By Chuck Robinson, CFP, RMA
What is a Continuing Care Retirement Community?
Continuing Care Retirement Communities (CCRC), also known as life plan communities, allow seniors to “age in place” at a single facility while their health needs change over time. While you can start out living completely independently in a condo, skilled nursing, assisted living, and other services are also available if and when they’re needed. Unlike many other retirement options, CCRCs recognize the fact that most seniors want to live independently for as long as they possibly can.
In a typical scenario, a CCRC resident will rent or purchase a condo within the community, with a range of accommodation sizes and styles available. A tiered price structure and program will be available according to the amount and type of services needed or desired. As the person ages and their healthcare needs change, they can keep living in the original condo for as long as possible and transition into an on-site nursing facility if required.
CCRCs offer a number of benefits over other forms of retirement living:
- Independent condo living
- On-site nursing care
- Stress-free transition
- Familiarity and community
- Recreation activities
- Nursing and healthcare services
- Additional services
The services available are generally comprehensive and flexible, with residents able to change their program based on need. Along with nursing and healthcare services, these facilities also provide detailed housekeeping, transportation, meal preparation and delivery, and emergency help if needed.
The all-in-one nature of these communities is a major benefit for residents and their families, with independence respected but also help available when needed. CCRCs are available in all areas of the USA and in most states from California, Washington, and Arizona in the West to Illinois, Michigan, and Ohio in the Midwest to New York, North Carolina, and Florida on the East Coast.
Key Facts to Consider after Picking a Retirement Location
Organization: Non-profit 501(c)(3) sponsored by a large religious organization versus for profit. Clients with a constrained financial situation may prefer church-related CCRCs where people of all faiths are welcome and the church creates the organization and hires a healthcare management company to provide day-to-day management. Religious groups do not have to answer to shareholders and they have deep pockets. Some non-profit CCRCs have a charity fund to assist residents who have depleted assets and need assistance. Some guarantee they will not terminate care for residents who run out of money. For clients where money is not an issue, they may prefer the more luxurious and more expensive accommodations of a for-profit CCRC.
Services offered under 4 types of contracts: Four types of contracts offer three distinct levels of care including independent living, assisted living, and skilled long-term nursing home services (LTC).
Type A – Life Care or Extensive contract: This type of contract is often considered to be an all-inclusive option with relatively predictable future expenses. This option provides for prepayment of unlimited assisted living and skilled nursing care without additional monthly charges at the point support is needed. In these contracts, the entrance fee includes substantial prepayment for long-term care. The retiree shifts the risk of future costs of LTC to the facility which assumes more risk for price increases.
Type B – Modified contract: Includes prepayment for long term care services for a specified limited period such as 30-90 days of assisted living or nursing care before higher charges are imposed. At end of the initial period, services are repriced at higher monthly fees. Both the retiree and the facility share the risk of future LTC costs.
Type C – Fee-for-Service contract: Generally, the lowest initial fees for independent living. Entrance fees tend to be lower because they do not include pre-payment for assisted living or long-term care. When these services are needed, they are priced at the fee-for-service level at that time. The retiree assumes the largest risk for LTC costs.
Type D – Rental: No one-time entrance fee. These are essentially pay-as-you-go for the retiree who assumes all the risk of future price increases.
So which CCRC contract is the best? This is a trick question.
In theory, the contract types listed here should be actuarially equivalent, as long as the method used to price the contracts works off the same or similar statistical and actuarial averages. The answer to that question largely depends on you.
If your financial resources are constrained, you may prefer the greater predictability of a Type A contract where you shift more of the risk for future LTC Expenses to the CCRC. In a Type A Contract, the monthly services fee “…entitles residents to the privileges and use of the CCRC for life, including nursing services in the skilled nursing facility. The occupancy agreement does not entitle the residents to an interest in the real estate or any property owned by the facility.” This means the monthly service fee does NOT increase more than the normal monthly COLA when the resident transitions from independent living to assisted living, and, ultimately to the skilled long-term nursing care facility. This is what the CCRC refers to as their “Lifetime Care” program.
Obviously, in other types of contracts, the fee for assisted living and LTC will vary depending upon the fee-for-service cost at the time services are needed. If you have more than adequate assets or an LTC insurance policy to pay for assisted living and LTC on a fee-for-service basis in the future, you may not want to pay a large one-time entrance fee in a Type A contract that you may never use or may be able to pay for easily.
If your personal experience ultimately falls outside of the averages, then one type of contract could prove to be better for you than another. But we cannot predict the future. Therefore, it comes down to making a decision that you are comfortable with after considering things like your family history with regard to life expectancy and health. Are you comfortable with a certain level of risk, as you might find with a fee-for-service contract, or do you prefer to pay more in order to “play it safe?” Do you own comprehensive long-term care insurance that compliments one type of contract better than another?
One Time Entrance or “Buy-in” Fee: As you might expect, fees and services differ widely between these facilities. Entrance fees vary dramatically depending upon the type of contract described above. They can be less than $100,000 for a non-profit Type A contract and/or a rental contract. However, they can be anywhere from $250,000 to over $1 million for luxurious private CCRCs. The biggest difference in fees is related to whether or not you own the apartment in question.
According to the U.S. Government Accountability Office, these entry fees, by contract type, are typically:
· Type A: $160,000 to $600,000
· Type B: $80,000 to $750,000
· Type C: $100,000 to $500,000
· Type D: Minimal or no entry fee for rental
The fee will also vary depending upon the type of unit. For example, a one-time “buy-in” for a 2 bedroom/2 bath, 978 square foot apartment with a Type A contract at a not-for-profit might be $129,900 and drop to $89,990 for a 1 bedroom/1 bath. The fee can be either refundable or non-refundable. The advantage of a refundable fee is that if things do not turn out as you expected and/or the quality of care deteriorates, the retiree can get their money back and transfer to a different housing arrangement or CCRC. However, the refundable fee will be higher initially than the non-refundable fee so there will be a cost to have the flexibility to leave the facility.
Monthly Services Fee: The monthly services fee also varies dramatically depending upon the type of contract and the type of unit.
· Type A – Monthly Fee: $2,500 to $5,400
· Type B – Monthly Fee: $1,500 to $2,500
· Type C – Monthly Fee: $1,300 to $4,300
· Type D – Monthly Fee: $1,800 to $5,500
The Monthly Service Fee can vary from as little as $1,300 per month to $8,000 per month with an average of about $3,500 per month. This monthly fee normally includes all utilities, food, cleaning, and laundry. The retiree’s additional expenses for personal items, entertainment, and travel will vary dramatically from $300 per month to $1,000 per month or more.
COLA Average Increase: Over the last 35 years, the average annual increase in the monthly services fee has averaged from 3.5% to 6%. However, this COLA could be higher for fee-for-service LTC services. This average is skewed by a handful of larger increases with the increase being more in the 2.5% to 3.0% range for the vast majority of years, so using 3.5% for a moderately priced, well run CCRC is probably realistic.
Tax Deductions: Based upon IRS Revenue Ruling 75.302 and 75.48, it is possible that, for a Type A contract, as much as 70% of the non-refundable portion of the entrance fee and as much as 27% of the monthly services fee may be tax deductible as a medical expense on Schedule A – itemized deductions, because it represents the portion of the resident’s fees allocable to the community’s obligation to provide medical care. However, this is NOT tax advice and you must review the potential tax deductibility of these fees with your own tax consultant.
Lifetime Guarantee: In a Type A contract, applicants must provide full financial data and insurance coverage, as well as health history to qualify for acceptance into the CCRC. The facility normally requires prospective residents to have total assets that are twice the amount of the entrance fee and monthly income from all sources, including Social Security, pensions, and annuities (but not investable assets) to be one and one-half to two times the monthly fee.
However, assuming the prospective applicant is approved some CCRC facilities will guarantee they will continue to provide all services, including skilled long-term nursing services, even if the applicant should run out of money. Keep in mind that as much as 70% to 80% of skilled nursing and therapy services revenue may be provided by Medicare and Medicaid programs, so that when these government reimbursements are combined with the one-time “buy-in” fee, the CCRC can make a lifetime care-type of guarantee. Many not-for-profit faith-based CCRCs also maintain a charity fund they can use to support residents who run out of money. Obviously, one risk of this program, as with any of these CCRCs, is that changes in the reimbursement policies of Medicaid and Medicare could potentially have an adverse impact on the CCRC.
Regulation and Years in Business: While some states do not regulate CCRCs, look for CCRC’s that are subject to multiple regulatory agencies, usually including a state financial services or Office of Insurance regulation or an agency with oversight of long-term care service facilities.
Check agencies for complaints, violations, and/or fines. See if the CCRC has been granted accreditation through the Commission on Accreditation of Rehabilitation Facilities. All nursing homes that participate in Medicare or Medicaid are subject to federal oversight. This includes nursing homes that are part of a CCRC. Look for CCRCs that have been in business for a significant number of years and have demonstrated a history of making sound decisions and exercising stewardship during difficult economic periods like 2007 to 2009.
Test for Financial Solvency: Ask the CCRC to provide you with the actuarial report, the annual financial report, debt covenants, debt ratings, and ask to see an annual test of their “fundedness” status where they calculate a present value (discounted at 5%) of the net cost of future services and use of facilities and compare that amount with the balance of deferred revenue from entrance fees. If the present value exceeds the value of the entrance fees, then a “liability” would be recorded, i.e., underfunded. Obviously, you want to select CCRCs that have been historically overfunded. You will also want to check the Standard & Poor’s and Fitch ratings
Financial Statements: Ask to see the financial statements for the CCRC and check to make sure they indicate a financially healthy organization with net assets significantly larger than their annual budget and with liquid assets roughly equal to one year’s operating expenses, and adequate reserves under state law.
COVID-19 Control: Ask the CCRC to document when they implemented procedures for a total lock down and require them to provide you with the number of deaths from COVID-19 in their facility. Check with the state regulatory agencies for statistics on COVID-19 incidents at the CCRC.
Complaints/Reputation: Look for complaints to the regulatory agencies or using Google search online. The CCRC consistently should appear in lists of the BEST retirement community, independent living, assisted living, and nursing home facilities compiled by various publications in that state. Check the local newspapers for articles, ratings, and/or resident evaluations of the CCRC.
General Atmosphere including Housing Conditions, Dining, and Amenities: On your site visit, note whether residents are happy and are interacting with one another. Do the homes/apartments have modern amenities and can you control the temperature in your home. What modifications are allowed to your home? Determine how many meals a day are provided and check the menus to see how varied the meals are and whether they can accommodate special dietary requests. Does the CCRC provide transportation, clubs, activities, group travel opportunities, health club and pool with classes and rehabilitation activities?
Resident’s Association: There should be a Resident’s Association that represents each resident who expresses a concern about service or would like to see changes. Meet with a representative of the Association to see how they handle input and complaints.
Staff: Determine the credentials of the chief executive officer and senior administrators. Ask for credentials of primary care employees and inquire about what type of specialized training they have or will receive as part of ongoing professional training. Does the CCRC have specialists in memory care and senior assistance? How do they deliver assisted living for the six activities of daily living? Can you stay in your primary home or do you have to move to a smaller room for Assisted Living and/or LTC?
Chuck Robinson, CFP®, RMA®, is the Managing Director of Strategic Growth for Sensible Money, LLC. Chuck has extensive experience in the retirement income field, previously serving as the Senior Vice President for Investment Products and Services for Northwestern Mutual, the Chief Marketing Officer for Global Retirement Services for AIG, and as the Senior Vice President of Institutional Marketing at VALIC.
Chuck authored the article “A Phased-Income Approach to Retirement Withdrawals: A New Paradigm” in the Journal of Financial Planning, which won The Editor’s Choice Award in 2007, is the inventor of a 2010 patented retirement planning process, identified by Financial Research Company (FRC) as a “Best Practice” in the industry, and served as a Former Director and Past Chair of the Appeals Committee for the CFP® Board of Standards.
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