Continuing Care Retirement Communities: Thorough Due Diligence Is the Name of the Game
In recent years, continuing care retirement communities (CCRCs) have become popular options for some older people. Making the move to this type of living arrangement is a major decision – both from a financial perspective and a personal one. Here are five things to think about if your family member or loved one is considering a move to a CCRC…
How "complete" is the continuum?
Some CCRCs provide a "complete" continuum, ranging from independent living to assisted living, memory care assisted living, and skilled nursing care (i.e., a nursing home). Others offer a more limited range of services, excluding skilled nursing care.
If your family member moves to a CCRC that excludes skilled nursing care, there is a high probability that you will eventually need to research skilled nursing facilities and help them make a move to a different place. This is what happened to me.
When it was no longer possible for my parents to stay in their home, I moved them to a CCRC that had memory care for my dad and both independent and assisted living for my Mom. I chose this route, in part, due to financial considerations – the CCRC I selected did not have a "buy-in" fee (more on the financial structure of CCRCs later).
This path, however, meant that my parents had to move twice (once to the CCRC and later to a skilled nursing facility as their needs grew beyond the capabilities of assisted living and memory care assisted living). Adjusting to another new place took an emotional toll on them. It also required me to engage in time-intensive research twice – once for the CCRC and once for the skilled nursing facilities. In retrospect, I'm not sure I would have made a different decision, but be aware of what may be in store if a CCRC does not include skilled nursing care.
If you are considering a CCRC that includes skilled nursing, be sure to research that portion of the facility on Medicare's Nursing Home Compare web site. This offers insights into health inspections, staffing, and quality ratings.
2. Is the CCRC run by a non-profit or for-profit organization?
One isn't necessarily better than another. However, nonprofits tend to be mission driven and may be more focused on resident care. Financial statements for nonprofit run CCRCs can be reviewed at Nonprofit Explorer.
3. Is the CCRC part of a larger group of communities?
If the parent organization runs several CCRCs, it's a good idea to look at the financial health of all the communities. Buy-in fees from a "healthy" CCRC may be funneled to subsidize the financial strength of struggling communities.
4. What is the CCRC’s business model?
Most CCRCs have a buy-in fee, plus ongoing monthly fees for residents. The Commission on Accreditation of Rehabilitation Facilities (CARF) distinguishes between three types of CCRC entrance fees:
Declining scale refunds. Entrance fees are amortized over time. The amount of the entrance fee refundable to a resident decreases over time.
Partially refundable entrance fees. A certain percentage of the entrance fee is refunded, regardless of how long an individual lives at the CCRC.
Full refunds. In some cases, a fixed fee is deducted from the refund.
Monthly fees usually cover a very specific set of services. Anything that a resident needs over and above this list is charged on an a la carte basis. For instance, when my Dad was in memory care assisted living, he routinely needed extra aide time to assist with personal care and bathing. This always added $800 to $1,000 extra to his bill each month. For a time, this was still more economically attractive than the cost of skilled nursing. However, his needs eventually exceeded what the memory care assisted living team could provide.
CCRCs use a wide variety of contract types. AARP offers a helpful summary on its website. As noted, it's always a good idea to have a lawyer review a CCRC contract before committing. Keep an eye out for "fine print" – for instance, some communities don't issue refunds until a unit has been reoccupied.
5. What do the underlying finances for the CCRC look like?
CCRCs as a whole are largely unregulated. If the community includes a skilled nursing facility, that will most likely be regulated by the Centers for Medicare and Medicaid Services (CMS) on factors related to health and resident safety. The finances of CCRCs, however, are not subject to federal regulation.
As a result, it's essential that potential residents and their families conduct thorough due diligence into the financial health of a community before making a commitment to move there. Be sure to ask for an audited copy of the community's financial statements. If the community is part of a larger group of CCRCs, ask for financial statements for all the communities.
If you don't have financial knowledge yourself, hire a financial advisor to review the statements on your behalf. CARF has developed a set of financial ratios that are useful for analyzing the financial health of CCRCs.
The Wall Street Journal and the New York Times recommend keeping eye on the following when reviewing CCRC financials:
Cash on hand. How long could the CCRC operate with no additional revenue?
Cash-to-debt ratio. As a general rule, this should be around 35%.
Occupancy rates. Rates of 90% or more for several years is a good sign.
Reserves, income, and cash flow for long-term needs. Ask to see the CCRC's latest actuarial valuation. This report will show if the community has the necessary reserves, income, and cash flow to meet resident needs for the remainder of their lives.
Monthly fees. These typically increase between 3% and 3.5% per year. While it may seem desirable to have stable monthly fees year-to-year, a lack of increases can be an indicator that the community is having trouble maintaining its occupancy rate.
Bond ratings. If the community has issued bonds to raise money, look for bond ratings between AAA and BBB.
Additional Resources
myLifeSite – This site provides access to information on over 800 CCRCs. A subscription is $29 per month and can be cancelled at any time.
Worksheet for CCRC visits. Legg Mason has created a helpful survey to bring on CCRC visits with a variety of important questions.