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The Death of the Continuing Care Residential Community:
How the Former Model of the CCRC is Being Irreparably Diluted

By Lillian L. Hyatt, M.S.W. and a Resident of a CCRC


Excerpted from the Spring 2009 The CANHR Advocate newsletter

The CCRC model was established to fill the gap between a retirement home and a Skilled Nursing Facility (SNF). In the former, residents were cared for with basic services. In a SNF they were given hospital-like care. The CCRC was envisioned as an institution, which would admit retirees on an independent living basis, care for them as they aged, and finally provide SNF services as an integral part of life care. Over time CCRCs, with government subsidized mortgages and property tax free status, were given a great boost in meeting the needs of a growing aging population.

With changing demographics and economic conditions, the position of the CCRCs became striated. The new generation of “baby boomers” appeared to open new opportunities for CCRCs. New facilities sprang up to cater to these new clients. However there were flies in the ointment. First of all this new age group had different desires and expectations from their predecessors. Many of them continued to work well past the 65 year retirement age. They look for modern buildings with tennis courts, golf courses, swimming pools and flexible dining facilities. Older facilities, particularly those in urban areas are not equipped to meet many of these expectations. Furthermore, admission fees closed many of the CCRCs to the middle class. Wealthier people could afford personal care, the middle-income people looked to the CCRC as a cost-saving institution. Thus a large part of the expected market did now show up. Economic conditions worsened matters. Not only did entrance fees and monthly care fees move up in an inflationary prone society, but the crash of housing prices that starting in 2007 deprived many potential residents of the money required to enter a CCRC. To exacerbate matters, the fees now became astronomical; half a million dollars for a couple just to enter a CCRC became commonplace. Under these circumstances CCRC’s occupancy rates fell to dangerous levels as they priced themselves out of the market.

For many Americans their homes were the largest purchase they ever made and represented the major portion of their assets. Traditionally, entering into a CCRC was financed by the sale of their home and using a large portion of the proceeds to buy entrance into a CCRC. With the collapse of the housing market and the subsequent freezing of credit, many people were forced to stay put in their homes. Since CCRCs worked on a cash-only basis for entrance, there were no mortgages available to raise the needed capital. Facing this shrinking market, CCRC administrators began looking for other ways of raising money for their cash flow and reserves. Some even began to offer interest free bridge loans. The result was a proliferation of schemes, many of them on a for-profit basis, to raise their incomes.

One plan to attract residents by offering lower entrance and monthly care fees involved so-called “C-Contracts.” This new product eliminates one of the basic functions of a CCRC, namely the provision of most types of health care, particularly care in the SNF, neither is Assisted Living provided for. These services when required must be paid for at a high fee-for-service charge. In California the Continuing Care Contracts Branch of the Department of Social Services has permitted the issuing of such contracts in order to help CCRCs fill apartments. Interestingly, such facilities are permitted to continue to call themselves CCRCs!

Getting into new enterprises required both a change in the legal structure as well as finding ready capital. The former led to the introduction of bills in the legislature to permit new kinds of operations and to ensure their profitability. Raising capital was somewhat easier: Given the administrations’ absolute control over the reserves built up by the residents contributions, dipping into those reserves for millions of dollars was just a matter of having their money managers write checks. In one CCRC, the administration took $10,000,000 from their reserves and gave it to a low-income senior facility, which had the right to work with at-home clients in order to be able to share in the profitable legal privileges accorded to that type of facility. The CCRC residents took that action to court where it is still tied up.

Getting legislation to permit CCRCs to enter a profit-making activity proved more difficult. A bill framed by the CCRC’s administrations’ trade association laid out in detail the powers that providers would have over in-home clients. These clients would have been subjected to and hemmed around with numerous restrictions up to the point of the CCRCs being empowered to seize possession of their homes if the fees were not paid. Although passed by the legislature it was vetoed by the Governor without explanation. In any event the tax-free status of the CCRCs under state and federal law never was faced.

As can be appreciated, the entrance of CCRCs into new fields of activity based upon the use of the residents’ reserves has surely changed the relationship between the not-for-profit CCRCs and their residents. It emphasized the powerlessness of the residents’ vis-à-vis the strength of the administrators. In essence, the administrations have altered beyond recognition the original model of the CCRCs, which was based on an administration having as its first priority providing care for the elderly at the lowest feasible cost. Given the secrecy with which so many functions of the CCRCs are conducted, residents are at the mercy of the CCRC’s administration. Not at all what society, legislators and the IRS envisioned.

(Ms. Hyatt is a resident of a CCRC and AARP Policy Specialist on CCRCs)