The Financial Truth Behind Continuing Care Retirement Communities (CCRC)

Between an ever-shifting investment market and a plethora of recent changes to the long-term care insurance industry, a continuing care retirement community (“CCRC”) may seem like a beneficial way to plan for your long-term care. After all, the annual median cost of an assisted living facility for 2015 in the US rang in at $43,200, while the annual median cost of private room nursing home care in the US reached $91,250. A continuing care community therefore allows you to purchase independent living housing with the promise of being able to move into an assisted living or nursing home if the need arises. 

Most CCRC’s even seem to ensure that by purchasing a housing unit, you will receive free or reduced cost long-term care thrown in should you need it down the line. However, you may be unaware that there are different degrees of risk involved for CCRC’s that can be passed down in varying forms. The five majors classifications of risk include:

1. Type A, Full Risk- The client pays for health care benefits with the base fee upon entrance and monthly fees thereafter. The CCRC therefore assumes the long-term care risk. It is known as a “life-care” contract. While inflation and added services may be put on top of the monthly fee, the entrance fee will have already been paid and the base rate of the monthly fee will stay the same.

2. Type B, Partial Risk- The CCRC takes on some of the risk but it is limited contractually. There can be discounts for higher types of care or built in time frames when a higher level of care does not result in additional fees.

3. Type C, Fee for Service - There is no entrance fee for residents of the CCRC. However, they will pay a monthly fee at market rate as they need increased levels of care. In this case, the CCRC assumes no financial risk.

4. Type D, Fee for Service- Residents pay an entrance fee as well as monthly fees. When residents need to be moved to a higher level of care they may pay an additional entrance fee as well as current market rates. There is no financial risk for CCRC’s.

5. Equity Model Contract- The consumer buys a unit and pays monthly fees until they need long-term care and are moved to an assisted living or nursing home. At that point the CCRC then sells the unit and the resident receives the net proceeds (the sale price minus the cost of repairs, cleaning, painting, selling expense, etc.) which go into an account that the resident then accesses to pay for a higher level of care. When exhausted, then resident pays for their own long term care. However, if the unit is not sold, or, sold for less than the original purchase price, then the resident bears the financial burden for both the unit as well as the risk of the long term care cost.

In addition to these different levels of risk factors, there are also other economic aspects to consider before contracting with a CCRC. For example, while some non-profit companies set up CCRC’s, a handful of for-profit communities do as well. Investigate what type of company it is that you are looking at as high initial costs and monthly fees may be going straight to investors and corporate managers, rather than your personal care and accommodations.

Additionally, there is no real way for someone to know if a CCRC will stay solvent over time and what services they will make good on. The CCRC may not have planned in a financially efficient manner from the beginning. Even if the company believes they have enough cash flow at the opening, it can be hard to know the level of care that will be eventually needed for all of the residents. Therefore the company may find themselves more strapped for cash than they originally planned for or realized. This is especially the case if the developer used loans to finance construction, as the financial obligation to the debt holders will often be placed ahead of the residents themselves.

In light of these potential issues, the National Caregiver’s Library has created a handy list of questions about CCRC’s to make sure you are getting all the information you need before you make a final decision:

• Does the establishment have accreditation by the Continuing Care Accreditation Commission?

• What kinds of rules exist and how are they enforced?

• Is there some type of board that lets residents help to manage the community and voice their opinions when necessary?

• Is there an entrance fee and is it refundable for any reason?

• How are monthly fees decided?

• Under what circumstances are they increased?

• What type of healthcare is included?

• Can Medicaid/Medicare be used in conjunction?

• What guidelines exist for transferring a resident between different levels of care?

• What happens if a spouse needs more care, quicker than their partner?

• Is room guaranteed at a nursing home?

• Is there a policy for what happens if the resident’s personal finances are depleted from care?

With all of these various financial considerations in mind, it is important to really do your research, ask the right questions, know what kind of long-term care services you are guaranteed, and what should happen if the company goes bankrupt, before contracting with a CCRC. It might even be helpful to look into buying some long term care insurance for the long term care costs for which you may be personally liable. To evaluate what type of long term care insurance best meets your needs, consult with a broker who specializes in long term care planning. The amount of coverage you purchase will vary by the type of CCRC contract you have and other finances. Whatever your final decision, you can take comfort in your choice knowing you investigated all your options and found the right housing for yourself or those you love.

It is important to carefully review your contract and understand what services are included in a CCRC before making a financial decision.

Sources:

Compare Long Term Care Costs Across the United States. GenWorth Financial. 18 Mar 2016. 

Continuing Care Retirement Communities (CCRC). National Caregivers Library. 23 Mar 2016. 

Continuing Care Retirement Communities: What Could Go Wrong? (CCRC) LifeHealthPro. 11 Mar 2016.

Nelms, Linda, Sarah Mayes, and Betty Doll. “The Interface Between Continuing Care Communities and Long-Term Care Insurance.” Journal of Financial Planning. May 2012.