Private care home residents face fee hike of up to 10%
New research from LaingBuisson, in partnership with Caring Times, has revealed that private payers in care homes are likely to be hit with fee increases of up to 10% this year, as home owners seek to recover cost increases and make up for insufficient uplifts in public paid fees.
With the release of its refrshed Care Cost Benchmarks* study, LaingBuisson reveals the results of its latest annual survey of care homes (in partnership with Caring Times) which asked by how much owners expect to raise the pay of care assistants, domestics and other staff when National Living Wage (NLW) is implemented in April 2016. The results show that after taking account of NLW together with other drivers of inflation care home costs will be about 6-7% higher this April, when fees are typically revised, than they were in April last year. Private residents will bear the brunt of cost recovery as councils keep the lid on fees for publicly paid residents. As a result, private fees could rise by about 10%.
Author of report, William Laing, put the blame on inadequate public funding for social care, which has led to ‘cross subsidies’ from private to public payers expanding to unprecedented proportions. He explained:
“Most homes take both public and private payers and, in simple terms, if they cannot recover their costs from one group of residents (those with public funding through councils or the NHS) then they will ask their private payers to pay disproportionally more. We know from research carried out by LaingBuisson last year that the average fee premium paid by private payers was over 40% across England (41% for nursing care and 46% for residential care), for like for like physical amenities, and in all probability like for like care. Since we expect few councils to be able to afford to pay fully for care home cost inflation since then, including National Living Wage, the private pay premium looks set to continue rising inexorably towards the 50% mark.”
The Care Cost Benchmarks model is populated with results from LaingBuisson’s surveys of care homes. The latest, carried out in October / November 2015 after the last NMW uprating, in partnership with Caring Times, asked care homes about the two major drivers of costs, staff input and pay rates for each grade of staff. In the case of pay rates, the survey asked for actuals at the date of response and, in addition, how much they planned to pay in April 2016 when National Living Wage is implemented. At a national level, the broad findings (summarised in Table 1) were:
– The average care home in England will have to charge 6-7% more in April 2016 than in April 2015, if it is to maintain the same level of profitability;
– There are three roughly equal components of cost inflation:
o Pay inflation to October 2015 (including uplift in National Minimum Wage);
o Pay inflation from October 2015 to April 2016 (including National Living Wage);
o Increases in care home staffing levels (part of a trend evident from successive LaingBuisson care home surveys);
– The impact of NLW is expected to be a little less than might have been projected, due to compression of care assistant and domestic pay just above the new £7.20 minimum (for employees aged 25 plus);
– In contrast nurse pay inflation is running at a higher rate than expected, driven by acute nurse shortages;
– ‘Other’ (non-pay) cost inflation is negligible, in line with official Consumer Price Index indicators which show marginal increases in food prices and reductions in energy prices.
William Laing added:
“We have conservatively estimated the shortfall in council paid care home fees at £600 million a year in England alone, being the difference between what councils actually pay in care home fees and what they would pay if Care Cost Benchmark rates were applied to the existing mix of homes”….
“The £600 million can equally be viewed as a hidden ‘care tax’ that government and councils are content to see private payers contributing to keep mixed funding homes in business. This ‘care tax’ equated to about £4,300 a year on average per privately paying resident in 2014/15. In all probability it will take another step upwards in April as care home owners seek to recover increased costs.”
*Care Cost Benchmarks (formerly known as ‘Fair Price for Care’) is a subscription based service which is widely used by local authorities and associations of local care providers in their fee negotiations. The 7th edition covers two periods, October 2015 to March 2016; and April 2016 (when NLW is implemented) to September 2016. The associated Toolkit Spreadsheet is populated with granular local cost data from which reasonable fee rates can be calculated as ‘ceiling’ to ‘floor’ ranges, the ‘ceiling’ allowing for the capital costs of a modern new home and the ‘floor’ allowing for minimum capital costs for old care home stock. Users can modify parameters to explore different scenarios.
**EBITDARM (Earnings Before Interest, Tax, Deprecitation, Amortisation of Goodwill, Rent and central Management costs) is alternatively expressed as ‘operating profit at the home level before financing costs and before corporate head office overheads’.