Incremental Approach to Enhancing UK Long-Term Care Charging Model

1. Moving from a dynamic cohort microsimulation model to a dynamic population microsimulation model: an incremental approach for a UK model of long-term care charging (CARESIM) ESRC Microsimulation Seminar Leeds, 2nd July 2009 Ruth Hancock and Marcello MorcianoHealth Economics Group, Faculty of Health, University of East Anglia, UK Chris Curry Pensions Policy Institute, UK Raphael Wittenberg and Linda PickardPersonal Social Services Research Unit, London School of Economics, UK 1

2. Background In the UK • Long term care (LTC) system is under debate • Pension reforms may affect ability of future pensioners to pay for care • Population ageing affects public expenditure on LTC and pensions • LTC and pension reforms can have significant distributive effects • MAP2030 is using simulation models of LTC finance and charging, disability, kinship etc. to address these issues • This presentation describes: • The incremental approach used to ‘refresh’ CARESIM • Preliminary outputs • Limitations and next steps 2

3. CARESIM:a microsim. model of LTC charges for older people in UK • Uses (a pooling of) 3 representative cross samples of the UK population (Family Resources Survey) • In the base year, simulates income tax liabilities for the whole sample; means-tested benefits and care charges for 65+ [static tax/benefit model] • ‘Ages’ the sub-sample of people aged 65+, to simulate taxes and benefits for older people and their liability for care charges in future years [dynamic cohort microsimulation model] • Weights applied to adjust sample of older population to represent older population in receipt of care services. Weights are provided by PSSRU macro model of long term care demand and finance. 3

4. Limitations of CARESIM if sample not refreshed • after 20 years from the base year, simulations valid for only those aged 85+ • beyond base year, not possible to model any tax revenue raising options which would apply to under 65s • not possible to include social security benefits for carers of older people if they are under 65 4

5. The proposed incremental approach Aims to: • simulate care charges for all those who will be aged 65 and over in up to 20 years from the base year • extend the time horizon of the care charging simulations • model the availability of informal carers of sample members aged 65+ in the output year and their entitlements to adult carers’ social security benefits • simulate income tax liabilities for the whole adult population for the same time horizon 5

6. Need to simulate pensions & retirement Adding new cohort of people now aged 45-64 + 6

7. UK Pensions System Public: provides basic provision the Basic State Pension (BSP); Means testing benefits: Pension Credit; Housing Benefit; Council Tax Benefit; Disability and other minor benefits. Public: earnings-related pensions Graduated Retirement Benefit, State Earnings Related Pension Scheme, Second State Pension. Private: voluntary arrangements not directly funded by the State Individual arrangements – defined contribution Employer-sponsored pension schemes, including occupational (employers’) pension schemes – defined benefit and defined contribution Recent reforms: State pensions: Earnings-link the level of Basic State Pension (BSP), limit the spread of means testing, raise state pension age Private pensions: Auto-enrol most employees into saving for a private pension, Compel employers to contribute (if the employee does not opt-out), introduce a national system of Personal Accounts, to operate alongside existing provision 7

8. UK Long-Term Care Policy LTC funded through mix of state and private resources State support is subject to means tests which vary between Scotland, England and Wales and are different for residential and care at home Royal Commission on LTC recommended that nursing & personal care should be available without a means test Free nursing care implemented throughout the UK but free personal care only in Scotland Means tests continue to be a source of discontent Wanless review of social care suggested a new partnership model of paying for LTC Green Paper expected in June July 8

9. Past 2007 Base Sample No DE-AGEING Retrospective construction of working careers; accumulation of credits for state pensions FUTURE Prospective simulation of working careers and accumulation of pension rights Simulate Pension Incomes The structure of the new routine Future Individual i has worked as FT/PT or woman has had children? Yes Individual i has reached SPA ? Yes No 9

10. Share of unemployed/inactive by age and cohort of birth: male and female[2008-2027] 10

11. Pension outcomes Average amount of public and private pension(s) for the new retirees by year of retirement and gender Note: Analysis based on the flow of new pensioners in receipt of an amount >= £10 pw We do not consider means-testing benefits Reduction of gender gap, mainly due to the role of public pension 11

12. Consequences for distributional analyses of reforms to care charging Two aspects considered here: • Comparing 2007 and 2027, for 65+ rather than 85+ • Classifying by 65+ income distribution rather than age group specific income distribution Two reforms: • ‘free personal care’ – flat rate non means-tested subsidy to care in a care home, care at home free of charge • Housing wealth disregarded in assessing contribution to care component of care home fee 12

13. 85+ or 65+ ? 13

14. Age specific or 65+ income distribution ? 14

15. Conclusions Restricting the analysis of those 85+ is not as limiting as it may seem at first Limitations • Much more validation and sensitivity analysis needed • Range of events simulated for the new cohort needs to be extended (e.g. divorce and (re)marriage decisions) …and next steps • Extending time horizon of the analysis (up to 2050) • Eventually add cohorts under age of 45 so that ultimately simulate carers benefits for under 65 carers of people aged 65+ and ultimately simulating income tax liabilities for the whole adult population for the same time horizon 15