I recently had the opportunity to be a part of a panel of professionals who serve individuals and families to discuss the planning considerations of moving into a retirement living community. The webinar was sponsored by Eastmont in Lincoln, NE, which is considered a continuing care retirement community (CCRC) or life plan community. A replay of the webinar can be found here.
Prior to the webinar, I happened to talk to a financial planner who has a firm of eight planners who serve as an outsourced financial planning department for investment firms. When we started discussing long-term care planning, I mentioned CCRCs as an option for managing a client’s long-term care needs in retirement. Interestingly, she had not heard of CCRCs. This is a clearly intelligent and capable person whose entire focus is around financial planning and long-term care planning is a key part of financial planning. It became clear to me that more people need to be educated about CCRCs as an option to manage future long-term care expenses.
By way of background, there are several different names used to describe a retirement living community, and often there is confusion between the different names and services. Accordingly, here is a general summary of the names used and what they mean:
- Independent Living – typically an apartment with a more robust “on premises” set of services. This apartment often is designed to accommodate things retirees typically want, like single-level living, bathrooms more structured for those with mobility issues, etc. There are often workout facilities, social gatherings, chapels, and other community amenities all geared toward the typical retiree. There may or may not be medical services on site.
- Assisted Living – independent living, with a few medical and nursing care options. Here are some common additional assisted living services:
- Meal preparation
- Cleaning
- Remembering and administering medications
- Bathing and grooming
- Making and keeping doctor’s appointments
- Memory Care – a distinct form of long-term skilled nursing that specifically caters to patients with Alzheimer’s disease, dementia and other types of memory problems. Also called special care units (SCUs), memory care units usually provide 24-hour supervised care within a separate wing or floor of a residential facility. For purposes of this discussion, it will fit under the “skilled nursing” label.
- Nursing Home/Skilled Nursing – a place where one can get rehabilitation or medical treatment on a regular or ongoing basis. Such facilities provide the medically necessary services of nurses, physical and occupational therapists, speech pathologists, and audiologists. Skilled nursing facilities provide round-the-clock assistance with healthcare and activities of daily living (ADLs).
On average, an older resident in the United States might live in an independent living facility for 10-12 years, an assisted living facility for 1-2 years, and a skilled nursing facility for 1-2 years.* Many facilities only offer one or two of the levels of service above. In such a case, if the resident’s needs are different than the services provided at the facility, that individual would need to re-qualify at a different facility that provides the needed service. The process of moving facilities can be stressful for the resident and the family or those responsible for assisting in the process. There are often waiting lists and trying to sort through the pros & cons, costs, reputation, etc. of all the different facilities is difficult, especially when there are many emotions at play and often time constraints.
Alternatively, there are facilities such as Eastmont, called continuing care retirement communities (CCRC) or life plan communities. There are around 2,000 CCRCs in the US. These CCRCs offer continuing levels of care for the changing healthcare needs of their residents. For example, one may start out not needing much care initially, but as one ages, he or she find the need for a little more care for a period of time and then substantial skilled nursing care eventually. In this situation, that individual could stay at the CCRC facility for all those needs. There is often an up-front entrance fee for the life care plan, plus a monthly fee. When a resident moves from independent to assisted or skilled nursing care, the monthly fee often increases, but there are many variations of how the costs are structured. The commonality among almost all CCRC pricing is the resident knows the cost structure and the CCRC is taking on some of the risk of the increasing cost of care as the resident’s medical needs increase.
At Flagstone, we don’t have strong feelings one way or another as to how people account for the possible cost of long-term care needs. We are fee-only advisors so we only get compensated for our advice and not for insurance sales, by any retirement living facility or in any other way other than fees paid direct to us from our clients. However, we do suggest our clients make an educated decision regarding all the long-term care funding options for their unique situation. Here is a summary of the options we tend to discuss with clients on this topic:
- Traditional long-term care insurance
- Life insurance with long-term care riders
- CCRC/Life plan contracts
- Self-insuring (enough assets to cover the costs)
- Spend down assets and receive Medicaid assistance
This is a discussion on CCRCs so you may be wondering what the pros and cons are of life care options over some of the other alternatives. Since life care is most like insurance, here are the pros and cons relative to insurance:
Pros:
- Less strict underwriting criteria – insurance companies have increasingly become stricter and deny more people than they used to due to faulty underwriting and financial outcomes for the insurance companies historically. They also have much more data and specialty in underwriting. CCRCs do underwrite potential life care residents based on health and financial resources, but the qualifications are generally less restrictive.
- Pre-arranged costs – often good for a person who wants to understand their long-term care costs before they happen but has not purchased long-term care insurance and he or she are ready to move into a facility. This is usually best for a client who is in their 70s or 80s. At that age, it is hard to qualify for long-term care insurance, but a life care plan is still a viable option.
- Continuum of care – staying at one facility is good for the resident needing assistance and very good in a situation where spouses want to be close to each other, but they have different care needs. It is often less stressful for the resident and his or her family to make the transition to different levels of care.
Cons:
- The life care plan is backed by the CCRC so you must be comfortable with the financial strength of the CCRC because if the facility/business fails, the life care investment could be worthless and one would have to start all over.
- Some CCRCs outsource their skilled nursing care services so it isn’t truly a continuum of care in that respective facility. Often one has to re-qualify financially in the new “outsourced” skilled nursing care facility.
- You lose some flexibility to move facilities if you aren’t pleased with the CCRC. Sometimes the CCRC will offer a refund or provide some financial flexibility, but that is not always the case. If you are relying on long-term care insurance and paying month to month, switching facilities is financially more manageable.
In sum, we tend to see the life care option as being best for people who haven’t purchased long-term care insurance yet and are ready to move into a retirement community (CCRCs will work with a long-term care policy so those aren’t mutually exclusive), have a desire to fix or insure their future health care costs, have enough assets that they don’t want to “spend down” assets and rely on Medicaid, aren’t comfortable with the risk of “self-insuring” and they have identified a financially stable CCRC with a true continuum of care that they feel comfortable staying with for the duration of their retirement.
If you have questions about long-term health care costs and want to make an educated decision about what makes sense in your situation, or you want help thinking through other financial planning and investment related questions, please let us know. We love solving problems and working with clients to make the complex simple.
*Zebolsky, Gregory (28 July 2014). “An introduction to continuing care retirement communities”. us.milliman.com.
Disclosure: Michael Johnson serves on the Trustee’s Counsel for Eastmont. This is an advisory position only with no governing authority and is a non-paid volunteer position. He received no compensation for this post and is simply using his experience to help spread the word about CCRCs in general and as a planning tool.
