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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

  • Ruth Hancock
  • Juliette Malley
  • Raphael Wittenberg
  • Marcello Morciano
  • Linda Pickard
  • Derek King
  • Adelina Comas-Herrera

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.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 43154.

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Date of creation: Jan 2013
Date of revision:
Publication status: Published in Health Economics, Policy and Law, January, 2013, 8(1), pp. 47-73. ISSN: 1744-1331
Handle: RePEc:ehl:lserod:43154
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  1. Cohen, Joel W. & Spector, William D., 1996. "The effect of Medicaid reimbursement on quality of care in nursing homes," Journal of Health Economics, Elsevier, vol. 15(1), pages 23-48, February.
  2. Stephen Machin & Joan Wilson, 2004. "Minimum wages in a low-wage labour market: Care homes in the UK," Economic Journal, Royal Economic Society, vol. 114(494), pages C102-C109, 03.
  3. Jennifer L. Troyer, 2002. "Cross-Subsidization in Nursing Homes: Explaining Rate Differentials Among Payer Types," Southern Economic Journal, Southern Economic Association, vol. 68(4), pages 750-773, April.
  4. Les Mayhew & Martin Karlsson & Ben Rickayzen, 2010. "The Role of Private Finance in Paying for Long Term Care," Economic Journal, Royal Economic Society, vol. 120(548), pages F478-F504, November.
  5. Hancock, Ruth & Juarez-Garcia, Ariadna & Comas-Herrera, Adelina & King, Derek & Malley, Juliette & Pickard, Linda & Wittenberg, Raphael, 2006. "Winners and losers: assessing the distributional effects of long-term care funding regimes," ISER Working Paper Series 2006-43, Institute for Social and Economic Research.
  6. Ettner, Susan L., 1993. "Do elderly Medicaid patients experience reduced access to nursing home care?," Journal of Health Economics, Elsevier, vol. 12(3), pages 259-280, October.
  7. Hancock, Ruth & Hviid, Morten, 2010. "Buyer power and price discrimination: the case of the UK care homes market," ISER Working Paper Series 2010-39, Institute for Social and Economic Research.
  8. Ruth Hancock & Adelina Comas-Herrera & Raphael Wittenberg & Linda Pickard, 2003. "Who Will Pay for Long-Term Care in the UK? Projections Linking Macro- and Micro-Simulation Models," Fiscal Studies, Institute for Fiscal Studies, vol. 24(4), pages 387-426, December.
  9. repec:mpr:mprres:6018 is not listed on IDEAS
  10. Adelina Comas-Herrera & Rebecca Butterfield & José-Luis Fernández & Joshua M. Wiener, 2012. "Barriers to Opportunities for Private Long-term Care Insurance in England: What Can We Learn from Other Countries?," Chapters, in: The LSE Companion to Health Policy, chapter 15 Edward Elgar.
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