By: Melissa Barnickel at Baygroup Insurance
Between an ever-shifting investment market and a plethora of recent changes to the long-term care insurance industry, a continuing care retirement community (“CCRC”) may seem like a beneficial way to plan for your long-term care. After all, the annual median cost of an assisted living facility for 2015 in the US rang in at $43,200, while the annual median cost of private room nursing home care in the US reached $91,250. A continuing care community therefore allows you to purchase independent living housing with the promise of being able to move into an assisted living or nursing home if the need arises. Most CCRC’s even seem to ensure that by purchasing a housing unit, you will receive free or reduced cost long-term care thrown in should you need it down the line. However, you may be unaware that there are different degrees of risk involved for CCRC’s that can be passed down in varying forms. The five majors classifications of risk include:
- Type A, Full Risk– The client pays for health care benefits with the base fee upon entrance and monthly fees thereafter. The CCRC therefore assumes the long-term care risk. It is known as a “life-care” contract. While inflation and added services may be put on top of the monthly fee, the entrance fee will have already been paid and the base rate of the monthly fee will stay the same.
- Type B, Partial Risk– The CCRC takes on some of the risk but it is limited contractually. There can be discounts for higher types of care or built in time frames when a higher level of care does not result in additional fees.
- Type C, Fee for Service – There is no entrance fee for residents of the CCRC. However, they will pay a monthly fee at market rate as they need increased levels of care. In this case, the CCRC assumes no financial risk.
- Type D, Fee for Service– Residents pay an entrance fee as well as monthly fees. When residents need to be moved to a higher level of care they may pay an additional entrance fee as well as current market rates. There is no financial risk for CCRC’s.
- Equity Model Contract– The consumer buys a unit and pays monthly fees until they need long-term care and are moved to an assisted living or nursing home. At that point the CCRC then sells the unit and the resident receives the net proceeds (the sale price minus the cost of repairs, cleaning, painting, selling expense, etc.) which go into an account that the resident then accesses to pay for a higher level of care. When exhausted, then resident pays for their own long term care. However, if the unit is not sold, or, sold for less than the original purchase price, then the resident bears the financial burden for both the unit as well as the risk of the long term care cost.