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Financial Considerations When Exploring Continuing Care Retirement Communities
Published Date : May 1, 2017
The decision to move into a Continuing Care Retirement Community (CCRC) is a major life event that warrants careful planning to ensure long term financial sustainability. Certainly, there are personal and emotional considerations to explore when facing this major decision; however, as you get to the point of considering a specific CCRC you will need to address options regarding the refundability of entrance fees and the services covered by your contract options. Refunds and service options vary from organization to organization, but there are some broad industry-wide characteristics worth understanding before embarking on your exploration. The key to finding the right contract and fee refund options for you are to understand what your financial assets can sustain, as well as the services you anticipate will be needed.
CCRC contracts can be divided in to three general categories:
- Type A (Extensive or life care) – Generally has the highest entrance fee and ongoing monthly fees. These plans provide the most extensive coverage and predictable costs. Coverage usually consists of residential health services, assisted living and skilled nursing services at minimal or no addition fee.
- Type B (Modified/Combination) – Similar in coverage to that of Type A, however, fees are somewhat lower due to the predetermined limits of assisted living and skilled nursing coverage. Additional services beyond the plan’s coverage are charged to the resident when utilized.
- Type C (Fee for service) – Generally the lowest upfront and ongoing fixed costs and limited coverage for future services. Generally considered a “pay as you go” plan where costs are driven by the health and needs of the resident.
The one-time entrance refund options can be divided into two categories:
- Traditional declining balance (amortizing entrance fees) – The entrance fee refund declines by a predetermined monthly percentage rate usually differentiated by either one’s decision to move out or the timing of the death of the last resident. In most plans refunds typical decline to 0% refund over a 2 to 5 year periods.
- Refundable entrance fee (fixed percentage refund) – Typically, a higher entrance fee amount than the traditional declining option, though a guaranteed percentage (usually 90%, 75% or 50%) is returned to the resident or their estate regardless of the passage of time.
Each CCRC usually offers one or more of the coverage plans and refund variations mentioned, so having a baseline understanding of these general options should be helpful when comparing offerings. Finding the right financial solution will depend on your ability to afford the upfront and ongoing cost of coverage, which can be accomplished through cash flow analysis. The goal of the cash flow exercise is to maximize the healthcare coverage appropriate to your health status while minimizing your cash outlay. While there is no one correct refund or coverage option that applies to everyone’s unique situation, we have found the combination of a refundable entrance fee and a contract similar to a Type B gives most participants an optimal mix of financial flexibility and cash flow certainty. If you are considering a move to a CCRC, we recommend that you speak with your Wealth Manager to see which of the approaches best fits your long-term financial and life plan.
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