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Evaluating the CCRC Living Option

Last update on: May 02 2016

Interest in the continuing care retirement community as a living option (CCRC) is rising, but interest still is not as strong as before the financial crisis. Retirees considering their living options might find a good deal in a CCRC, but they need to shop carefully and fully understand the terms of the CCRC. You also need to compare the CCRC with other housing choices.

A CCRC generally is a campus-like housing development that combines the three common late-retirement housing options: independent living, assisted living, and nursing home care. A CCRC resident can move smoothly from one level of care to another as the need arises. Married couples often like CCRCs, because when one spouse needs a higher level of care the other can be nearby on the same campus. The CCRC also might offer more social interaction and activities than many other housing options.

CCRCs are most attractive to affluent, educated people who exercise and eat right, because they tend to have longer life expectancies. They can afford the costs of a CCRC and want the range of services under one roof or on one campus.  Only about 30% of seniors can afford to live in a CCRC, according to one estimate. You also need to meet health standards. If you already need too much assistance or care, a CCRC won’t accept you.

The terms of entering and living in a CCRC can be complicated, but you need to understand them clearly if you’re considering the option. You’re likely to pay an entrance fee, monthly fee, and then probably additional fees for services not included in the monthly fee. The fee structures vary, making it difficult to compare CCRCs without working the numbers carefully or being assisted by a financial planner or other professional.

Entrance fees. There are several entry fee models. An equity entrance fee is when you effectively are purchasing your living unit (though you might not have legal title to it). You or your heirs receive money after you move out and someone else joins the CCRC. You need to know the specific terms. Most importantly: How is the amount paid to you or your heirs determined? Do you have to wait for the CCRC to find a new resident? Is there escrow or some other mechanism backing the promise to pay?

Perhaps the most common entrance fee is one that’s refundable on a sliding scale. The longer you live at the CCRC, the less of the fee that’s refunded, though some amount of the fee always will be refunded. One fee structure I looked at reduces the refundable initiation fee by 2% for each month for one year and then 0.5% for month for the next four years. After that, 50% of the fee would be refunded in a lump sum regardless of how long a resident stayed in the CCRC. Some entrance fees provide a fixed amount is refunded to all former residents or their heirs. A few don’t refund any of the entrance fee.

Monthly fees. There are three basic models for monthly fees. You might find that a CCRC might allow a resident to choose between two or more models, or that it offers only one fee model to all residents.

The extensive model is the broadest. Basically everything is covered in the monthly fee, and so this model likely carries the highest fee. Your monthly cost is certain, but you could pay for services you don’t use and might never use. The modified model provides an array of services for the monthly fee, but fewer than under the extensive model. If the resident needs or wants additional services, they can be provided for separate fees. The fee-for-service model provides a minimum of services under the monthly fee. Additional services are available, and separate fees are charged for those you use.

You need to be sure what is covered in your fees. For example, if there is a problem inside your living unit, who will pay for it? Normally the CCRC is responsible for fixing or replacing anything except your personal items. You should ask how the need for a repair or replacement is determined. The CCRC also likely provides housekeeping, landscaping, and other services. Be sure you know which services are excluded.

Of course, consider the medical and related costs that aren’t covered in the monthly fees. Do a stress test to estimate what the costs would be if you or your spouse need certain types of care. Which fee model has the lowest expenses under different scenarios?

You need to know not only the current monthly fees but also the rate of past fee increases. A CCRC might have a policy of increasing fees annually or more frequently.

You might find that fees could replace or offset other expenses you currently have. For example, with some CCRCs you are able to drop a long-term care policy, because fees to the CCRC cover everything that’s covered by the policy. So, you’re shifting the money from the insurance company to the CCRC. On the other hand, some CCRCs expect you to maintain any LTCI you have, and the CCRC will seek reimbursement from the insurer for any services covered under the policy.

Also, Medicare or other medical insurance you have might cover some of your costs. Check the details of your coverage so you’ll know the net cost to you of the CCRC.

Don’t simply accept the fees quoted by the CCRC. First, consider all the CCRCs and any alternative options in the geographic area. During the boom years, there were waiting lists for many CCRCs. The waiting lists ended with the housing collapse, because people couldn’t sell their homes at high enough prices to pay the entrance fees. Many CCRCs still are struggling to keep their occupancy high and maintain their fee income. When armed with information and alternatives, you might be able to negotiate discounts in the entrance fee and monthly fees. Or you might be able to obtain upgrades to your living unit or amenities.

Of course, investigate thoroughly the finances of a CCRC. In the financial crisis and its aftermath, a number of CCRCs nationwide were in distress. They had too much debt, and occupancy rates declined. Some filed for bankruptcy protection while others reduced staff or services. You need to know occupancy levels, debt levels, credit ratings of the owner, and reserve levels.

Some help assessing the financial condition of CCRCs is available online through the web site www.leadingage.org. Use the web site’s search function to find its ?Top 10 Questions You Need to Ask Any Continuing Care Retirement Community.? And search the site for information on CCRCs in general and any individual ones you’re considering. You also can find detailed financial information about many CCRCs at www.carf.org.

When considering a CCRC, be sure to learn the tax angles. You can deduct the portion of any of the fees that are paid toward medical expenses that are deductible under the tax code if paid separately. Often a portion of the entrance fee is deductible as a medical expense, if you itemize deductions on Schedule A, and the CCRC will determine this. Some of the monthly fees also might be deductible. The CCRC should provide itemized statements of the services covered, and you can use this to determine what is deductible. Determining the tax deductions might be easier under fee-for-service statements than under an extensive fee.  Remember, though, that you can’t deduct any expenses that are reimbursed by Medicare or other insurance.

Don’t rely on the CCRC for the final say. Do the research yourself or see a tax advisor to learn the tax deductions you’re likely to have.

You also need to ask the CCRC what happens if a resident runs out of assets. The CCRCs examine a prospective resident’s finances before signing a contract, but it’s always possible that something goes wrong and the money runs out. The CCRC should have a clear policy on that situation.

Don’t forget to consider alternatives to the CCRC.

For example, you might be able to create a similar range of services without leaving your home. Your home might be modified to be senior-friendly. Transportation, help around the home, some home health care, and other services might be available with the help of local services and agencies. That would help you stay in the home for as long as possible before considering a change to an assisted living facility or nursing home when needed. This option is especially viable if your have long-term care insurance. Keep in mind, though, that social interaction is important to physical and mental health, and that could be a major benefit of a CCRC.

CCRCs and their alternatives are complicated. It’s a good idea to investigate before you are ready to move. You should consider working with an elder law attorney, financial planner, or other professional who has some expertise on the topic, especially in your geographic area. The professional fees should be a small portion of the amount you’re considering spending on the CCRC and the alternatives.

RW March 2016.

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