Financial Considerations of Continuing Care Retirement Communities (CCRCs)
CCRCs are an all-in-one solution to aging in place for people over 60. Residents start out living independently in their own apartments, duplexes, or single-family homes in the community. As health needs evolve, CCRCs offer a seamless transition to assisted living, memory care, or skilled nursing facilities within the same community. Please visit my earlier post about Understanding CCRCs for all about how CCRCs work and their benefits, etc.
This post takes a deeper dive into the financial considerations for CCRCs.
Different types of contracts
There are many different types of CCRCs contracts. Here are the most common:
- Type A (Life Care Agreements) – Larger entry fees compared to other contract types. Includes housing, amenities, and a “pre-payment” for unlimited health-related services. Generally, a flat monthly fee throughout all levels of care. These provide a sense of security because future costs are predictable. The CCRC absorbs any cost of care risk.
- Type B (Modified Agreements) – Lower entry fees than Type A. Includes housing and amenities and a “pre-pay” for some amount of care. Offers discounted rates for future health care needs. Shared cost of care risk.
- Type C (Fee for Service Agreements) – Lowest entry fee. Includes housing, amenities, and health care. Pay as you go, like a cafeteria model. There are additional costs for higher levels of care at the full market rate. You save upfront costs but have the risk of potentially large costs of care down the road.
- Rental – No upfront fee. A lease is signed for a specific length of time and the monthly payment can be higher than other types. There is no included contractual commitment to provide care and possibly fewer services/amenities.
- Equity/Co-Op – Purchase real estate or ownership into a co-op instead of an entry fee. Monthly fee is required and residents get more say in day-to-day operations. Some fee-for service.
Return of entry fee contracts
Entry fees can be fully or partially refundable or not refundable at all. The trade-off between a CCRC entry fee refund and a traditional, declining balance refund is that the entry fee for the fully refundable contract will be higher.
Be sure you understand the stipulations for receiving a refund. Does the unit have to be re-occupied before the refund? Do monthly fees continue during that time?
Medical Expense Deduction
According to IRS Publication 502, Qualifying medical expenses exceeding 7.5% of your AGI, may be deducted if you itemize your tax return. This is true for anyone, whether you live in a retirement community like a CCRC or not.
Some CCRC contracts say that a portion of your entry fee and monthly fee may be applied toward future medical expenses. Essentially, this portion is considered a prepaid medical expense and thus may be included as part of your annual medical expenses.
The CCRC will send out an annual letter to inform residents what percent of their monthly fees are considered medical expenses, and you share that with your tax preparer.
Using your Long-Term Care Insurance
You can generally use your LTC Insurance policy, regardless of the type of CCRC contract, if you qualify under the policy’s definitions.
Filing a claim is typically triggered by the inability to perform 2-3 activities of daily living (ADLs) without the assistance of another person, as outlined by the policy. ADLs are activities related to personal care (bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating).
You will want to confirm what type of residential settings are covered under your LTC policy, such as your home, assisted living community, nursing center, etc. What setting is satisfied if you are in a CCRC? What limitations does your policy have? For example, if you are living in a CCRC independent cottage and hire your own in-home caregiver a few hours a week, would this qualify as in-home care?
Some CCRCs will help with paperwork. Insurance premiums usually stop when on claim.
Questions To Ask
- Do you understand the full cost? This will depend on each community and contract.
- Is there an entry fee? Is this refundable if you move out and under what conditions?
- What are the monthly fees? What services are included and excluded?
- By how much have the monthly fees increased over each of the last 5 years?
- What is the financial position of the community? Request financial statements of each community you are considering.
- What type of healthcare and medical care services are available? How will monthly costs change if you require care?
- What happens if a resident can no longer cover their monthly fee?
- How much of my buy-in or monthly fee can be counted as a medical expense for tax purposes?
Where to find unbiased information
CCRCs are regulated at the state level and are required to provide annual disclosure statements which include an in-depth description of all aspects of the community, audited financial statements and sample residency contracts. Disclosure statements can be obtained directly from the community or from the state. Some states offer meaningful information on the communities located within their state.
For more information about this topic, review our prior posts
Understanding Continuing Care Retirement Communities (CCRCs)
