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Counties raise alarm over care home funding gap

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Councils could be left to plug a £1bn gap in the care home market due to expected downward pressure on care home prices caused by the Care Act, research has found.

The County Councils Network report County Care Markets: Market Sustainability & the Care Act warns ‘market equalisation’ – a process by which fees paid by private individuals for care homes would over time reduce to the level paid by councils – was likely to damage providers’ profitability.

This was because operators depended on a cross subsidy from self-funders to offer places at the lower bulk rates negotiated by councils. Under the care accounts set to be introduced by the Care Act 2014 as part of the cap on care costs this difference is likely to become more transparent. The report said this was likely to encourage self-funders to negotiate cheaper rates or, under a new duty introduced by section 18 of the act, ask the council to arrange care on their behalf.

The research, by health market consultancy Laing Buisson, said this would lead to councils having to pay higher fees to “sustain a functioning market and prevent provider exits”.

The research said there would also be a damaging effect on the NHS with a scarcity of care homes into which it could discharge elderly hospital patients.

For 2014, the report calculated the gap between the care home fees the CCN’s 37 members currently pay, and the amount they would have to pay if care homes did not rely on a cross subsidy, to be £630m.

Based on a sample of 12 councils, the research found that the ‘care home fee gap’ would reach £761m by 2020-21 if extrapolated across all members.

Taken with raising the threshold above which users must contribute to costs to £118,000, and long-term demographic pressures, this would give councils a £988m bill by 2020-21, the report said (see table).

Paul Carter (Con), the CCN health and social care spokesman, said: “Counties strongly support the vision behind the Care Act, but further reductions to our budgets and unforeseen consequences from the Care Act may limit our capacity to provide care services to meet the needs of our growing numbers of elderly residents’.

“This research shows that care providers are facing enormous financial pressures and many are looking to leave the market place.”

A CCN spokesman said counties were pressing the government to delay implementation of the act’s section that allows self-funders to require councils to arrange their care.

It fears otherwise self-funders would demand lower rates similar to those paid by councils, triggering economic instability in the sector.

The research concluded that the government should provide extra money to councils to reduce the reliance on cross-subsidy.

CCN is also urging the government to consider delaying implementation of the act’s entire second part on care standards, which includes a new duty of candour on adult social care providers, pending analysis of the costs involved.


Funding gap aggregated to 37 counties
 2016-17 £m2020-21 £m
Care home funding gap684761
Cost of threshold extension to £118,0007280
Demographic demand increases-147

Source: County Councils Network, County Care Markets: Market Sustainability & the Care Act

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