Here at myLifeSite, we are able to gather lots of great insights and comments from the thousands of people who follow our blog posts and who are actively engaged in the process of researching continuing care retirement communities (CCRCs or “life plan communities”) on our website. This helps us develop content that speaks directly to the types of questions and concerns that people have related to CCRCs.
We recently heard from one of our blog followers who suggested that we do another piece on the core differences between various types of CCRC residency contracts. In this post, I’ll provide an expanded explanation of the different types of CCRC contracts, with a few additional details that are important to understand.
Types of CCRC contracts
There are basically five different types of CCRC contracts offered among communities, and variations of each:
Lifecare (Type A)- All other things being equal, a resident with a lifecare contract will pay more while living independently, either in the form of a higher entry fee or a higher monthly service fee. The trade-off is that almost all residential services, amenities, and if needed, health-related services—such as assisted living or skilled nursing care—are provided with little or no increase in monthly fees, other than inflationary adjustments or ancillary services. The benefit of a lifecare contract is that it provides better predictability of expenses over lifetime, regardless of long-term care needs in the future. On the other hand, a resident with a lifecare contract is paying more on the front end for care services that ultimately may or may not be needed.
With a lifecare CCRC contract, it’s important to understand exactly what types of services are available at no additional cost. For instance, does it include assisted living AND skilled nursing care, or only nursing care? You should also know that most lifecare contracts require the resident to pay out-of-pocket for personal care services received in their independent living residence; i.e. in-home care.
The benefit of a lifecare contract is magnified in the case of a couple. Even if both spouses ultimately require care long-term care services, they still continue paying the same monthly rate they were paying previously. In other words, there is a combined savings for the couple.
Equalized lifecare pricing- A newer version of the lifecare contract is commonly referred to in the industry as “equalized pricing.” With this type of pricing structure, when a resident makes a permanent transfer to assisted living or skilled nursing care, they do not necessarily continue to pay the same monthly rate they paid in independent living. Instead, they begin paying a pre-determined amount that is typically somewhere in the middle. For instance, the contract may say something like, “When a resident transfers to our healthcare center, they will begin paying a monthly rate equal to the then-current rate for our smallest two-bedroom apartment.” This means that a resident who was in a lower priced (typically smaller) residence would pay more for assisted living or skilled nursing care services, but someone who was in a higher priced residence (typically larger) would actually pay less. Thus the term, “equalized pricing”—all residents pay the same rate for healthcare services.
Keep in mind that in the case of a couple living in a shared independent living unit, if both people require care, they each will pay the equalized rate for care.
Modified (Type B)- Under a modified CCRC residency contract, the entry fee and/or monthly service fee will offset the cost for some amount of care needed in the future, but not on an unlimited basis. For example, the cost of skilled nursing services may be offered at a 20-30 percent discount off of the market rate. Alternatively, the contract may allow for a certain number of days in care at no additional cost, such as 60 days, before the cost then increases to the market rate. These “free” days, as they are sometimes called, may be offered on a per-year basis or over the life of the contract. In some cases, the number of days may be minimal, such as seven days. Unused days may accumulate, or they may expire each year. In the case of a couple it’s important to know how many days apply to each person.
Finally, some modified CCRC contracts may offer a combination of a discounted rate and free days.
Fee-for-Service (Type C)- All other things being equal, a fee-for-service contract will require a lower entry fee and/or monthly fee than the two previously described contract types. However, if assisted living or skilled nursing care is required, the resident’s monthly fee will increase to reflect the market rate for care.
Some fee-for-service contracts are completely à la carte, whereby, even in independent living, a resident can choose the types of services and amenities they want to pay for. More commonly though, fee-for-service means that a resident will pay the full market cost of care-related services.
Although CCRC residents with a fee-for-service contract have unlimited exposure to the potentially exorbitant costs of long-term care expenses, the trade-off is that they only pay for care that is needed.
Rental (Type D)- Rental CCRC contracts require no entry fee or perhaps a nominal “community fee” of a few thousand dollars or so. Contracts are often month-to-month, and the monthly service fee will most likely be higher than what you would pay in a comparable entry fee community. Many CCRC rental contracts do not provide residents with guaranteed or priority access to healthcare services. This means available spaces in the healthcare center may just as easily be filled with someone from outside of the community. As with a type C contract, the resident will pay the full market rate for care-related services.
Considering the fact that the monthly service fee for independent living will likely be higher than it would be at a comparable entry fee CCRC, and the fact that long-term care and healthcare services will be offered at the full market rate, a resident in a rental CCRC could conceivably pay more over their lifetime than they would in an entry-fee community, particularly in the case of a couple. This would obviously be a function of how many years they live in the community and how much care they ultimately require.
Equity/Co-Op (Type E)- Residents in equity communities often own their home or apartment, but are still required to pay a monthly service fee or “membership fee” for services and amenities, including home maintenance. Some CCRCs operate under the co-op model whereby residents purchase shares of the corporation. Under both arrangements, healthcare services are usually offered at the full market rate cost.
Under a true equity model, the resident owns their home or condo outright, and it will eventually pass on to the resident’s heirs or the estate just as any home would. One important consideration is that the monthly service fee may continue until the heirs resell the residence to another person who qualifies based on age, finances, and health.
Some equity CCRC models are not a true ownership arrangement. Rather, if a resident moves out of the community or passes away, the operator still owns and resells the residence, but the resident, or the resident’s heirs, receive some pre-determined portion of any price appreciation.
Comparing CCRC contract types
When comparing the cost of various types of CCRC contracts, I should reiterate that the above explanations best apply where all other things are equal. A lifecare contract in a rural part of the country may still be considerably less costly than a fee-for-service contract in San Francisco, for example. Or, suppose one community is newer and has much nicer amenities than another. This would impact the cost, too.
Also keep in mind that the amount of the entry fee can be impacted by whether it is refundable or not. For example, the entry fee for a fee-for-service contract that is 90 percent refundable may be higher than a lifecare contract with a traditional, non-refundable contract.
Making an educated CCRC decision
Unless you are an attorney trained to understand complex contract language, it can feel intimidating and overwhelming to try to compare various CCRC contracts. That’s why it is so important to do your homework and ask as many questions as you can to learn about the different types of contracts offered by the communities you are considering. You want to be sure you understand how each will impact your care and your finances in the future.