One of the biggest health-care dilemmas for aging seniors and their families is navigating the progression of care from independent living…to an assisted-living facility…to 24/7 care in a nursing home or memory care unit.
Increasingly popular solution: A continuing care retirement community (CCRC). There are more than 2,000 CCRCs in the US. But you may be wondering, What is a continuing care retirement community?
CCRCs offer a range of health-care services and living situations on a single campus or complex. They offer residents an easier transition to higher levels of care as they grow older and frailer. That means if mom falls and breaks a hip while living at a CCRC, there’s no dire scramble to find a health-care facility with a free bed.
Other CCRC advantages: Most CCRCs provide upscale lifestyle amenities such as posh dining rooms, pickleball courts, cultural programs and community gardens. Elderly spouses can live on the same campus yet receive different levels of care. Example: One spouse might continue to live independently, while the other is placed in memory care in another part of the facility.
Two big drawbacks if you are considering a CCRC…
Upfront costs are significant. One-time entry fees to a CCRC typically run several hundred thousand dollars per individual. Many CCRCs offer various entry fee contracts from which to choose. With some CCRC contracts,the entry fee helps to subsidize the cost of long-term care services. Example: If you live in a CCRC and have to move up to skilled nursing or memory care, your monthly costs won’t increase. A similar move outside a CCRC could instantly double or triple your monthly costs. For many residents, this provides better long-term predictability of expenses and saves them on skyrocketing health-care costs. With other CCRC contracts, you pay the full cost of care, but the entry fee helps keep the independent living monthly service fee lower than it would be otherwise. Note: If you pass away soon after you enter the CCRC or decide to leave it, part of your entry fee may be refundable. It’s important to understand the contract stipulations and options related to the monthly service fee and the entry fee.
Residents also are charged a monthly fee, ranging from $2,000 to $6,000 or more, to cover services such as meals, housing, utilities, housekeeping and access to health care. There may be some flexibility with the monthly fee. Some communities offer more of an à la carte model, whereas others have an all-inclusive approach.
Important: Nearly all CCRCs, particularly those that offer discounted rates for long-term-care services, will require a health assessment for a CCRC contract. Residents with advanced health concerns may not qualify. In many cases, the person still may be able to move directly into the health-care facility and pay the full cost of services if there is availability, but residents of the community with a CCRC contract typically have first access to those services.
Potential for insolvency. Since 2020, at least16 CCRCs have filed for bankruptcy. Many of these facilities ran into financial trouble during the COVID-19 pandemic when the number of new residents entering CCRCs plummeted. CCRCs typically rely on the flow of revenue from new entry fees to service debt, cover maintenance costs and refund deposits as existing residents move out or die
Bottom Line Personal spoke to retirement-housing expert Brad Breeding about how to vet a CCRC’s finances and decide if it is worth moving to one given your personal needs and financial resources…
Assessing a CCRC
Consumers tend to focus on aspects such as the size of the living accommodations and quality of the food. But understanding the CRCC’s financial viability is essential to ensure that it will be there for you at the most vulnerable stages of your life. Steps to take…
Helpful resource: For a free checklist on assessing a CCRC’s financial viability, go to MyLifesite.net/learn-ccrc-details.
- Review the CCRC’s Form 990 if it is a nonprofit. Most CCRCs are not-for-profit organizations. Some are affiliated with either a religious denomination or a large institution such as a university or hospital…others simply operate as a nonprofit serving a senior population and often provide at least some degree of charitable care for residents who deplete their assets. Depending on the state in which they are based and other factors, non-profits may be required to prepare audited financial statements and make them available to the public. If you don’t feel qualified to evaluate a CCRC’s balance sheet, review it with your accountant or another trusted financial professional.
- Look at the occupancy rate. A CCRC’s fiscal health depends in large part upon its rate of occupancy. If there are too many empty units, the shared costs of the facility must be spread over fewer residents. Look for occupancy rates that are consistently 90% or more year after year. It may be enticing to consider a CCRC where there a number of apartments available for immediate occupancy, but it may be wiser to enter one where you have to wait several months for a unit to open up.
- Check the CCRC’s positive net assets. Net assets are a company’s total assets (cash, property, equipment) minus its total liabilities (loans, debts). A negative net asset balance could be a strong indicator of financial strain and potential problems. Note: Refundable entry fees are recorded as a liability on the balance sheets, so some CCRCs may show a negative asset balance, even though they are not necessarily in financial distress. But if at some point the CCRC is not in position to pay those entry fee refunds due to declining occupancy or poor financial management, then it could become a problem.
- Ask about cash on hand. Even if the CCRC has a positive net asset balance, be sure that it has sufficient money to meet obligations as they come due. A CCRC that has enough cash to cover 450 or more days of operation indicates considerable financial strength.
- Check if there are residents on the board of directors. CCRCs are managed on a day-to-day basis by a CEO appointed by and responsible to a board of directors. Ideally at least some of a CCRC’s governing board are residents to ensure responsiveness to interests in terms of delivery of services and long-term financial soundness.
- Understand the major provisions of your contract. There are three basic types of contracts…
Type A or Life Care contract is themost expensive option with the steepest entry fees and the highest starting monthly fees. But residents are guaranteed little or no increases in monthly fees when they need to move up to assisted living or skilled nursing care.
Type B or Modified Life Care contract offerslowerentry and monthly fees, but if a resident’s care needs increase, he/she is required to take on higher fees.
Type C or Fee-For-Service will require a lower entry fee and/or monthly fee than Types A and B. But if assisted living or skilled nursing care is required, the resident’s monthly fee will increase to reflect the market rate for that care. Some fee-for-service contracts are completely à la carte, whereby a resident can essentially choose which types of services and amenities he wants to pay for, even while living in independent living, while others apply mainly to the cost charged for care services needed.
There are caveats for each type of contract…
Your choice of contract will depend on your ability to absorb future cost increases, health status and financial risk tolerance. But you may have some flexibility to negotiate the terms of your CCRC contract. Example: If you are confident in your choice of a CCRC and refundability is not a vital issue, you might agree to waive your right to a refund (see below) if you decide to leave the CCRC in exchange for a lower entrance fee.
There may be increases for inflation. Even if your contract stipulates that your base monthly fees will remain the same if you require higher levels of health care, you should expect fees to rise in line with inflation each year.
Entry fee refunds vary. Typically, the portion of the entry fee returned to you (or your family) if you die or leave the CCRC can vary from 30% to 90%. Some contracts offer a declining-balance refund, in which the refundable amount is reduced each year that you live there. Other contracts have a fixed refundable percentage—you get back a certain percentage of your entry fee regardless of how long you are at the CCRC.
There may be tax benefits. A portion of your CCRC entrance fee may be eligible for a one-time tax deduction as a prepaid medical expense. Also, a portion of the monthly fees may be eligible for annual deductions if you elect to itemize on your tax returns and your medical expenses are more than 7.5% of your adjusted gross income. Talk to the CCRC about what portion of fees may be deductible, and consult your accountant.
If Your CCRC Gets Into Financial Trouble…
It is rare for aCCRC to go out of business, but it can happen. In the event that a facility has inadequate financial reserves, the most common outcome is a multiyear delay in delivering entry-fee refunds to CCRC residents who left the community or who died. There also may be cutbacks in services, especially for skilled-nursing care units, which are the most expensive part of the CCRC to operate. In the event the CCRC files for Chapter 11 bankruptcy reorganization, a sale often is negotiated, with oversight from the state attorney general’s office, to a larger competing CCRC. The new owners have an incentive to maintain services and attract new tenants, but they can void or renegotiate the services and terms of existing residents’ contracts—these changes would be determined before the purchase proceeds. That means you may have to pay higher monthly fees and receive less of a partial refund if you pass away or elect to leave the CCRC.
