The Senate Aging Committee held an important hearing today on Continuing Care Retirement Communities (CCRCs) where the panel’s chairman, Senator Herb Kohl (D-WI), urged that both state regulators and the CCRCs themselves provide more information about their financial risks to residents, as well as other consumer protections. This is what Kohl said:
The fact is that while CCRCs are a good residential option for many retirees, entering into an agreement with one can pose financial risk. “If these companies are going to take the life savings of seniors, they need to be able to guarantee they will be around to provide the lifetime of care they promise.
There are many models of CCRC, but in several designs residents make large up-front payments, known as entrance fees, in return for the right to stay in the communities throughout their old age. Although many residents believe they are buying their apartments, they usually are only making an interest-free loan to the operator. They have no ownership interest in their units. In most communities,residents are supposed to get some or all of that fee back when they die or move.
These facilities are becoming increasingly popular. Today, almost 750,000 seniors live in 1,800 communities.
However, some high-profile CCRC operators have failed lately, raising questions about the security of these deposits. In some communities, residents only get back their entry fees when their unit is re-occupied and if the next resident pays a fee at least as large as they did.
As a result, residents often bear the risk that their unit may drop in value but, because they are never owners, they have no opportunity to share in any gains. Units can lose value if management changes hands, if a more attractive competitor opens in the same area, or if a poor economy makes it difficult for new residents to find the financial resources they need to move in–the circumstance that many face today.
Kohl did not propose additional federal regulation, but instead urged states to increase their oversight. Because CCRCs combine independent, assisted, and skilled nursing facility living, they often fall between the regulatory cracks. The federal government regulates the nursing facilities, and states may oversee assisted living. But independent living are usually unregulated.
As Kohl says, CCRCs can be an attractive option for many well-to-do seniors, but residents need more protections against the possibility that the operators may fail.