On Social Care

 

The crisis in UK social care has intensified in recent years, affecting thousands, including my own family. I have lived through this personally during my father's health decline and eventual death with dementia. The most transparent problem if you’re not either very rich or very poor seems to be that the government gets the best of both worlds and the consumer gets the worst of both worlds, in that we are taxed all our working life to fund issues to do with health, but we still have to pay for social care-related issues when we eventually need them (with money, you may note, that has already been taxed several times already). This nearly always produces the problem that consumers are too detached from the finances of public services to enjoy effective value in terms of subjective preferences and optimally priced solutions in accordance with supply and demand.

The next most transparent problem is that none of the favoured political proposals seem to me to be ideal. If pensioners have enough savings to pay for their care or have assets that can be liquidated to pay for it, the taxpayer shouldn’t have to pay on their behalf. On the other hand, having entirely private social care is difficult for those with no savings or assets, and it’s more difficult to incentivise people to save for future care when they don’t know how long they will live, or what care (if any) they will need. Insurance models are also tricky because insurers have the same asymmetry of information that the consumer does – in fact, even more so, because they don’t know our lifestyle choices and many other things about us. Means testing based on savings and assets is also problematic because it disincentives saving and encourages consumption, which if undertaken with skewed incentives, yields inefficiency of resource allocation. Out of those solutions, an insurance-based one is probably the least problematical, but it’s still a difficult system to get right.

One of the reasons that so many people have family members who are paying thousands of pounds a month for social care is because the industry is over-regulated with not enough competition for viable alternatives. One of the golden rules of economics is that if a company is earning excess profits this should create an opportunity for potential competitors to enter the market and charge less while still making a profit. When this occurs in a free market, competition drives prices down to the level of the costs of the most efficient supplier (where costs include the cost of capital). Therefore, if a business can sustain what many are calling "excess profits" then something must be preventing other suppliers from competing within the care market, and that is a lot to do with regulatory burdens and government inefficiencies. There is a shortage of affordable high quality social care because of a number of complex reasons (underfunding, staff shortages, rising demand, to name but three) - which I think we all understand, and I have blogged about before - but what really needs addressing is how the qualities of the market system can be brought to bear on some of these supply and demand issues that are affecting consumer value and patient quality. 

Here's how the free market works ordinarily for consumers of goods and services. If any particular supplier seems too expensive, we look to switch to other suppliers. If all suppliers seem expensive, then either entry into the industry is blocked by regulatory constraints, or if it isn't blocked then the activity probably just has an expense to justify such prices. Some people argue that this matter can be helped with price fixing. But it isn’t true; imposing a price control would be the wrong approach, because if the government did impose a price cap, the cap will almost certainly be too low (a cap too high would have no effect, because to be too high it must exceed current prices, otherwise no one would notice as current prices would be under the cap). By imposing a price cap that will inevitably be too low, the government will only succeed in reducing supply, and thereby harm consumers of care services.

One possible solution that may trump all of the above could be the idea of a health savings account, a bit like the one in Singapore, but purely for social care, where instead of the state taking money through taxes and letting you have it back in the form of free social care, you get to keep more of your money to put into a social care savings account. That money is used to pay for your social care where you or your family can negotiate doctor-patient contracts in a market system, much like you would now with insurance and banking, where if we require care in old age our savings pay for it, but if we don’t need care the money goes to our children (or to a named beneficiary of our choice). Naturally, there would still need to be state involvement for those whose savings fell short of their care costs, and this could be bootstrapped by an efficient insurance-based system that captures a diverse range of subjective preferences, but this is a reform that could be gradually introduced to reach its full potential.

But it could get even better, because with your savings you can spend it on whichever type of social care you like. Because the best solution to goods and services is market-based solutions based on competition and consumer demand, companies could compete for your custom by offering a wide range of choices for your care. I have in mind the development of many different types of care facility to cater for diverse needs; care homes that specialise in different types of illness, more bespoke home visits, secure high quality care villages with accommodation, leisure facilities and care provision – where we, the consumer, get to choose how we want to live (or someone chooses on our behalf if we are unable) and the kind of social care support that best serves our needs.

Even without this policy, as things stand many older people who paid off their mortgage long ago are in a position to make some provision for if they need care. Many even find themselves in houses too big and expensive for their needs. If it's not fundamentally wrong for them to use their equity to downsize, sell up, or for their care costs to be claimed back after they die, then it seems even less wrong for a health savings account to be set up for the provision of such care.

All that said, as an economist, I believe the market solves a lot of the problems a lot of the time, but not all of the problems all of the time. In my book Benevolent Libertarianism, one of the central theses is an attempt to find a way to incorporate the qualities of a kind of socialist-individualist-libertarian triumvirate at the personal level with the qualities of the free market and its concomitant mechanism for price theory to efficiently balance supply and demand.

This means understanding that the wisdom of central intelligence sometimes serves some of the system best, and would do too in the health account model. We couldn’t (and wouldn’t) be able to collectively get together to organise something centrally complex like a social care system without some centralised intelligence working top-down. I think human health is a problem that needs a significant layer of top-down centralised information processing, because it doesn't have the foresight required to capture the diverse range of human needs. A society that successfully cares for the complex needs of human health and well-being cannot be solely at the mercy of market-driven supply and demand computation, which is subject to chaotic instability and power law distributions that would be inimical to comprehensive health and social care provision if left unchecked.

Even with a more market-based model outlined above, there would still be further matters to negotiate and problems to solve. Regulation would need to guard against prioritising profit over quality (although competition is also a good regulator), the transition from the current system to a better one would take time and careful planning, and a system that measures optimal contributions would need to be established. 

But I believe that a gradually implemented health savings account model could be the least problematic solution to provide a more sustainable and efficient alternative to our failing system, ensuring individuals retain control over their care, and remain supported by better a regulatory balance alongside market-qualities that are not so hampered by the inefficiencies of the state.