even conceive of it – is called insurance.
The problem that the Conservative Party’s manifesto addresses is this – we have an ageing population, and old people are more prone than young people to need home care, which is expensive, so the government’s costs of providing this care will increase considerably. Real rocket science. And they have noted that because of the UK’s burgeoning property prices, many old people are asset rich as they own their own homes, whilst because they are income poor, don’t have the income to pay for this care. The really clever idea of Tory strategists, is why don’t we use that wealth to pay for the care?
Yet, after the subsequent backlash, May seems to have backed down from this idea. Let me try and explain why there has been a backlash: as people get older, they are prone to need care, but it is not really their fault or necessarily predictable.
So, someone who is a lifelong smoker might die of a heart attack or lung cancer at 65 and never need care. Whereas a healthy kale eating fitness fanatic might live till 90, but spend the last five years with Alzheimer’s. The backlash is because you are making vulnerable old people pay for something which isn’t their fault. And these people who vote Conservative.
So, what we need is a “product” which pays out when an event happens (person need of carer) but which doesn’t when they don’t, and everyone should be willing to pay because we all face the risk. Surprisingly a market in this product has existed for a few hundred years and the insurance industry is the UK’s largest industry.
The real mysteries are these:
- Why isn’t the insurance market providing products for this sort of event? The reason is complicated, but it mainly comes down to insurance regulation makes it very expensive for companies to provide long-term products like this. This regulation should be reviewed.
- If the private sector can’t or won’t provide insurance, why not some form of social insurance? If the government want to use house wealth to pay for social care, why not collect premiums from the population-based on land or house value and use these premiums to pay for the social care? This would be fair because someone who has an expensive house is using their wealth to pay for social care, but the catastrophic-risk they would face is pooled across the population.
- As it is entirely predictable that we are going to need more care facilities and workers, why not start planning for it now and hence reduce future costs? For example, building social care homes, having a programme of recruiting and training carers, probably from developing countries?
- The fact that so much of the countries’ wealth is tied up, unproductively, in housing also needs to be addressed, why not radically review the planning system?
- And why do Theresa May’s advisers have such limited capacity to think through problems and come up with workable solutions? To this, I have no answer.
There are four stakeholder groups here:
1. the individual with the need for long term residential care (a portion of the population which is growing exponentially with longevity, dementia diagnosis, family fragmentation; ie., all of us potentially!)
2. the not-for-profit sector
3. government
4. the financial services sector
2, 3, 4, are all talking about this due to press attention and the election process. There are too many voices and not enough agreement that there is a need to coordinate, invest and develop a workable solution. It is not a question of money but of proactive synergy.
The solution is not in words but in a viable product built on actuarial rigour and supported by underwriters, the risks of which can then be pooled in the reinsurance market. Product innovation is not a strong point in the insurance industry so entrepreneurial vision is needed to get the ball rolling.
The process starts by articulating the problem in precise detail.
This product should then be set out for policy makers and insurance consultation.
This is urgent.