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Money Times - April 24, 2015

Posted by Jill Kerby on April 21 2015 @ 09:00

 

FAIR DEAL FOR NOW…A NEW DEAL NEEDED FOR TOMORROW

 

Much of the financial worry of funding nursing home care for the elderly has been alleviated in recent years.

When my late mother-in-law needed such care back in 2002, Fair Deal, or the Nursing Home Support Scheme, did not exist. The c€57,000 annual cost of her care and expenses was funded by her bank widow’s pension and her assets – mainly the proceeds of her family home.

When she passed away, five years later, age 85, the bulk of her estate had been exhausted. After all the bills were paid, her sons and grandchildren shared what remained. For the adults, the relief was palpable that the money had not run out: family discussions had already begun on whether or not she could have remained in that particular, excellent facility if she could not longer afford to pay the home. Would our pooled resources been enough to keep paying the huge bill, even with top rate tax relief?

Under the current Fair Deal universal scheme, introduced in 2009, once the person has been assessed by the HSE and meet the criteria for residential care, any nursing home place in a public or private facility can be selected (subject to availability).

Under Fair Deal the successful applicant must contribute 80% of their income and 7.5% of the value of their qualifying assets the annual nursing home cost. The first €36,000 for a single person and €72,000 for a married couple is exempted. The asset contribution is capped at three years and if there is an income/asset shortfall, the state pays the balance of the annual bill. Assets that are not liquid, like property or land can be deferred and paid from the person’s estate after their death.

Here’s a typical Fair Deal example: An elderly lady, age 81 with income of €16,000 (state pension and deposit interest), a small house and deposit account, together worth €250,000. The weekly nursing home bill is €1,000, or €52,000 a year.

She will pay €246 out of her weekly income of €308 (€12,800 a year). She will also pay €16,050 a year from her assets (worth €214,000 after the €36,000 exemption is included) capped at three years. (Total -  €48,150).

If she lives three years her total nursing home bill will be €86,526 or c55% of the cost. The state’s contribution will be €69,474 or 45% of the total €156,000.

Her estate will still be worth €163,474:  €250k - €86,526 = €163,474. (For simplicity sake, let’s assume all values have remained the same for three years, including the nursing home charges, but in reality both they and the value of her property/savings will probably go up.)

If this lady lives six, not three years (typical residence is 3-4 years) her income contribution doubles to €25,600 but her asset contribution stays capped at three years. The total bill, however, has doubled to €312,000 and the State’s share is now 60% (€187k) and the lady’s’ is 40% (€125k).

Fair Deal’s budget will be in region of €1 billion this year. It has run out of money every year since 2009, usually by 3-4 months. Waiting times for residents/families – because no one pays entirely privately and assessments take time – also amount to three or four months

Is Fair Deal sustainable or even “fair” over the long term? 

No. The 2011 census reported there were 532,000 people in the state aged over 65; by 2026 that number rises to 860,000 and by 2046, to 1.45 million. About 4%-5% of the population will need nursing home care, or c38,000 in 11 years time and over 65,000 in 21 years.

A still unpublished review of Fair Deal (described as “the Achilles Heel” of the health service by the head of the HSE) is reported to recommend that the current asset contribution of 7.5% be raised to 10% per annum and for longer than just three years. Even the 80% cap on income is questioned.

Anyone who thinks they might have to avail of Fair Deal in the next few years should probably accept that it will require higher contributions. Inheritance expectations should be lowered.

Anyone nearing retirement – in their late 50s or 60s - should get their savings, pensions and assets reviewed and get a long term wealth preservation plan in place. Any state contribution to their long-term care is unlikely to resemble Fair Deal 2015.

Younger people may want to start lobbying for more creative savings, investment and inheritance options if society is to avoid inexorable funding crises when their generation is ready to retire or need long term care in 50 years time.

A combination of personal income/wealth and insured solutions, whether as a part of a Scandinavian-style social security scheme or an employer/private sector funded one is going to have to be considered, with everyone making a lifetime of probably compulsory ‘long term care’ insurance contributions.

It’s a discussion that we need to start right now.

 

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.

 

 

 

 

 

1 comment(s)

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