The current, means-tested system of social care penalises thrift and foresight. However, extending eligibility for ‘free’ personal care to people who are not in need is a myopic proposal. These plans will surely be popular with the prospective heirs of care-dependant elderly people. But against the backdrop of an ageing society, they will either have to be accompanied by sizeable tax increases – with all the economic side-effects that entails – or they will increase the tendency towards rationed state care. These plans neither enable the long-term care system to cope with the demographic challenges, nor do they encourage savings or promote fairness.
We should take the bull by the horns and move towards a system of private long-term care insurance, based on the capital cover method. This means that people would take out long-term care insurance when entering the labour force, and pay modest but regular premiums. Private insurers would gradually build up a capital stock on behalf of each policyholder. People would have free choice between insurers (their old-age reserves would be fully portable), coverage levels, and models of care delivery. Apart from commercial insurers, friendly societies and trade union schemes could play a vital role in this market.
Kristian Niemietz is the Poverty Research Fellow at the IEA.