The government is to examine whether reforms are needed to the system of funding long-term care of elderly and disabled people in England.
Many believe means-testing causes misery
Proposals for a Green Paper to look at the issue were contained in the Comprehensive Spending Review.
Many critics say the current system of means-testing is too complex, and often unfair on the most vulnerable people.
At present only people with assets up to £12,000 have their care paid for by the state.
Many elderly people currently have to sell their homes to pay for their care.
The Royal Commission on Long-Term Care, which reported in 1999, called for all personal social care to be made free to the patient - but little political action followed.
The Department of Health said the review "reflects the fact that society is changing and demands a new system".
In a statement, it added: "The new system will have dignity and control at its heart for those who use services and their families."
However, officials were quick to deny reports that ministers were already planning to scrap means-testing, and replace it with a system of universal entitlements coupled with top-up payments.
Niall Dickson, King's Fund chief executive of the independent think-tank the King's Fund, said the means-testing system was much despised, and had caused distress and misery to older people and their families.
He said: "The move represents a bold first step at addressing one of the greatest social challenges facing the government.
"The government must now seize this opportunity to achieve a political consensus on how we fund long term care and deliver a fairer system for future generations."
More funds needed
The announcement follows publication of a report by former bank chief Sir Derek Wanless into the future of social care funding.
Sir Derek called for sharp increases in funding to meet the demand for high quality care over the next two decades, and for the means-tested funding system to be scrapped.
The report found that if the system remains as it is, its costs will rise from £10.1bn in 2002 to £24bn by 2026 as a result of demographic changes alone.
Sir Derek recommended everyone in need of social care should be entitled to state funding for 66% of their care package, after which individuals' contributions will be matched by the state up to a defined limit.
Many charities have also warned that the current system is ripe for reform.
Mr Dickson added that the level of funds given to social care over the next three years was disappointing.
The social care budget, which helps councils pay for services such as home helps which help people stay in their own homes, will rise by just £190m to £1.5bn in 2010.
Mr Dickson warned that the social care system was already struggling, with local authorities raising their eligibility criteria and only focusing on those people with the most severe needs.
He said: "Our failure to support frail and vulnerable older people has been one of the unrecognised scandals of our time.
"There are more very old people than ever and yet fewer are receiving the social care support they need."
Neil Hunt, chief executive of the Alzheimer's Society, welcomed the announcement of a Green Paper.
But he said: "The current social care system is crumbling; we urgently need greater investment and a new settlement for social care."
Sir Simon Milton, chairman of the Local Government Association, said councils had been short-changed by the spending review, which he said had provided the worst settlement for local government in a decade.
He said: "There remains a black hole in funding for the care of the elderly."