PRIVATE HEALTH CARE A SPECIAL REPORT: LONG-TERM CARE: Ensuring the best options for care in old age

When the Community Care Act came into force three years ago it shifted the burden of caring for the elderly from central to local government and put cash limits on the resources available.

Now local authorities use means tests to decide who qualifies for free residential or nursing home care. In addition, pressure on budgets means that those who want to retain their independence, but need help at home, will be expected to pay for this if they can afford it.

The realisation that assets built up over a lifetime could be wiped out to meet the costs of care in old age is a key issue among Middle England voters.

Mindful of this, the Government has already raised the capital retention limits. Up until now people have had to meet the full cost of residential care if they had more than pounds 8,000 in savings (including the value of their home, if they lived alone).

Moreover, they were still liable for a proportion of the costs until their assets fell below pounds 3,000. However, from next week (April 1996) these limits will go up to pounds 16,000 and pounds 10,000 respectively.

The Government also plans to introduce "partnership" insurance policies, aimed at people currently in their mid-50s, which will help pay for long- term care and give a degree of asset protection.

Consultation on the White Paper, due out by Easter, is expected to be completed in time for an announcement in the Budget. Whatever happens, the market in care insurance - first introduced in 1990 - looks set to go on growing.

At present the market is split into two sections: the first type of plan is aimed at those who need to pay for care immediately. Take the hypothetical Mr Smith, for instance, aged 81, in poor health for his age, who suddenly has to find pounds 300-a-week on top of his existing income because he now needs full-time care in a nursing home. If he sells his house and puts the pounds 60,000 into a building society, his money may run out within four years.

Mr Smith would be better, say Eagle Star, to buy a Care Fees Payment Plan for pounds 44,644, which would cover his nursing fees for life and leave pounds 15,356 in a building society account.

In truth it is hard to be specific about the costs of such plans, although, inevitably, they are not cheap. Mr Sandy Johnstone, manager of the Commercial Union's 3rd Age initiative explains: "With our Continuing Care Plan what you are actually getting is an impaired life annuity.

He suggests that in order to provide an annual income of pounds 22,500 - about the present cost of nursing home care in London - a 75-year-old woman in very poor health would have to find a pounds 106,400 lump sum.

It sounds a lot, but he adds: "A plan like this can be a more efficient way of paying for nursing home fees than trying to source them from capital, and being able to guarantee that nursing home fees will be paid gives you a negotiating opportunity."

If you don't need to pay fees now - but think you may need professional care at some time in the future, then long-term care insurance is an option.

Premiums for such policies vary, depending on personal circumstances. Some firms guarantee premiums for a fixed period of time, others may review them at one month's notice.

PPP Lifetime Care is the current market leader and offers a tailor-made approach. People can take out cover up to the age of 79, although the upper limit is extended to 84 for single premium payments.

Premier Cover is the most expensive. In order to receive a pounds 1,000 monthly benefit (increasing by 5 per cent per), a 60 year-old man's premium would be, typically, pounds 71.26 a month, while a woman of the same age would pay pounds 86.20. At the age of 70, these premiums would be pounds 110.34 and pounds 164.36 respectively.

Other long-term care plans on the market include Commercial Union's Well- Being Insurance and Prime Health's Home Healthcare, as well as plans underwritten by Hambro Assured Care.

HAC's Dick Walker says: "In reality, few buyers will take out long-term care cover for the maximum available benefits payable throughout life. It is simply too expensive for the vast majority.

"There are two basic ways of cutting the costs: choose a lower amount of benefit or choose a restricted period during which benefits are available."

Statistics (based on US figures) show that more than 90 per cent of claims are completed within a period of five years. Taking out a five year plan will, typically, allow you to buy 50 per cent more cover than a throughout life plan for a similar premium.