Risk Sharing and Social Care

by George Hatjoullis

Populations are ageing. Advances in medicine are keeping us alive longer. Unfortunately advances in health have not yet caught up. In part this is a legacy issue. Medicine has focused on treating illness rather than preventing it. This is changing and the pressure on ‘lifestyle’ choices is building. There is also increased research into the link between lifestyle choices and health. We know that obesity, alcohol, cigarettes, pollution, sugar, and salt, can all have detrimental health effects. Much of poor health today can be linked back to these. In a few generations we should see health catch up with progress in longevity. Meanwhile, we have a care crisis.

The logical solution to social care needs is risk sharing. Despite the evident link between lifestyle choice and health there is a large random element still. This is particularly true of dementia in its various forms. The link between lifestyle and dementia is not yet well understood. I had the opportunity to study the disease Alzheimer’s in a course on ‘Brain and Behaviour’ as part of an MSc in Psychology. I was surprised to discover that a confident diagnosis of Alzheimer’s can be made only post-mortem. This does not help in treatment. In fact there is no treatment for the disease as such, only the symptoms. Dementia needs labour intensive care. Moreover, dementia is quite undiscriminating. It can afflict anyone. This is why it is so amenable to risk sharing.

Risk sharing is the core principle of insurance. In a population of N, actuarially we can predict x% will get some form of dementia. The total cost of treatment for the population is £Y so we all contribute £Y/N and get treatment if we are unfortunate enough to be afflicted. The only issue is how should the risk sharing be organised. There are essentially two possibilities; the state or the private sector. The principle of public risk sharing has been accepted for medical needs, despite the lifestyle links, and takes the form of the NHS in the UK. For some reason this is not extended to the care needs arising from dementia even though the link to lifestyle is not yet established. This seems perverse. Someone who falls off a horse and is paralysed will get excellent free care from the NHS but someone that is afflicted by dementia must pay for their own care.

Social care is a legitimate risk for public risk sharing. Indeed it is more legitimate than care needs arising out of lifestyle choices because it is essentially random. The public actuaries should conduct the appropriate analysis and budget accordingly. Moreover there should be no hypothecated ‘care tax’. The blog For the want of a nail… deals with the issues arising from hypothecation. All social care should be funded out of general taxation. The structure of general taxation can be set to meet whatever ideology the democratic process concludes. Care should be, like medical services, provided on the basis of need and free at the point of use. This is what public risk sharing means.

Hypothecation takes us towards private risk sharing. Care is not provided on the basis of need but becomes contingent on contribution. This is the essential difference between pure public and private risk sharing. State pensions are linked to contribution as are some financial benefits. Private insurers pay out contingent on contribution. It is not pure risk sharing though this is part of the actuarial process. Care lends itself most to pure public risk sharing yet is excluded. The reason is fear of the cost. But this is a false fear. Public risk sharing for care is one of the most logical forms of public risk sharing because of its random nature. No one should object and I suspect will not if the state makes the effort to link risk of dementia to each of you