The Contracts Behind Continuing Care Retirement Communities

A continuing care retirement community sells housing and a promise about the future in the same transaction. The promise is defined by a contract most prospective residents read once.

What the model is trying to solve

Moving is disruptive, and moving while ill is worse. The premise is that a resident enters while independent and never has to relocate to a new organization again.

A single campus holds independent apartments, assisted living and skilled nursing, so a change in health means moving across the property rather than across town.

Spouses with different needs can remain on one campus, which is a recurring reason couples give for choosing this arrangement over two separate solutions.

Entrance fees and what they represent

Most communities charge a substantial entrance fee alongside a monthly service fee. The entrance fee is not rent and it is not equity in real estate.

It functions closer to a prepayment against future care, which is why the amount and the refund terms vary so much between communities.

Refund provisions range from nothing, to a declining balance, to a fixed share returned to the estate, and the choice changes the price accordingly.

The three contract types differ in who bears risk

A life care contract charges more up front and holds the monthly fee roughly stable even after a resident moves into nursing care. The operator bears the cost risk.

A modified contract includes a defined amount of higher-level care, after which the resident pays market rates. Risk is shared up to a stated limit.

A fee-for-service contract costs least to enter and charges full price for care as used, leaving the resident carrying the entire risk of a long nursing stay.

The financial health of the operator is the hidden variable

A continuing care community is making a long-dated promise, and that promise only holds if the organization remains solvent for decades after someone moves in.

Occupancy rates, debt levels and audited financial statements are legitimate things to request, and many communities will provide them to serious prospects.

State oversight exists but varies considerably, and the protections available to residents if an operator fails are not uniform across the country.

What to have reviewed before signing

These contracts run long and contain provisions on fee increases, involuntary transfer between levels of care, and the conditions under which residency can be terminated.

An elder law attorney and a financial advisor reviewing the document together is the standard advice, because the tax treatment and the care obligations interact.

Prospective residents should also talk with current ones, particularly about how transfers between levels of care are handled in practice rather than on paper.