‘Councils need more funding to prevent Care Bill reforms driving care homes out of business’

Councils must receive greater resources for adult social care to avoid the government’s funding reforms driving care homes out of business, a report warns today.

The funding changes under the Care Bill will expose the current gap between the rates paid to homes by councils and the typically higher fees paid by self-funders, said the study published by charity Independent Age.

This will put care homes under pressure to lower rates for current self-funders, risking bankruptcy, unless councils raise their rates, said the report by James Lloyd, the director of think-tank the Strategic Society Centre and an expert on social care funding. To prevent this the government will need to increase funding for adult social care from April 2016 onwards, when the reforms come into force.

Current local authority rates have been estimated as being £50-£140 per week below a fair market price by analysts Laing & Buisson, reflecting local authorities’ strong buying power in the market. As a result, care homes subsidise the low rates paid by councils by charging self-funders more and by receiving top-ups from relatives to the fees paid by council-funded residents, said the report.

However, the report said this arrangement would be transformed by the Care Bill funding reforms.

How Care Bill will transform funding system

Under the changes, the current asset threshold above which people must fully fund their residential care will increase from £23,250 to £118,000 for homeowners, meaning some existing self-funding residents will have their fees part-funded by councils. The council contribution would be paid on the basis of the usual rate they pay care homes, even though many of the residents in question would be paying a higher fee than this to their care home.

At the same time, all self-funders with eligible needs will be able to take advantage of a £72,000 ‘cap’ on their care costs by obtaining an “independent personal budget” setting out how much their council would spend on meeting their needs were it doing so. Their independent personal budgets will accumulate in a “care account”, and, when this passes the cap, they will become eligible for full funding for their care. However, they will only receive their local authority’s rate for care, despite the fact that many will be paying more than this for their care home place.

A third reform will see residents permitted to top-up fees themselves, rather than have this done by relatives. The immediate result would be the creation of a large group of people eligible for some council funding for their care, either because of the cap or the extended means-test, but having to top this up to maintain their place.

However, as this group would now know what their local authority’s care home rate is, they could ask the council to arrange their care for them, enabling them to secure a place at the local authority rate.

‘Significant pressure on care providers’

“This change is likely to put significant pressure on the income of care providers, who will in turn seek higher fees – an increase in the ‘usual cost’ rate – from their local authorities,” said the report. “Given residential care providers have already absorbed downward pressure on fees in recent years…it is likely that to avoid forcing residential care providers into bankruptcy, local authorities will in fact have to increase their ‘usual cost’ rates.”

However, though the government has suggested it will allocate £1bn a year to councils from 2016 to implement the reforms, the Independent Age report said ministers would have to allocate more resource to tackle this specific problem.

“We will continue to press for realistic funding of local government’s social care responsibilities,” said Independent Age chief executive Janet Morrison. “Without it, local authorities will come under even more pressure, care homes will suffer and more people will end up topping up care which should be free.”

‘Reforms must be sustainable’

In response to the report, care and support minister Norman Lamb said: “We know the scale of change involved, which is why we are working closely with care providers, councils and, most importantly, those who receive care to make sure these reforms are sustainable and implemented properly.”

The government is gathering information about how prices are set in the care homes market and how this may be affected by the funding reforms. Under the Care Bill, councils will come under a duty to consider the sustainability of the local market when making commissioning decisions, including how it sets fees.