How to pay for Continuing Care Retirement Communities (CCRCs)
Pay Now or Pay Later
There are close to 2,000 communities across the United States that offer housing and health services designed for seniors who want to age in place. “The ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level” is how the Centers for Disease Control and Prevention defines “aging in place,” and life plan communities (an alternative name for CCRCs) play an important role in preserving the independence and self-esteem of older adults. CCRCs and life plan communities can design their amenities and buildings to better fit the needs of aging adults than a typical neighborhood or urban area. These specially designed communities typically have wider sidewalks, more gradual curb cuts, and doorways & bathrooms outfitted with accessibility features to more easily allow for mobility aids like walkers and wheelchairs. In addition to the physical improvements, these communities offer healthcare and personal services. The features & services are designed to support active adults as well as those with disabilities or medical conditions, but they do not come cheap.
To pay for the cost of all these features and services most communities enter into contracts with their residents. Generally speaking, these service plans can be categorized like this:
- Type A, also called “Life Care”
- Type B, also called “Modified Fee-for-Service”
- Type C, also called “Fee-for-Service”
Categorizing contracts into these three types helps older adults and families compare one community against another (comparing the same contract) and even compare different contract types at the same community.
Digging into the Details
When working with retirees evaluating a CCRC, we often see communities rely on financial modeling and actuarial analysis to price the cost of care. These models are designed to project all the costs the community and resident might incur over their life and can be very similar from community to community if the same model inputs are used. Though the costs can be “actuarially equivalent,” choosing how to pay for the costs is an important individual decision and that is where Type A, B, and C come in.
Type A Life Care contracts have the highest required entry fees, with the average initial payment around $400,000. Though some communities offer lower non-refundable entry fees, we often see clients sell their primary residence in order to pay the entry fee. The Life Care communities will also collect a monthly service fee; typically the Life Care communities can offer stable and relatively lower monthly service fees at all stages of life because the high entry fee helps subsidize the future cost of care. Residents at Life Care communities can expect increases in the monthly cost of care related to inflation; there are fewer surcharges for memory or enhanced care. Type A contracts with double occupancy can be especially beneficial to couples looking to age in place. Couples with Life Care contracts can budget for the cost of care without paying twice as much if both individuals in the couple need healthcare services.
On the other side of the spectrum are Type C contracts, also called Fee-for-Service contracts. The CCRCs that offer Type C contracts typically charge little to no entry fee but will charge substantial surcharges based on the level of care needed at any given time. These can be harder to budget for, as the cost of care can change substantially if there is a change in health condition. Couples can expect to pay surcharges per person, which could easily result in higher monthly expenses for a couple under Type C than a Type A contract.
In between Type A and Type C is the Modified Fee-for-Service contract or Type B. These contracts typically require a meaningful entry fee to be paid, but fewer healthcare services are pre-paid or subsidized like they are in Type A contracts. The result is that residents under a Type B contract have access to most of the same services as with Type A but at an additional cost per service. Compared to residents under Type C who pay the full market cost of care, residents under Type B will pay a discounted rate or be provided a set number of days of care per year and pay market rates after those limited days are used. This Type B option can be more attractive to single adults, as it has a smaller upfront payment, and the surcharges for healthcare can be more manageable.
The categorization into Type A, B, and C contracts is just a start. It is important to recognize that there can still be many other differences between communities or contract types. For example, not all levels of care are offered at all communities. Understanding which services, like dementia/memory care, are offered or excluded are vital to an age-in-place long-term care plan. Entering into a contract with a life plan community or CCRC is an important decision that you might only face once in your life, and partnering with a fiduciary who can share the experience of other clients is one way you can help yourself make the best choice. Our team at Cardinal Retirement Planning, Inc., has multiple advisors Certified in Long-Term Care with experience helping clients transition into the next chapter of their lives.
Doug “Buddy” Amis, CFP®, CLTC®
