CCRC Contracts: Which is the Best Choice?

Published In Alternative Senior Housing

March 30th, 2017

My neighbor, thinking about retirement and downsizing, told me that he was pretty impressed by the idea of a continuing care retirement community (CCRC). He saw it as a way not just to downsize, to make his life simpler, and to be around contemporaries, but also to move somewhere that could attend to increasing needs as he aged and became less independent.

As he understood it, most CCRCs offered four types of contracts, and some even had a fifth. Basically, a CCRC contract is an agreement between my neighbor and the facility concerning the levels of care and the menu of services that the facility would provide when he decided that a CCRC was right for him. It also had to do with the ability to move to a different care level within the CCRC community to get additional services should the need arise. Fortunately, he was able to get copies of the forms of contracts and over the weekend looked them over.

By Monday, he still generally liked the idea of a CCRC but was confused by a few issues. The first was the down payment, or as the CCRC called it, the “entrance fee.” The amount of the entrance fee varied according to the type of contract chosen. Also confusing to my friend was how CCRC entrance fee refund policies differed at the several facilities. There was also the issue that if he selected a contract that promised fewer services, he needed a strategy to get and to pay for the additional services that he might ultimately need.

Since all of these considerations, and others, weighed heavily on his final decision, he asked his lawyer, accountant, and his son to help to figure it all out. The lawyer could interpret the contracts (with a lawyer’s typically jaundiced eye), the accountant could be financially objective, while his son could look out for long-term well-being issues from a family standpoint. Between all of them, hopefully, they would know the right points to cover with the CCRC representatives.

Type A Contract

The Type A Contract is sometimes called the Exclusive or Lifecare contract and is the most expensive and comprehensive type. It includes residential services (like an apartment), assisted living, skilled nursing care if and when required, use of everything on the campus, and healthcare needs. The healthcare services even include memory care for the rest of my neighbor’s life if they were needed. Although Type A contracts are costly, if he can afford one, it may be a good deal for my neighbor because of the increasing cost of geriatric medical care, especially memory care related to Alzheimer’s.

Since his father got Alzheimer’s late in life, he was a little concerned with getting it too, so this benefit factors into his decision. Alzheimers is so prevalent as a chronic condition of the elderly that in 2016, the Center for Medicare and Medicaid Services (CMS) finalized a rule improving how Medicare pays medical providers for providing certain categories of services, including mental health services, and for cognitive impairments such as Alzheimers. According to the Alzheimers Association, more than 5 million Americans now have Alzheimers disease. Yet, even the new reimbursement rate may not be enough if my neighbor lives an otherwise long life and needs ongoing memory and related care. If the cost of monthly care (medical and/or memory care) is more than the monthly care fee paid to the CCRC, the burden of paying it shifts to the CCRC, and my neighbor won’t be deprived of the necessary care.That’s why a CCRC is considered to be a risk-bearing entity in nearly all states and is regulated similarly to an insurance company (if it is regulated in your state).

Also, if and when he moves from independent living to assisted living or skilled nursing, the monthly service fee remains the same except for the costs of additional meals and any special supplies needed for the additional care. Type A contracts almost always require an entrance fee deposit which is used to help fund the prepaid health benefit, but if he can afford it, it gives a lot of predictability.

The Type B Contract

The Type B contract is called a Modified Fee for Service It provides about the same services as a Type A contract, such as living accommodations, dining opportunities, access to campus amenities, transportation as needed, and medical services.

The biggest difference between the Type B and a Type A contracts is that although assisted living and skilled care are available, they may not be fully covered by the monthly fee because they are time-limited in Type B contracts. Therefore, there could be excess charges that are not covered if the need for the services lasts longer than the contract provides. Often, though, the excess is billed at a lower-than-market rate which can make up for some of the difference.

Another difference between the Type B and the Type A contracts is that often, both the entrance fee and monthly fees are lower with Type B contracts. I don’t know how much cash my neighbor has, but if it is limited or if he wants to use it in other ways, a Type B contract might make sense. Medicare and a Medicare Supplement policy might make up some of the difference in the cost of medical care not provided by the CCRC and at a lower cost. Nonetheless, if his goal is all-inclusive care and living, this presents somewhat of a risk because a Type B contract is not inclusive of all health care costs that he might incur. Fortunately, my neighbor consulted with his accountant before reaching any final decision, who referred him to an article in the professional journal of the American Institute of Certified Public Accountants.

Type C Contract

There is also a Type C contract, called a Fee for Service Contract. It offers access to some or all of the facilities of the CCRC plus an even lower entry fee. The trade-off is that if assisted living or skilled care becomes necessary, the monthly fee will increase to cover the market cost of the additional care. This might be appropriate for my neighbor if he does not have a lot of cash for the entrance fee, but has a stream of income, say, from a pension or an annuity that is ample to cover a potentially high monthly fee. Unlike Type A and Type B contracts, there is no risk-shifting to cover the cost of care. Instead, my neighbor would pay for care as he went along, just as though he did not live in a CCRC.

Type D Contract

Some CCRCs offer rental agreements that are sometimes called Type D. They are intended primarily for independent seniors who want services available on an as-needed basis. Rent is paid, often month-to-month, and any other services are billed at market rate as they are rendered. In that sense, Type D contracts are little more than rentals with the in-house availability of support services and typically don’t involve entrance fees because there is no risk-bearing element to them.

Type E Contract

Instead of an entrance fee, some CCRCs let a resident buy his or her own home, condo, or co-op. If my neighbor was interested in this, he would have to pay a monthly service fee or homeowners association dues as well as property taxes. Sometimes, and depending on the community, he would have to commit to a minimum monthly expenditure on meals at a country club-like dining room. In return, he would either receive medical services on a fee-for-service basis at market rate or at a slight discount, or buy them through a separate Type B or Type C contract. Other CCRCs offering this arrangement require the maintenance of a supplementary insurance policy. Where offered, this type of arrangement may be called an “equity/co-op” or Type E Contract .

As you can tell, the complexity of deciding if a Continuing Care Retirement Community is right for you is enormous. It is rather like deciding on the only place that you will live for the rest of your life, where most of your future health care will be given, and maybe, negotiating the biggest business deal of your life, all in one transaction.

It may seem overwhelming to do this all by yourself and you shouldn’t. You need legal, financial and family help to make the decision.

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