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12. THE TOTAL COSTS OF CARE PROVISION

180. In considering the sustainability of the FPNC policy the Review Group looked beyond the single funding stream and sought to estimate the total resources used to support long-term care provision for older people in Scotland; of which FPNC is around 10%. Its work looked at the year 2006. Some of the data was difficult to collect, while for others it was not always clear how much spending was aimed at the provision of long-term care for older people. Also, some data was not precisely available for the calendar year 2006. Therefore, the figures should be treated as estimates of the general magnitudes involved.

181. Major sources of information used to compare and verify these estimates were the Scottish Government's Range and Capacity Review (2006) and the Wanless Report (2006). The former provided the first estimates of total spending by the private sector and the Scottish Government in support of long-term care, while the latter estimated the cost of support for older people from all sources for England.

182. The Review Group's work differed from the Range and Capacity Review in that we have included direct spending by the UK Government in support of long-term care needs in Scotland. This principally arises from Department for Work and Pensions ( DWP) benefits payments, Attendance Allowance and Disability Living Allowance (Care Component). These state benefits are explicitly intended to compensate those with personal care needs and so the Review Group would argue should be included as part of any examination of the overall costs of long-term care.

183. Gross expenditure to support long-term care for older people in Scotland is estimated at £2.3 billion in 2005-06. The previous estimate in the Range and Capacity Review, estimated expenditure in 2004-05 at £1.4 billion. This did not include the above-mentioned DWP benefit payments to support personal care, worth over £500 million. Nor did it include resource transfers from the NHS, valued at £108 million. A variety of additional adjustments, including cost increases between 2004-05 and 2005-06 account for the remainder of the increases in overall spending.

184. To put these amounts into perspective, spending on the NHS in Scotland in 2005/06 was £8.6 billion. The costs of supporting long-term care in Scotland in 2005-06 amounted to £2.3 billion; which is equivalent to 8.6 % of Scottish Total Managed Expenditure for that year. Around £1 billion of that comes from Scottish local authorities.

185. The analysis which follows breaks down the costs of care into those incurred in care homes and those spent supporting people in their own homes. It also seeks to break down spending into private spending and spending that is supported by different arms of government. The discussion will illustrate some of the uncertainties associated with the estimates. Before considering the analysis, it is worth setting out the financial role of local authorities which provide or commission the bulk of long-term care for older people in Scotland.

186. Council support for long-term care is funded by a number of means, including: grants from the Scottish and UK Governments, council tax and user charges. In 2005-06, gross spending by local authority social work departments on older people was over £1.2 billion. Sales, fees, user charges and grants reduced the gross cost resulting in net expenditure of £953 million. Local government plays an important role in the care home and home care markets both as a purchaser and a provider of care.

Long-term care costs by mode of provision

Care Homes

187. We estimated total spending in care homes by taking the average care home fee in 2006 (£467 per week) and applying this to the average number of residents supported. We used the number of residents supported rather than the number of places available because capacity utilisation of places in Scottish care homes is around 90%. This implies a total income for care homes of around £791 million, which is spread across private (633), voluntary (143) and local authority (184) care homes. ¹⁸ On average, there are around 32,000 care home residents.

188. Gross spending by local authorities on care homes (including respite care residential placements and other accommodation services) in 2005/06 was £579 million, while net expenditure was £479 million. The difference mainly comprises charges to service users. For care homes as a whole, we estimated that fees paid by service users totalled £294 million. Of this, £164 million comes from local authority clients (£139 per client week) and £129 million from self-funders (£274 per client week). This implies that, on average, client contributions cover 37% of care home fees. Some commentators may be surprised that the share of client contributions is so high, given Scotland's FPNC policy. Nevertheless, the policy intention was never that hotel and accommodation charges would be subsidised. They continue to be levied, subject to broadly the same means tests that apply elsewhere in the UK.

189. Local authorities receive income from sources other than direct charges and fees for service. Some of this can readily be assigned to care homes, such as the £19 million of continuing care support purchased by the NHS. However, other income streams are more difficult to assign: for example resource transfer from health authorities (£108 million) and recharges to other accounts within the authority (£34 million) which provide general support for long-term care rather than specific support to care homes or home care.

190. fpnc payments by local authorities on behalf of self-funders accounted for £91 million (12%) of total care home income in 2005-06. This support was concentrated on the 9,100 self-funding residents that received free personal care and the 5,900 who also received free nursing care in 2005-06.

191. The effect of these payments was to reduce the care home fees payable by self funding residents from around £220 million to £129 million. This meant FPNC in care homes reduced self-funders' annual charges from £24,300 to £14,400. The difference was paid for by local authorities, who in turn were funded to provide this support by the Scottish Government. Funding allocations to local authorities to cover these payments have been made through their general revenue funding using the Grant Aided Expenditure ( GAE) mechanism.

192. Our estimate of care home fee income includes payments by third parties to "top up" what local authorities are willing to pay. The Office of Fair Trading (2005) found that in the UK, 44% of residents received support only from local authorities, 24% had their fees topped up by third parties and the remaining 32% were entirely self funding. The high incidence of top up fees suggests that the basic local authority package is not deemed adequate by many care home residents or their families. The "average gross weekly charge" figure of £467 per week is taken from the Scottish Care Homes Census ( SCHC). The SCHC asks care homes how much they charge residents each week. This will include any top up payments. The agreed Care Home Fees rate for local authority-funded residents in 2005-06 was £470.95 for residents requiring nursing and £406.28 for those requiring just residential care. Assuming that two-thirds of residents require nursing, then this would suggest an average fee of around £450 per week. The higher average of £467 will be due to a combination of top up payments and higher charges to self-funders.

193. These higher charges to self-funders suggest that self-funding and local authority supported clients may be charged different weekly prices for broadly the same service. This difference partly stems from the greater bargaining power of local authorities. Self funders pay higher charges because they lack market power. This is often interpreted as implying that self-funders cross subsidise local authority supported residents. But if the agreed care home fee rate just allows care homes to break even, then the care homes may be making greater profit from the self-funding clients. But even this conclusion must be qualified by the costs of any extra services being provided by the care homes to self-funders.

194. Indicative ( GAE) spending to fund long term care services by local authority social work departments in 2005-06 was £1.1 billion. This allocation is set out under a number of headings in the GAE, not all of which are seen as necessarily relevant to care provision. These are: (1) residential accommodation for the elderly (£343 million); (2) case and related administration (£31 million); (3) DWP transfers preserved rights and residential allowance (£57 million); personal and nursing care in care homes (£81 million) and care home fees (£63 million). Nevertheless, the total of £1.1 billion was the Scottish Executive's estimate of the gross costs of supporting older people's long-term care services. The GAE only provides indicative allocations. Local authorities may spend above or below their GAE allocation, depending on local policy and costs of provision.

Care at Home

DWP and Local Authority Spending (Social Work)

195. The costs of care at home are funded (a) privately, (b) from benefits paid by the DWP and (c) by local authorities. The largest contribution (over £500 million) comes from the DWP. This is paid through Attendance Allowance and Disability Living Allowance (Care Component). The former, accounting for £437 million, is distributed among 138,000 Scots. It is a tax-free benefit that is not means tested for those aged 65 and over who need help with personal care.

196. Personal care is now free for individuals living at home. In 2005-06, local authorities estimated the cost of provision at £168 million. This benefited some 41,200 Scots, so that the cost of the average home-based free personal care package was around £4,000 per annum, or £77 a week.

197. A further 15,950 clients received non personal care support from local authorities. Some personal care clients also receive non personal care support. Net expenditure on all home care for older people by local authorities was £284 million, implying that local authorities spent around £116 million on non-personal care.

198. Further contributions from local authorities to the costs of long-term care in the community include net spending on day care services of £44 million, £4 million on direct payments and £14.2 million on equipment and adaptations. A further £28.2 million was spent on "other services" which covers items such as advocacy and community services. We have not included any estimate of the costs of assessment, which are subsumed within other local authority budgets.

199. Non-personal care is chargeable, subject to a means test. Reported charge income in 2005-06 for homecare was £15.6 million. However, a further £30.3 million was raised by local authorities in charges for day care, meals and other services. Overall, this suggests that around 9.1% of home care costs were recovered by local authorities in 2005-06.

Local Authority Spending (Housing)

200. Local authorities also support long term care through their housing support services. The main provision comes through the Supporting People programme. Local authorities effectively act as the agents of DWP for this programme, which effectively replaced Housing Benefit. Around 25% of this programme is paid to support older people. In 2005-06, this would imply that around £94 million was spent on this benefit.

201. Further contributions come through the costs of financing supported housing. In total there are 84,500 homes that provide a variety of levels of support to frail older people, ranging from 3,900 very sheltered homes to 33,900 homes with alarms. Estimating that depreciation, maintenance and service provision costs to the publicly owned components of these homes might equate to around 5% of their historic capital value. This would suggest an overall cost to local authorities of around £40 million. These costs are not separately identified in the local authority housing accounts ( LFR 20).

Private Spending on Home Care

202. Estimates of private spending on home care are subject to considerable uncertainty. Who Cares Scotland (2004) implies that 11% of the 148,000 weekly hours supplied by United Kingdom Homecare Association ( UKHCA) members in Scotland are privately purchased (see Table 14). Between 2003 and 2005, there was an overall increase of 16% in home care hours purchased. A large proportion of this will be due to increased purchase of personal care by local authorities from private and voluntary providers. However, reduced commitment to non-personal care hours by local authorities may have resulted in an increase in private purchase of these hours. As a first approximation, given that the UKHCA members only cover a share of the private care market, we might assume that the growth in demand for private care hours followed the increase in demand for overall hours. Based on an hourly cost of £12.30, this suggests an annual cost of around £34.3 million. However, this should be treated as a lower bound estimate. Evidence from the Scottish Household Survey suggests that private providers supply a larger proportion of total hours than is suggested by the UKHCA survey.

Table 14: Estimate Of Total Weekly Home Care Hours In Scotland (2003)

Source: Who Cares Scotland 2004 ( UKHCA) Table 5

NHS

203. Spending on long-term care of older people is not separately identified in the NHS costs book. An approximate estimate can be derived by summing the costs of those services most likely to be associated with long-term care. This inevitably means that some spending that takes place outwith these categories will be excluded, while some spending that should not be allocated to long-term care will be included.

204. For example, in the Range and Capacity Review, spending on psycho-geriatric care was excluded from long-term care costs. In 2005-06, this totalled £183 million and accounted for 123,000 inpatient weeks at an average cost of £1,437 per week and 71,000 outpatient attendances at an average cost of £92 per attendance. It is difficult to assess from the ISD information whether these expenditures constitute contributions towards the costs of long-term care of older people. In 2006-07, we know that the cost of providing health care for geriatric long-stay patients was £140 million at an average inpatient weekly cost of £1,238. ¹⁹ The number of weeks of such provision has fallen through time, suggesting that care is increasingly being provided in other settings. NHS Boards are now providing almost as much in resource transfer to local authorities as they are spending on geriatric long-stay provision. The Range and Capacity Review estimated the costs of geriatric long-stay at £173 million in 2004 and projected that they would increase to £214 million by 2009. Given the downward trend in geriatric long-stay provision in the NHS, such growth now seems unlikely.

205. Community provision by the NHS for older people includes community nursing, health visitors and NHS chiropody. The Range and Capacity Review estimated these at a total cost of £117 million in 2004. Our estimate, using statistics ²⁰ based on the incidence by age of Community Health Contacts suggest a total of around £94 million in 2005-06.

206. Resource transfer ²¹ from NHS Boards to local authorities under Local Partnership Agreements and other arrangements (the vast majority of which is in respect of older people) also forms part of the NHS contribution to long term care. NHS Bodies may transfer resources to Local Authorities under existing agreements or using the power provided by Section 13 of the Community Care and Health (Scotland) Act 2002. As mentioned previously, contributions from Health Boards to local authorities in 2005-06 were valued at £108 million. This transfer reduces the net cost of long term care provision by local authorities.

207. Based on the assumptions that included categories of cost which are appropriate, the total cost of NHS support for frail older people in Scotland in 2006 was around £343 million, 14.9% of the total support required. Note that this estimate focuses on long-term care: it does not include the costs of acute care for older people.

Private Spending

208. We need to factor in the private contributions towards the costs of long-term care. These arise mainly from (a) self-funders' contribution towards care-home fees, estimated at £129m; (b) local authority client contributions towards care-home fees of £164 million (c) privately purchased home care of around £34 million; (d) local authority fees and charges costing £47 million. This suggests that private individuals contribute around £374 million (17%) of the costs of long-term care. These payments are skewed, falling particularly on self-funding residents in care homes.

Aggregate Costs

209. Table 15 below brings together the estimates of the component costs of long term care. The total cost is £2.2 billion, which equates to approximately 25% of the NHS budget in Scotland. The NHS contributes 15% of the costs, while private individuals contribute around 17%. DWP pays directly for Attendance Allowance and Disability Living Allowance (Care Component), as well as supporting the provision of the Supporting People programme by local authorities. Together, these comprise around 22% of the cost of care for older people. But the bulk of provision of long-term care for older people is provided by local authorities. However, this activity, like most local government functions, is dependent on funding provided by the Scottish Government. Hence the need to ensure that the allocation of funding by the Scottish Government to support this activity is appropriate for the demands being placed on local authority provision.

Table 15: Estimated Spending on Long-Term Care Scotland 2005 06

Notes to conclusions above:

Note 1: Range and Capacity Review Estimates of the Costs of Long-Term Care in Scotland 2004-2019 (£m) (Base Case)

Projected Costs

Scottish Executive (2004) First Report For The Range And Capacity Review: Projections Of Community Care Service Users, Workforce And Costs, July (P 23).

Note 2: Wanless Review Estimates of the Costs of Long-Term Care for Older People in England
In 2004/5, Department of Health figures for gross spending, excluding capital charges, in England on personal social services for older people reached £8.0 billion (44% of total spending on personal social services). Charges to users then recouped £1.6 billion.
The PSSRU model estimates that in 2003 the total NHS contribution to long-term care of the elderly amounted to £3.0 billion.
Over the past decade, expenditure on residential and nursing home placements has risen at a faster rate than that on home care, and now accounts for almost half of total net expenditure by local authorities.
Attendance Allowance (and Disability Living Allowance ( DLA) for those who continue to receive this benefit after the age of 65) represents the main source of non-means-tested funding for older people with disabilities. In 2004/5, these benefits paid out £3.7 billion (not including DLA mobility payments). There is a paucity of information about how this money is spent.
There is no reliable data for the total private expenditure on care home fees and self-funded domiciliary care, but the sums spent are substantial. Estimates put the proportion of care home places that are wholly privately funded at between one-quarter and one-third.
Source: Wanless, D. (2006) Securing Good Care for Older People, King's Fund, London (P 87).

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