A loophole in the Care Act is threatening to create "catastrophic failures" in old people's homes, ministers are being warned.
The changes could have a far broader impact on the sector than the shocking neglect scandals for people in care raised at prime minister's questions this week.
In a sector worth £7 billion to the economy every year, officials are now being told a loophole which stands to hand a £10,000 annual bonus to OAPs could end up costing £1 billion a year.
Where this money comes from doesn't seem to have been fully worked out yet - leaving many insiders warning that quality of care for old people living in residential homes could be severely affected.
One adviser working with the government on the issue told Politics.co.uk: "You could either see some providers making conscious decisions to downsize their businesses or alternatively potentially worse.
"You might see areas where care providers struggle on and all of a sudden you see sudden catastrophic failures."
Despite the problem the Department of Health (DoH) remains confident its reforms will not result in the worst-case scenario some are envisaging.
Ministers are worried enough, however, to have agreed to delay the introduction of the critical parts of the Care Act by a full 12 months while they try to work out what is actually going to happen.
Cross-party support for the legislation means few in Westminster are speaking out against the brewing crisis which could plunge the residential care market into uncertainty.
Only behind closed doors are the implications of this change being discussed. DoH officials have brought in a group of advisers to calculate the real impact of the reforms. Their discussions are confidential - but enough has emerged to confirm the stakes are extremely high.
Looking through a loophole
The Care Act is, in simple terms, a good idea. Its big selling point is that no-one will have to sell their home before they die in order to pay for their care. The total bill for any one person's cost of care is being capped at £75,000.
But it has always been a misleading figure. Many will end up paying more because it's not necessarily the total amount you pay that counts towards the cap. Only the sum the local authority would pay, which is significantly less than the average paid by individuals, actually counts.There are all sorts of reasons for this gap between the bill faced by local authorities, sorting out care for those eligible for help at the taxpayers' expense, and self-funders.
Bulk-buying is the most obvious, but councils also benefit from the fact that many care homes rely on wealthy self-funders to pay their bills. If they have a few empty rooms left over, they may as well get paid the council rate. It's better than keeping them vacant.
This has led to a dual-market in which care homes charge two different prices for the same service. A £10,000 gap has developed between the £25,000 that local authorities pay and the average £35,000 paid by self-funders.
The cost of transparency
None of this would matter if it wasn't for an entirely separate part of the Act exposing this gap.
Care minister Norman Lamb believes passionately in openness. "We are taking huge steps forward in ensuring a culture of transparency and honesty within the health service," he wrote last year. Much of this drive is targeted at an NHS which has seen scandalous cover-ups in places like Mid-Worcestershire or Winterbourne View, the care home for people with learning disabilities where neglect and abuse were rife. But it has resulted in a push towards empowering patients that is changing the culture at the DoH.
When it comes to the cost of care, transparency is almost a side-effect. What will happen when the Act comes into place is that around 175,000 people will start what insiders call their "meter running". They will register and then, sooner or later, receive a financial statement outlining the gap between the local authority rate and the bill they're paying.
For many, this will be a shock. It will be the first time they realise the person in the identical room next door to their own is getting the same service for £10,000 less. They may be angry. They may feel frustrated. But if they or their relatives have any sense and are informed about the Care Act, they might just feel excited, too.
It's section 18 of the legislation which is the one to look at here. "It creates a new duty on local authorities," the Local Government Association explains, "to arrange care and support if requested, when the adult would otherwise not be entitled, but could afford to pay for their care, or if the adult's accrued costs exceed the cap on care costs".
In simpler language, that means that anyone paying £35,000 can ask councils to sort out their care for them. They'll still have to pay the bill, of course, but they'll be paying the council rate. Which is, on average, £10,000 cheaper.
You might wonder whether that many old people are really going to realise this wheeze applies to them. In normal circumstances, perhaps it might slip past a few. But the Act has found a way to get past this.
It has given councils permission to charge an unspecified fee for the bother of arranging the care. This incentivises local authorities to preach the gospel about this new change. Even if they take a cut of the £10,000 saving, it will still be worth the while of the elderly people in the homes to make the shift. It will be a win-win scenario.
Win-win for the council and the care home resident, that is. Those trying to run the care homes might take a different view.
Fears of a catastrophe
It's the implications of this combination of factors - the cap, the transparency, the duty on councils to arrange care - which is proving so unsettling to the government and those advising it.
The stark truth is that no-one really knows how these changes will actually play out.
Perhaps councils will end up paying a little more, because they also have a duty under the Act to create a viable 'provider market' in their area. Maybe the care providers will reduce their rates - but that seems unlikely because already the self-funders are subsiding those paid for by the council. So it's plausible they might adjust their staff-to-patient ratios. Or perhaps they might simply decide they want to run a smaller, more profitable business. Ultimately, a reduction in the overall capacity for care provision is a grave danger.
It's hard to work out how big that danger is right now because there are so many complicated factors in play. Some bits of the country will have excess capacity or demand that will downplay or exacerbate the crisis. Only some regions - particularly the south-east - see a large number of care homes which take both council-funded and self-funding residents, which is what makes the issue most acute. Overall, though, this change is going to mean a big shift. "It's going to be harder for local authorities to have a local economy where private funders are cross-subsidising local authority care," one source explained.
The DoH is determined this is a good news story. A spokesperson said: "We're transforming the way everyone will pay for care in this country by capping costs and providing more financial help. We're also making the system fairer by giving everyone the right to ask their council to help arrange their care, making it easier to compare costs."
There are plenty of reasons for the DoH to be blasé. Many voices on the advisory group are saying that the kind of elderly person who's paid for their care themselves will be suspicious of the council and would prefer to steer clear of them. But others believe the opportunity for local authorities to turn this into something of a money-spinner could overcome that.
If it does, the dual-market for residential care homes looks deeply vulnerable. That could transform the care sector. If the government's win-win scenario ends up in the "catastrophic failures" some are talking about, future ministers could one day rue the consequences.