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Forget the cap, here's the truly frightening cost of long-term care
The debate over where the government will set a contribution cap has confused people about the true costs of moving an elderly parent or relative into a care home.
by Michelle McGagh on Jan 08, 2013 at 14:20
Rumours of a £75,000 cap on long-term care fees remain unconfirmed by the government, but whatever limit it puts in place the cost of caring for the elderly and infirm will amount to far more in practice.
A cap on long-term care fees was first recommended by the Dilnot Commission. Although Andrew Dilnot's report suggested a cap of between £25,000 and £50,000, there have since been calls for an increase to £60,000 by former minister of care Paul Burstow and predictions that a cash-strapped Treasury could push the ceiling as high as £75,000.
The introduction of a cap would clearly help people plan for long-term care and cover the costs.
However, Steve Lowe of Just Retirement, a retirement income provider, warns that the debate so far about where the cap should be set risks misleading people about the true costs of long-term care for the elderly.
He says there are two factors that are often overlooked.
How much will your local authority pay?
Currently anyone with savings of £23,250 has to contribute to their care costs while in a residential home. This excludes the value of their home if it remains occupied by a partner or spouse. People with less than this limit have their care paid for by the local authority. However, if the elderly person is single, the value of the house is taken into account, which is why so many people end up having to sell their homes when going into care.
Under the original Dilnot proposals a means test would be set at £100,000. Those with £100,000 or more of assets, excluding their home if it remains occupied by their partner or spouse, would pay for their own care up to the contribution cap (which, to repeat, he suggested should be between £25,000 and £50,000). Those with between £14,250 and £100,000 in savings would make contributions on a sliding scale up to the cap. Those with less than £14,250 in assets would contribute nothing.
As things stand, the government has neither decided on the cap or the means test. It's possible that if the government sets a higher cap than Dilnot suggested, it will lower the means test to even things out.
Whatever happens, Lowe says it is essential to understand that help from the local authority will not necessarily kick in as soon as you have spent the money up to the contribution cap.
This is because the local authority will base its contribution on how much it pays for people staying in care homes it runs, which may be far less than what the individual is actually paying in privately-run homes.
For example, if a local authority pays out £300 a week maximum for care, then it will calculate the costs incurred by a person in care as costing £300 a week, even if that person is living in the ‘Ritz of care homes’, costing £1,000 a week.
This means the individual would be responsible for paying the remaining £700 a week.
So although a care bill may reach the cap quickly because of the high cost of a home, the local authority will calculate the costs against its own care costs and deem that a person has not yet reached the cap.
This means that even although costs may be capped they could run into thousands of pounds more if the elderly person lives in a more expensive care home.
Don't forget 'hotel' costs
Once a person does reach the care cap, whatever that may be, the burden of long-term care costs is not over.
Lowe says the state only pays for the actual care given, not the full cost of food or staying in the care home.
Lowe says the costs the local authority pays for are ‘related to staffing, medication, and the care received, but the person still has to pay "hotel" costs and that is around £10,000 a year’.
Although media attention has focused on the initial cap on care costs, Dilnot also recommended a second cap on how much people paid for 'hotel' costs of between £7,000 and £10,000 a year.
As a result, Lowe says, the costs of long-term care are far larger than most people anticipate.
‘If the person stays in [a residential home] for five years, that is £50,000, plus the £60,000 cap, and you are looking at a minimum of £110,000, with some estimates over £200,000,’ he said.
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