In a nutshell, what are the proposed changes to the way adult social care is currently funded?

  • Introduction of the Care Cap and more generous means test

From October 2023 there will be a cap on the amount of personal care costs that any one adult should have to pay over a lifetime.  This cap will be set at £86,000.  This will be implemented using existing provisions of the Care Act 2014 which are not yet in force.

The thresholds for means-tested care and support will also be raised from £14,350 to £20,000 for the lower limit and from £23,250 to £100,000 for the upper limit, meaning that more people will be eligible for local authority support towards their care costs.

  • Moving to a fair cost of care

The Government has recognised that council fee rates for care, have in many cases been unsustainably low.  The Government plans to move towards a ‘Fair Cost of Care’ (FCC) and has announced central government money to help pay for this.

  • Implementing section 18(3) of the Care Act 2014

At the moment, people who self-fund their care often end up paying higher fees, cross-subsidising those individuals currently funded at an unsustainable local authority funded rate.  There is a provision in the Care Act 2014 (section 18(3)) which the Government intends to bring into force in October 2023 that will mean privately paying care home residents will be able to require their council to arrange care for them by directly contracting with the provider on behalf of the individual, at the usual council rate (although there are other permissible structures that may be used).  


Will the changes apply to all adult social care or are there exceptions?

The introduction of the Care Cap will apply to all adults in receipt of adult social care in England. (It is not clear whether there may be a zero rated cap for individuals with needs on reaching 18 years old as was proposed in the Dilnot Commission).

NHS patients in care and nursing homes or those in receipt of NHS funded packages of care at home will generally not fall under these changes (as NHS care is free at the point of delivery), but will continue to be funded under the current regimes such as NHS Continuing Healthcare.

It should also be noted that individuals could have joint packages of care which are funded by both social care (a local authority) and health (the NHS) where the individual is not eligible for NHS Continuing Healthcare payments but it is recognised they have some health needs which require provision outside of the normal universal services.

Individuals funded under Section 117 of the Mental Health Act (i.e. aftercare services) will continue to receive service health and social services free of charge (presuming that the services are considered aftercare services in line with the definition in the legislation).   


When will this come into force? What is the next step in the process?

The Care Cap is due to come into force October 2023 and from this date self-funders will be able to require their local authorities to arrange their care and manage their fees for assessed care needs in respect of care home placements.

Central government funding for FCC is being made available to local authorities in 2022/2023.

Five early adopter sites (Wolverhampton, Blackpool, Cheshire East, Newham, and North Yorkshire) have been announced by the Department of Health and Social Care to implement the new social care charging reforms early, so in these sites the Care Cap, FCC and full implementation of 18(3) Care Act will be introduced in January 2023.

In preparation for these reforms the Government has asked all local authorities to evidence the work they are doing to prepare their markets and local authorities have been asked to prepare a ‘cost of care’ plan which must be submitted to DHSC by 14 October 2022.  In preparing their evidence, local authorities will be required to consult with all relevant care providers in their area.

Future central government funding will be conditional on local authorities providing this information to Government.  As well as submitting evidence this October, local authorities will have to submit a further, final plan in February 2023.

More statutory operational guidance is due to be published prior to the implementation of the proposals in October 2023.  This operational guidance will cover the calculation of the personal budget and independent personal budget for self-funders, which is the mechanism by which local authorities will keep track of an individual’s progress towards reaching the care cap.


If we currently have private pay residents, does this mean that we have to accept a new lower amount from local authorities for these existing residents?

Maybe.  The Fair Cost of Care is meant to equalise fee rates between self-funders (who are often paying more for their care) and local authority funded users whose baseline rates have, in recent times, been below the market rate in certain areas.

However there are still many unknowns.  It is likely that there will still be some private pay care users who may choose to opt out of the new provisions altogether.  Rough estimates show that between 70 and 80% of self-funders may register with the local authority for a care account so that their care costs can count towards reaching the care cap, but there is very little information on how many self-funders will ask local authorities to arrange their fees for care.

It is worth noting that daily living costs (DLCs) will not count towards the care cap and will still be payable even after the care cap is reached.  DLCs are a notional amount to reflect that a proportion of residential care fees which are not directly linked to personal care, such as rent, food and utility bills.  The Government has announced that it intends to set a national, notional amount, the equivalent of £200 per week in 2021 to 2022 prices. (Note this announcement was made before the inflationary pressures of recent weeks were reported.)

Top ups will still be permitted for enhanced, additional or ‘extra’ services (although there is very little detail from DHSC on what these terms mean).  In its impact assessment from 5 January 2022, the DHSC acknowledges that top ups will allow for a flow of private funding into the system.  However, it is not yet known how top ups will work under the new system; whether we will see an increase in the amount of money paid in top ups or whether self-funders will be looking to local authorities to meet their expectations in care provision.


What are the risks of these proposals?

Given the existing cross subsidisation of private paying care users paying a higher fee to providers and making up for unsustainable local authority fee rates, moving to an equalisation of care rates could risk destabilising the care home market.

Providers who rely on the cross subsidisation provided by their self-funded clients as well as those providers with less room to adapt to a changing market are likely to be more affected than others.  However, much will depend on the numbers of current self-funders who turn to their local authority for assistance with fee negotiations.  The local authority returns due in October 2022 and information from the early adopter authorities should help provide much needed data on this.

I am a funder, should I be flagging these issues to Credit Committee and if so, what are the key points?

Yes – a recent report by LaingBuisson commissioned by the County Councils Network published in Spring 2022 warned that the Government’s injection of funds (£378m per year for Councils) to cover FCC and to protect providers from revenue losses when private fee payers are eligible to ask their local authority to arrange their care – and access lower council rates – from October 2023 is inadequate.  The study concluded that that the Government’s allocation ‘seriously underestimates’ the amount of new funding required and could cause a ‘severe sustainability risk’ to care homes across the country.  The study also calculated that an extra £854m a year is needed (as a minimum) to make the proposals workable and to avoid large-scale closures as well as inward investment into the social care sector.

The impact of the full implementation of 18(3) along with the introduction of a Fair Cost of Care could significantly change the way that care providers are funded.  It is more likely in the future, that care home contracts will be made with local authorities (with their bulk purchasing power being used to leverage competitive rates) and not with individual users who may be more amenable to pay a premium cost of care. 


How could these changes impact on investors?

Many commentators have warned that the introduction of the care cap, a more generous means test threshold, the fair cost of care and proposals to enable self-funders to be charged local authority funded fee rates could cause market instability.

Ultimately, under the Care Act, it is the responsibility of local authorities to ensure market sustainability in their areas, however it is DHSC who are introducing these new measures and the investor community should make representations to the DHSC about its concerns and to press for greater explanation as to it envisages its proposals will work.

We can provide briefings to investors to help Investment Committees make decisions on opportunities and risks in this space.


What should I be doing now to prepare for these changes?

At a local level, contributing to the cost of care exercises which should be underway in each local authority where you operate, may help gain an understanding of likely dynamics in your local area.

Where your rate card may not currently break down fees into categories such as DLCs, extra services and enhanced services, these differentiations will become relevant in calculating the cost of the care cap (which will exclude DLCs) and in charging top ups moving forward.  It may be that developing a menu-based approach in order to offer top ups for extra and enhanced services will become necessary in the future.  


How do I find out more about the proposals?

If you would like to discuss these changes or you want further information then please contact one of our Social Care Team

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