Care home fees: the scandal of secret mark-ups

The widening gap between the actual cost of providing a place in a care home and the fees charged to those who pay for themselves is clear in figures published by the Telegraph today.

They show that on average those people who fund their own care – because they do not qualify for assistance from their local authority – pay on average 13pc above the "real cost" of providing their care, in England.

The "real cost" figure, which is generated from in-depth research into the constituent costs of providing food, accommodation and basic help, also includes a reasonable profit margin for the care home operator.

The price paid by a local authority on behalf of someone who does qualify for State help is lower than this "real cost".

The conclusion, highlighted in a separate report by charity Independent Age, also published this week, is that middle-class residents with modest property or other assets, who are thus forced to pay for their own care, are further subsidising those paid for by the public purse.

The figures will make uncomfortable reading for about 210,000 individuals, and their families, who are in the position of paying all or most of their care home fees. Under current rules, individuals in England must "self-fund" or pay their care home fees in full, with no help from the council, if their assets, including their homes, are worth more than £23,250.

Many people make the move to a care home when their health has deteriorated, following the death of a spouse or in response to some other life change.

They and their families tend to pay what is asked of them, charities and care fee advisers say - without knowing anything about the actual costs involved or, crucially, the fees being paid by other people enjoying precisely the same care and accommodation.

Because the sums involved are huge the discrepancy, where it is discovered, creates resentment and anger. The figures differ by region.

On average, in England, the cost of providing residential care, including the care home operator's slice of profit, is worked out at £563 per week, according to Valuing Care, the consultancy which provided the data.

Valuing Care provides information mainly to local authorities from records covering care placement costs in many hundreds of homes. It also undertakes mystery shopping exercises to see what homes charge "self-funders" for the same care, before averaging the data by local authority and region.

In general, according to Valuing Care, local authorities use their bulk-buying power to push down care home rates to between 5-10pc below the "real cost" figure. Based on the English average, that would mean the fees paid by a local authority on behalf of someone qualifying for help would be as little as £507 per week - compared with the self-funder's £636. Over a year, the cost for the former would be £26,364 and the latter £33,072, or a difference of nearly £7,000.

In regions where self-funders appear to be paying most over the odds, such as the South West of England, the gulf is greater. Here, a council-funded resident of a care home would pay fees of £24,570 per year while the self-funder would pay £34,320, or an excess of £9,750. The two individuals might be in identical accommodation and receiving identical care.

None of these figures include nursing care, which in England could add another average £700 to the weekly bill. For patients with dementia the sum could be higher still. Again, in what many would see as a cruel twist, those who self-fund tend to pay an average 4pc more for their nursing care than those who are paid for by the state.

Chris Horlick of Partnership, the specialist insurer of the elderly or those with limited lifespans, explains how upsetting some families find this situation of differential costs - if they are ever made aware of it.

He explained that of the estimated 350,000 people living in residential care, there are effectively two payment routes. Those who qualify for state help - about 40pc - and those who don't.

Where the state picks up the bill the local authority decides what maximum it will pay, usually in consultation with firms such as Valuing Care.

Where the person is self-funding, they invariably pay whatever the home demands. "There are many homes that will accept the local authority rates and where the majority of their clients are funded that way," said Mr Horlick. "There are also those which quite clearly price themselves more highly and are deliberately aimed at wealthier, self-funding clients who want a higher level of comfort or care. But the problems arise with the vast majority of homes where there are both state-funded and self-funded people living together. If people do not have to pay themselves, essentially because they have not saved or built up assets, it is upsetting for others who do have some modest level of assets to be paying out of their own pocket for the same care - and to be paying in some cases considerably more."

Why does the situation arise? Charity Independent Age argues the rapid rise in demand for care as a society, plus the constraints on public spending, is creating a growing "underfunding" problem in the sector - which it estimates at a staggering £700m per year. It says that between them "councils, care homes and ultimately older people and their families" are "filling the gap".

Ray Hart of Valuing Care said: "There is no clear explanation of the difference in fees between self-funders and those who are looked after at the state's expense. Are the self-funders effectively subsidising those paid for by the local authority, because the local authority is not paying enough? Or are care homes simply using self-funders as a means of generating profit? Either way it does not seem right."

Changes being brought in by this government, which include the introduction of the controversial "lifetime cap", supposed to limit the total any one person could spend on care, may make the situation worse. Details of how the cap will work have still to be finalised. But it is expected only to apply to nursing care. So the costs quoted above - and shown in the table - which deal merely with the "hotel" element of board, food and basic care, could rise without limit. And there would be no reason for the difference in rates charged to self-funders to move more into line with those charged to local authorities. In fact, warns Mr Horlick of Partnership, increased overall pressure on local authorities' budgets could result in homes trying to pass even greater costs on to self-funders.

With nursing care costs, which would be included within the cap, the changes could also make matters worse, Mr Horlick believes. This is because more families would register with their local authorities in order to "start the clock ticking". When they had paid up to the level of the cap, which is expected to come in at £72,000, the burden would return to local authorities.

Average weekly residential fees covering accommodation, food and basic care (not nursing)

*Includes a reasonable profit margin for care home operator Source: Valuing Care

Families 'should negotiate a fair deal'

No one wants to haggle over something as crucial as the care for yourself or family member, but the sums are so huge that money has to be a consideration.

There is also the issue of whether the funds available to those paying for themselves – "self-funders" – might run out at some future point, with all the potential problems that could cause. Speak first to charities such as Independent Age for help in understanding the complex care-funding regime, and to ensure that self-funding is indeed the only choice.

When it comes to signing up with your chosen home, and discussing fees, information provided by consultants such as Valuing Care can help. The calculator at valuingcarefm.com allows you to compare a rate quoted by a home for certain types of care with other, local equivalent rates.

Janet Morrison of Independent Age advised: "Don't wait for the crisis. If a relative is likely to need residential care at some stage in the future, start thinking now. Get a care assessment and financial assessment from your council – they are free. You may be able to pay for your care, but it is better to 'be in the system' if anything happens in the future and you run out of funds."

She also urged families to seek financial and legal advice, where possible.

"The average amount spent on an older person's care is £60,000,' she said. "Make sure the advice is provided by someone who is 'CF8 qualified' – this is the standard for financial advisers who specialise in how to pay for long-term care. Make sure you have a written contract with the care home which includes the care and services included in the fee and what is extra; how often the fee might go up and on what this increase is based."

Professional care home fees negotiators, such as Valuing Care, can be engaged by families to help with the contract. The fees are likely to be £300-£700.

Some families are using annuities tailored to cover care home costs. A lump sum is paid to an insurer which, in turn, pays a regular, agreed fee to the home for as long as the person needs the care. As with all annuities this can work for or against the annuitant – depending on how long they live. The advantage though is that costs are fully negotiated with the home in advance – ruling out the possibility of a future shortfall.

The costs of such annuities can be high, however, even where the person requiring care is elderly.

An 85 year-old in otherwise fair health, needing to meet care home fees of £20,000 per year, would pay £105,000 for a policy from Partnership, the leading insurer in this field.

The Office of Fair Trading has a free guide entitled Fair Terms for Care, oft.gov.uk, 08457 22 44 99. To request your free Telegraph Guide to Long and Short-term care, in association with Bupa Care Homes, call 0844 543 9820.