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Financial Considerations | Life Plan Living | CCRC | life plan communities

Financial Considerations

Most CCRCs have the following pricing structure: 1. Rental 2. Life Care, Type A, B or C (Fee for Service), and 3. Equity.

Rental: A Rental community may or may not have higher levels of care on campus. Some have none; others have assisted living only; and still others have the entire continuum, but are simply not designated from a licensure standpoint as a CCRC. Rentals usually require a relatively small “community fee”, as their only upfront cost, but “make the numbers work” by passing on higher monthly fees to the resident. The pro of a rental community is similar to that of a Type C CCRC- if you never need the care, you never pay for it. The con is also similar-if you do, it can be expensive. In addition, rental communities tend to be more transient or changing than other CCRCs, with residents coming and going more easily over time. This can be a negative in the sense that the resident’s community can be ever-shifting. It can be a pro from the standpoint of the resident’s own flexibility to move out of the community, or change their minds about residences and needs, with ease.

Life Care Communities: Life Care CCRCs offer an entrance fee model that acts as an insurance product, or “prepaid long-term care” to secure access to, and sometimes the cost of, on campus assisted living or nursing care if needed. Within life care communities, several agreement types allow you to tailor your investment to your needs and goals.

Type A (known as a Life Care insurance product):

Similar to all three types of contracts, Type A agreements are long-term care insurance products, regulated by the Department of Insurance in most states. They are designated to not only guarantee you access to the community’s assisted living, skilled nursing, and /or memory care centers, but to keep your monthly costs at the independent living level as you move through the continuum. Type A agreements usually require higher entrance fees and a more rigorous health application process, since you are actually prepaying for future long-term care. Currently, the IRS recognizes this as a prepaid medical expense and therefore, offers a substantial medical tax deduction on both your entrance and monthly fees under these agreements. In most true Type A life care agreements, no matter where you are in the continuum, and regardless of whether spouses are using different levels of it, you pay the independent monthly fee. The disadvantage of this product is that you may be pre-paying for higher levels of care that you may never take advantage of. The advantage is that you if you need those higher levels of care, your savings can be significant.

Type C (Also known as Fee For Service):

Some Type C agreements are much like a strictly rental option, with no upfront costs involved at all. Others, typically the more upscale communities, do require an entrance fee to cover the capital costs of maintaining a first rate community over time. The latter type of agreement typically demands a significantly lower entrance fee than a Type A Life Care agreement, but monthly fees can be higher. In a Type C agreement there is no long-term care “insurance” provision, so costs through the continuum are always at market rate. Therefore, health applications are usually less rigorous, and financial applications are more rigorous, in consideration of the costs potential future long-term care. The cons of a Type C agreement are simply the financial vulnerability of the market rate exposure, if long-term care is needed. The pro is, if you never need those services, you haven’t paid for them upfront.

Type B (Also known as Modified Contracts)

Type B contracts are explained following Type C contracts because they are best understood as a blend between Type As and Type Cs. Type B agreements usually have a middle ground, upfront cost, with a moderately rigorous medical and financial application process. As you move through the continuum, should you ever require a higher level of care, your costs will increase but at a discounted, less than market rate. The con is that, should you need higher levels of care, you exposure is greater than a Type A agreement. The pro is typically a lesser upfront cost than a Type A life care contract, discounted healthcare in higher levels of the continuum, and some level a of tax deduction on upfront and monthly fees.

Refundability

For the agreements that carry an entrance fee, depending on the community’s preferences, each agreement can be offered at various levels of refundability. Most prospective residences are tempted to immediately grab a 90% refundability version of their preferred agreement type, but it pays to compare numbers and take all factors into consideration. A 90% refundability agreement typically means a significantly higher entrance fee with 90% of the entrance fee refunded to the estate. A 0% refundable agreement usually means that the refund is amortized over some length of time, but the upfront cost is significantly lower. The disadvantage of 0% refundability therefore, is that your estate could possibly lose all of the entrance fee. The pro to the 0% refundability is that you pay significantly less and can invest the same amount with the potential for the same or greater return, while keeping control of your money. There is no right answer for refundabilty. It depends on the unique financial, medical, and practical circumstances of individual families and should be considered through each of those lenses.

Equity:

In most equity communities, of which there are only a fee, the entrance fee is actually an ownership stake in the community. Since the residents are owners of the community as compared to corporate ownership (whether for profit or not-for-profit), the community is governed by the residents and not an outside board of directors. At Equity communities, families can customize or enhance their homes to their own personal specifications, potentially benefit from real estate appreciation and deduct real estate taxes on their personal tax returns.