In the past 10-15 years, the senior housing industry has introduced several new concepts and terms that are easily confused. For example, many people believe, that life care and continuing care communities are the same, and they use these terms interchangeably. However, life care is actually a subset of continuing care. While the offerings may look similar at a glance, they are not.
CCRC’s as well as Lifecare Communities offer a continuum of care to include, independent living, assisted living, dementia care and skilled nursing. Residents commonly pay an entry or buy-in fee to join the community with monthly maintenance fees thereafter. These entrance fees may be sizable and vary considerably depending on the size and location of residences, whether for single individuals or married couples, and if renting or owning living space. Furthermore, the type of additional services and amenities, and the level of financial risk for needing long-term care are determining factors in overall costs. The services of a financial planner and/or attorney will help determine which plan is best for you.
Although all CCRCs offer a continuum of care, some rely on contracts with other care providers to administer the higher levels of care, which may be located off campus. This means that residents who move in at the independent or assisted living levels would have access to higher levels care as their needs progress, but they may need to move off campus to access those services.
Life care communities provide the same continuum of care to a resident for life, but the biggest difference is this: residents who become financially unable to pay their monthly care fees will be subsidized by the community, with the same access to services, and with no interruption in care or change in priority status. In other words, residents are guaranteed the same quality of care and access to care from day one through end-of-life, regardless of their personal financial situation. Most if not all Life Care, communities are non-profit companies that have religious or university based affiliations.
There are three types of continuing care contracts: life care, continuing care and fee for service.
Each contract involves a different degree of risk to the resident and the community. The highest level of risk is assumed by communities with a Type a contract and the lowest with Type C. The opposite is true for residents, where Type A is the lowest risk and Type C is the highest. Each contract has different fee structures, which correspond to the levels of risk assumed by either party. Some continuing care communities offer only one type of contract, so contact the community you’re interested in to see which one(s) it offers. The following is an overview of how each contract operates:
Type A contract: provides housing, services and amenities, and unlimited access to long-term nursing care at little or no additional cost, apart from yearly cost of living increases. The higher entrance fee or buy in fee is based on the assumption that these residents may require—and utilize—higher levels of care as their needs develop over time. This can add up to substantial savings over a resident’s lifetime, considering that Medicare does not cover custodial nursing care, which currently averages $8500 nationwide, for a private room in a nursing home. In addition, the prepayment of future health care costs qualifies these residents for significant tax benefits (the IRS medical deduction). Residents must maintain a minimum level of Medicare coinsurance. This is the most expensive contract but may prove to be the most cost-effective later should skilled care be needed.
A good candidate for this type of senior housing is the person who has the financial means to cover the entrance fee and who wants to ensure that all of their health care needs will be included for the remainder of their lifetime. For many elderly this is also a way to preserve a financial legacy.
Type B: Continuing Care Contract
Type B contract: also provides housing, services and amenities, but access to long-term health care and nursing services is restricted to a specified number of days. After that, the resident is responsible for any additional care costs incurred. Some contracts allow residents to pay for the additional care at a discounted rate once they have utilized the care included in their contract. Just as with a Type A contract, residents are eligible for the IRS medical deduction.
This option may be the better way to go for the older person that is not suffering with chronic illness and does not expect their health care needs to increase significantly over time.
Type C: Fee-For-Service Contract
Type C contract: access to higher levels of care is guaranteed but residents must pay the full cost of the services they use. Some communities do not charge an entrance fee for Type C contracts, instead charging only a monthly fee. However, other communities do charge an entrance fee; with the funds, subsidizing a resident’s assisted living or skilled nursing care. If the cost of care exceeds the funds obtained from the entrance fee, then the resident is charged for the full cost of any services utilized. This can happen if a resident requires extended skilled nursing care. For those who require higher levels of health care later on, the cost can be extremely high. Residents do not qualify for the IRS medical deduction under the type of contract.
Good candidates for this type of contract are people willing to assume to the full risk of health care costs.
Most contracts require payment of an entrance fee and monthly fees. Some contracts include the purchase of real estate (i.e., the resident’s apartment within the community), which can be willed or deeded to an heir just like any other real estate purchase. However, not all contracts involve the purchase of real estate. Under these terms, the seniors would become residents of the community, but would not own any real estate under the contract. Buy-in or entrance fees can range from $50,000–500,000+.
CCRC’s offer the most comprehensive level of senior housing…but only for those can afford it!
Comments
Very interesting article. Thank you for such useful information. :)
Thanks for the information. I can see why a financial planner or other qualified professional would be needed to help weigh cost vs. benefits.
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