Funding social care: an international comparison
To judge by the record of successive British governments, reforming social care is almost impossible. But other rich countries have managed to grasp the nettle. Doing so, notes Natasha Curry of the Nuffield Trust, a think-tank, usually requires a government to make a compelling case for change. It also requires some difficult policy choices.
Most countries accept that some of the costs of care should be shared by the state. Voluntary private insurance comes up short, in part because the young do not think about their old age until it is too late and because the old find that premiums are too high. Out-of-pocket costs can quickly spiral, leaving poorer folk dependent on relatives or charity. The state can help in two main ways: through general taxation or social insurance.
England uses general taxation to fund a threadbare safety net. Nordic countries are more generous. Aside from the Netherlands, Norway, Sweden and Denmark spend the most on long-term care as a share of GDP in the OECD, a club of rich countries. Funds are raised locally, topped up with government grants to iron out regional variations, and then ring-fenced. Costs are contained by reducing levels of residential care, which is dearer than care at home. But the Nordic countries still face problems of financial sustainability, says Ana Llena-Nozal, a health economist at the OECD. Cost pressures mean that care has been cut back in recent years; variation between regions is increasing.
In social-insurance schemes, individuals—and often employers, too—make mandatory contributions that entitle them to a basic level of care when they need it. In Germany, which introduced its social-insurance scheme in 1995, these contributions amount to 3.4% of workers’ income. Those without children must pay more. Japan’s system was reformed in 2000; there, contributions start from the age of 40 (in part because many people start to care for ageing relatives at about that time) and also tap pensioners’ income.
Yet this model, too, has its challenges. As people live longer and costs rise, social-insurance contributions are usually still topped up with taxation. When Japan’s costs rose too quickly, the government cut bespoke care for the lowest categories of need and replaced it with prevention programmes and exercise classes. By incentivising people in need to take cash instead of services, the German system still relies on families—usually women—to provide care at home, notes José-Luis Fernández of the London School of Economics.
Almost every system requires out-of-pocket payments, on top of what has been paid by taxes or contributions. Often they are tied to some kind of means test. Australia, with a tax-based system, uses a mix of means-tested fees and charges for services for the elderly, though lifetime costs and annual “hotel costs” for bed and board in care homes are capped. (A parallel system for those with disabilities is more generous.) France tapers the level of state-funded support according to income.
If the Labour government is to get serious about reforming social care, two lessons stand out. One is that it must articulate the case for change. For Germany, it was a matter of equity after reunification. For Japan, it was to ease the burden on relatives, many of whom were dropping out of the labour market. The other is that context matters. Nordic citizens are used to high taxes and a more fulsome welfare system. Social insurance offers greater transparency on the contract between the individual and the state; that may be a better way to persuade Britons to shell out. ■
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