The role of care home fees in the public costs and distributional effects of potential reforms to care home funding for older people in England

In England, Local Authorities (LAs) contribute to the care home fees of two-thirds of care home residents aged 65+ who pass a means test. LAs typically pay fees below those faced by residents excluded from state support. Most proposals for reform of the means test would increase the proportion of residents entitled to state support. If care homes receive the LA fee for more residents, they might increase fees for any remaining self-funders. Alternatively, the LA fee might have to rise. We use two linked simulation models to examine how alternative assumptions on post-reform fees affect projected public costs and financial gains to residents of three potential reforms to the means test. Raising the LA fee rate to maintain income per resident would increase the projected public cost of the reforms by between 22% and 72% in the base year. It would reduce the average gain to care home residents by between 8% and 12%. Raising post-reform fees for remaining self-funders or requiring pre-reform self-funders to meet the difference between the LA and self-funder fees, reduces the gains to residents by 28–37%. For one reform, residents in the highest income quintile would face losses if the self-funder fee rises.