Financial risk in health and social care budgets

Abstract

The last year of life is characterised by failing cognitive and functional ability necessitating increasing dependence on others for care, including nursing home and in-home care. As a result, social care costs will be very high, as will hospital inpatient costs where around half of a person's lifetime admissions and bed occupancy are compressed into the final year. Hence, it is the variation in the absolute number of deaths, not the age-standardised mortality, which drives the marginal variation in budgetary pressure. The year-to-year variation in deaths throughout 397 English and Welsh local government areas were investigated over an 18-year period. Because of size, smaller government areas experienced higher volatility than larger ones, however, some locations appeared to show higher intrinsic volatility in deaths than others. A method is presented to calculate the financial risk reserve, which must be deducted from each year's budget to cover for higher than expected variation – somewhat like an insurance premium. While variation is important, deaths have risen in some locations than others, and this will place greater pressure on the budget against funds allocated via a formula that ignores the effects of the absolute number of deaths on costs.