Risks and Rewards of Moving to a CCRC

Prospective residents of continuing-care retirement communities need to do their homework before signing a contract.

EDITOR'S NOTE: This article was originally published in the November 2012 issue of Kiplinger's Retirement Report. To subscribe, click here.

Imagine hunting for a new home, making high-stakes health care decisions and negotiating a complex business deal—all at the same time. That's the challenge facing seniors considering a move to a continuing-care retirement community.

These communities, known as CCRCs, typically offer independent-living units as well as assisted-living and skilled-nursing facilities, allowing them to serve everyone from active newcomers to older residents requiring round-the-clock care. Seniors move in expecting to enjoy amenities such as libraries, golf courses and posh dining rooms while they're healthy and to receive excellent skilled-nursing care if they fall ill.

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When all the pieces fall into place, that's exactly what happens. But finding a CCRC that fits your vision of a financially secure retirement may require some hard-nosed negotiation with the facility's management and detailed analysis of the development's finances. You'll need to assess your ability to pay monthly fees that may rise faster than inflation. And with the typical CCRC charging six-figure entrance fees, you'll need to understand the size of any refund that you or your heirs may receive if you decide to move or when you die.

The search for the ideal retirement community is only getting tougher as CCRCs offer a growing array of complex contract types and struggle with financial challenges. Amid the housing downturn, many CCRCs saw occupancy rates drop because prospective residents had trouble selling their homes. Erickson Retirement Communities, a major developer, managed 20 CCRCs in various stages of development at the time it filed for bankruptcy in late 2009. CCRC bankruptcies have continued this year.Another reason prospective CCRC residents need to do their homework: Oversight is spotty. Some states don't have specific CCRC regulations, and those that do tend to focus more on the community's financial condition and less on consumer protection. Compared with heavily regulated nursing homes, CCRCs are "a little like the Wild West," says Rebecca Benson, an elder law attorney at Margolis & Bloom, in Boston.

Decoding the Contract and the CCRC's Finances

Traditionally, CCRCs offered "life care" or type A contracts, which typically involve high entrance fees but limit future cost increases for long-term-care services. By prepaying for long-term care, residents are limiting their risks if care costs skyrocket.While these contracts are still common, many CCRCs also offer other options. These include "modified" or type B contracts, which typically have lower entrance fees but include only a limited amount of assisted living and nursing care in the initial fee. This contract potentially requires residents to shoulder higher fees as their care needs increase. Fee-for-service or type C contracts may have lower entrance fees than type A or B contracts but require residents to pay for care at the market rate when they need services.

The choice of contract can depend on the senior's ability to absorb future cost increases, health status and risk tolerance. With a type A contract, "if you prepay all that medical care and die within the first few years in the community, you would have been better off with fee-for-service," says James Ciprich, wealth manager at RegentAtlantic Capital, in Morristown, N.J.No matter what type of contract you're considering, ask for a breakdown of all fees and a history of past fee increases—and understand what you're getting for those fees. An entrance fee is a one-time, upfront charge that usually doesn't buy you ownership interest in a CCRC apartment. Instead, it allows you to occupy the unit and typically guarantees you access to long-term care at the facility. Monthly fees, meanwhile, may cover meals, housekeeping, maintenance and activities, along with some or all health care services.

Sharp increases in monthly fees are a common concern among CCRC residents. Ruth Holland Walsh, president of the National Continuing Care Residents Association, says she has seen her own monthly fees climb nearly 60% since she first moved to a Mystic, Conn., CCRC in 2005. A retired educator, Walsh lives on a pension and a small Social Security benefit, and "those monthly service fees have gone up to the point where I think, holy smoke, will I be able to continue to do this?" she says.

Plan on monthly fees increasing at least 4% to 6% annually while you're in the independent-living unit—and potentially steeper increases for assisted-living or skilled-nursing stays. Many CCRCs also say they have a "benevolent fund" to assist residents who run out of money. The question is: "For how long and in what circumstances?" says Doris Hawks, an elder law attorney in Los Altos, Cal. The details should be spelled out in the contract. Check recent annual reports for details on the benevolent fund. Given the growing needs of an aging community, these funds can run dry.

Also review CCRC agreements for provisions governing discharge from the facility. Facilities may attempt to discharge residents if they run out of money or develop above-average care needs, says Eric Carlson, directing attorney at the National Senior Citizens Law Center. Check for specific circumstances that might justify the facility forcing out a resident, Carlson says. "Look out for fuzzy language," he says, such as involuntary discharges being allowed for "good cause."With CCRCs eager to fill empty units, there is often room to negotiate fees and other contract provisions. For example, you might negotiate to pay half of the entrance fee now and half in a year. Another bargaining chip is a refund of entrance fees, which may be paid to you if you move out or to your estate if you die. Contracts can include such provisions as promising to refund a set percentage of the entrance fee or saying the refundable portion will decline over a certain number of years.

The refund is often contingent on your unit being occupied by a new resident—which may mean long refund delays when the housing market is in the doldrums. If you're confident in your choice of CCRC and refundability is not that important to you, you might negotiate to waive your right to a refund after a short period in exchange for a lower entrance fee.Besides reviewing the contract provisions, prospective residents should examine the facility's financial strength. Even the ritziest CCRCs can have financial problems. The Web site for Devonshire at PGA National, a CCRC in Palm Beach Gardens, Fla., touts its "superb health and racquet club" and "spectacular 40,000 square-foot international spa." Partially refundable entrance fees can stretch into the seven figures, and monthly fees can top $5,100, according to the site.

But Devonshire in recent months was hit with a $158 million foreclosure suit. A September letter to residents from Craig Anderson, chief executive officer of Devonshire owner SHP Senior Living Services in Tampa, noted that ownership of the facility may change hands but claimed that residents' services "have not changed and will not change."

"It's really going to be business as usual until that foreclosure process runs its full course," which could take a couple of years, Anderson said in an interview. New residents' entrance fees are now being held in escrow by the state of Florida, he said. That's particularly important given that Devonshire's plan options promise entrance-fee refunds of up to 90%.

If a CCRC is forced into bankruptcy, residents may be considered unsecured creditors and could lose any refundable entrance fees. Or the facility may be bought out of bankruptcy by a new owner, resulting in service changes and other upheaval for residents.

Ask the CCRC for its audited financial statements, and seek help in evaluating them from a financial adviser. Some red flags: expenses that are greater than operating income, or liabilities that exceed assets. CARF International, which provides accreditation to CCRCs, has a consumer guide to understanding CCRC finances at www.carf.org.

The facility's occupancy rate is another key measure of its viability. Occupancy below 85% "can be a cause for concern, unless it's in a newer community that's filling up," says Stephen Maag, director of residential communities at LeadingAge, an association of nonprofit senior care providers. Some Erickson CCRCs, for example, had occupancy rates between 60% and 70% at the time of the company's bankruptcy filing, according to court documents. Baltimore, Md.–based Erickson, which is now called Erickson Living, emerged from bankruptcy with a new owner in 2010.

Prospective residents should examine the CCRC's ownership structure, since problems at a parent company can mean problems for residents. In a 2010 review of CCRCs, the U.S. Senate Aging Committee found that parent organizations are "represented by a complex organizational maze" of for-profit and nonprofit entities.

Some residents of both for-profit and nonprofit CCRCs are concerned about how the organization uses residents' fees, says Katherine Pearson, a law professor at Penn State's Dickinson School of Law who studies CCRCs. A parent organization may control how money is used across its operations, leaving CCRC residents wondering if their fees are really going toward services at their own facility. If the CCRC has a large parent company, speak with management and residents, and check out its annual report for details on its activities and future plans.Concerns about how funds are used across a broad organization are at the center of an ongoing dispute between residents of Rogue Valley Manor in Medford, Ore., and Pacific Retirement Services (PRS), the company that controls the CCRC. Rogue Valley's board in August filed a lawsuit seeking independence from PRS, claiming that PRS was charging excessive management fees and favoring other affiliates and properties over Rogue Valley, among other issues. After PRS removed seven of the nine Rogue Valley board members, that legal challenge fizzled. Now, residents have organized a steering committee and raised roughly $250,000 to work with their own lawyer, says Don Lewis, 84, vice-president of the Rogue Valley residents' council. Residents want more control over Rogue Valley's future, he says. What's more, "I would like to see an accounting" of how fees are used, says Lewis, who has lived at the CCRC since 2005.

The management fee that Rogue Valley pays PRS is "well within industry standards," says Mike Morris, PRS chief operating officer and Rogue Valley's interim executive director. Rogue Valley "has seen all sorts of success as a result of its relationship with PRS," he says.

Health Care and Lifestyle Considerations

The fact that CCRCs offer multiple levels of care within a single community is a key selling point. But transitions between those levels of care can be a major source of tension between residents and providers.Residents may feel pressured to move from one level of care to another, such as when a facility says it cannot deliver the required care in an independent-living unit, lawyers say. That may mean leaving a longtime home in the independent-living unit and being separated from a spouse—resulting in higher fees for a couple occupying two units. Some CCRCs have an appeals process for residents who are transferred involuntarily.

Before signing a contract, ask about the process for transferring to the next level of care. Prospective residents can push to have their own physician involved in the decision, says Henry Carpenter, an elder law attorney in Yardley, Pa. Also ask about the rules on hiring your own care providers, in addition to those offered by the CCRC. Many CCRCs mandate that residents who need more than a set number of hours of care per day transfer to assisted living, says Susan Ann Silverstein, senior attorney at AARP Foundation Litigation.Another key question: Will an assisted-living or skilled-nursing bed be available when you need it? CCRCs are often built in phases, starting with independent-living units for the healthy new residents. In some cases, residents need skilled-nursing facilities that aren't even built yet. In other cases, CCRCs will admit people from outside the community to the nursing facility. Ask about the process for moving to a nearby facility if the nursing facility fills up and how any extra cost would be covered.

To get a sense of what life is really like at a CCRC, make several unannounced visits and have a few random meals there. You may find a lively, collegial community—or something that more resembles your worst memories of grade-school bullying.Benson, the Boston lawyer, recently worked with a CCRC resident suffering from Parkinson's disease. The facility tried to stop him from having lunch with his wife, saying that because of his physical impairments, "it made people uncomfortable to have him in the nice dining room," Benson says. After Benson cited laws such as the Americans with Disabilities Act, which prohibits discrimination based on disability, the facility backed down. But such discrimination, whether prompted by fellow residents' complaints or a facility's desire to project a vibrant image, is an ongoing issue for CCRC residents, lawyers say.

Talk to current residents about their activities and their relationships with each other as well as with management and staff. While many CCRC residents say they've noticed an uptick in the age of incoming residents, that may or may not say anything about the community's activities. Richard Waite of Brandywine, Pa., an 88-year-old former insurance company executive, has lived in a CCRC for about 12 years and says, "I'm busier here right now than I was when I was working for the corporation."

In addition to his regular bridge and poker games, Waite serves on the resident advisory council and finance committee. His negotiations with management on behalf of residents have dealt with everything from a refurbishing charge for fixing up vacant units to the amount of credits residents receive for unused meals on their meal plan, he says. "I've been a very strong advocate of residents' rights," he says. "The corporation has asked me at times to cool it a bit."

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Eleanor Laise
Senior Editor, Kiplinger's Retirement Report
Laise covers retirement issues ranging from income investing and pension plans to long-term care and estate planning. She joined Kiplinger in 2011 from the Wall Street Journal, where as a staff reporter she covered mutual funds, retirement plans and other personal finance topics. Laise was previously a senior writer at SmartMoney magazine. She started her journalism career at Bloomberg Personal Finance magazine and holds a BA in English from Columbia University.