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Retirement Planning > Retirement Investing

Continuing care retirement communities: What could go wrong?

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Given the recent ups and downs in the investment markets, and all of the changes in the long-term care insurance (LTCI) industry, signing up for a continuing care retirement community (CCRC) may seem like an increasingly attractive way to manage long-term care (LTC) risk.

See also: Are continuing care communities the answer?

A CCRC is a campus that gives a consumer the ability to start out living in an ordinary apartment or single-family home, then move into an assisted living facility or nursing home unit if the consumer ends up needing LTC services.

The richest CCRC “life care” contracts provide what amounts to a promise of access to prepaid LTC services. The consumer may pay hundreds of thousands of dollars for a residential unit purchase agreement, along with monthly fees of thousands of dollars per month. The richest life care contracts will then keep the base monthly fee the same if the consumer moves into an LTC unit. In theory, the consumer with that kind of contract pays a high price for housing and homemaking services, but gets the LTC services thrown in for free. Some CCRCs go a step further: They offer consumers who qualify for life care guarantees, and pay for the option, a promise of access to care for life, even if the consumers end up losing their assets.

Of course, some CCRCs keep their promises better than others.

Bett Martinez

In many cases, “CCRCs are not as they appear in the glitzy marketing!” Bett Martinez (photo, right), an insurance agent and consultant in Albany, Calif., writes in her consumer LTC planning guide, “We’ll Face That When We Have To… P.S. It’s Later Than You Think!”

Martinez uses client anecdotes to explore the kinds of risks she believes potential CCRC residents should consider.

Volunteers at the National Continuing Care Residents Association (NaCCRA) give their own take on risks prospective CCRC residents ought to understand in a guide they prepared.

For a look at five issues for CCRC prospects to ponder, drawn from the Martinez book and the NaCCRA guide, read on.


1. Aesthetics

Some CCRCs offer continuing care at home (CCAH) options that can keep clients out in the general community as long as possible. Some traditional, campus-based CCRCs have good architecture and interior design. But the buildings in some traditional, campus-based CCRCs still go heavy on the brocade and the chandeliers.

See also: 4 things to know: Continuing care at home

Older people playing cards

2. Neighbors

People who already need extensive help may have no choice but to live with other people who need help, but people who are still independent may prefer to live out in the community, with people of different ages, rather than in the independent living units on a traditional CCRC campus.

See also: Home care planning: 4 things LTC planners should know about the new regs

Dollar bill

3. Value

Nonprofit groups set up some CCRCs, but for-profit corporations set up others. Given how high the entrance fees and monthly fees can be, residents may feel as if a lot of money they are spending is going to the corporate managers and investors.

See also: 5 states where Medicaid pounds nursing homes

A dollar bill that's breaking up

4. Unit price shifts

Some traditional, campus-based CCRCs offer “equity model” contracts. A resident buys an independent living unit, then pays monthly living expense fees. When the resident moves to a higher level of care, the CCRC sells the independent living unit. The amount the CCRC can get for selling the unit may affect how much the resident has to pay out-of-pocket for the higher level of care.

See also: 4 reasons reverse mortgages are still LTC guppies

A house of cards

5. Reliability

Martinez says it’s not always easy for CCRC residents to know whether a CCRC will provide the services a resident originally thought the CCRC would provide, or whether the residents will have any practical way to get a CCRC to provide what the residents believe the CCRC promised to provide.

The NaCCRA volunteers say some CCRC managers’ lack of financial sophistication may keep CCRCs from making good on long-term commitments.

“Many CCRC managers believe that they are managing acceptably if their cash flow is positive, giving them enough cash to be able to pay the current bills and to meet debt service requirements as they come due,” the NaCCRA volunteers write.

If a CCRC’s managers fail to build up enough reserves to meet life care commitments, the CCRC may look stronger than it really is early on, then suffer from severe shortfalls later, the volunteers say. Often, the volunteers say, when a CCRC’s developer uses loans to finance campus construction, the financial interests of the debt holders will come before the financial interests of the residents.

See also: 

Jumbo liability claims hit continuing care communities

7 things Harvard housing researchers can tell you about older adults.


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