Understanding Continuing Care Retirement Community Contracts

Many seniors are choosing to spend their retirement years in a Continuing Care Retirement Community (CCRC), or Life Care Community. A CCRC is different from other housing and care options because it offers a long-term contract that provides for housing, services, and health care, usually all on one campus. Residents in CCRCs enjoy an independent lifestyle with the knowledge that if they become sick or frail, their needs will continue to be met.

The distinguishing factor of a CCRC is that a contract between the resident and the facility is required. By entering into a contractual agreement with the CCRC, a resident receives guaranteed access to services for a specified period, usually for his or her lifetime. The resident may access different facets of the housing, services and nursing care as his or her needs change.

Most CCRCs require one-time entry fees or down payments, and charge a monthly fee that covers rent, maintenance services, meals, and future nursing care expenses. There are three types of CCRC entrance-fee contracts: extensive care contracts, modified Continuing Care contracts, and fee-for-service contracts.

Extensive (or Full Life) Care contracts cover shelter, residential services, and amenities, plus unlimited long-term nursing care with little or no increase in the monthly fee. The monthly payments may be adjusted over time for inflation and increased operation costs, but the rent remains the same. Residents are guaranteed unlimited access to a range of health care services. While extensive contracts are the most expensive with higher entrance and monthly fees, they guarantee lifetime shelter and care with no financial surprises. The future costs of residing in the community will not escalate significantly as the health care requirements of a resident increase over time. From a risk perspective , the residents collectively share in the health care risk of the community so that no single resident faces financial ruin. Additionally, residents may receive substantial tax benefits related to the prepayment of future health care costs.

Modified Continuing Care (or Modified Life Care) contracts cover shelter, residential services, and amenities, plus a limited amount of nursing care. The amount of long-term nursing care is specified in the contract. Nursing care provided beyond the specified time is the resident's financial responsibility. The resident can continue to receive care on an unlimited basis but must pay for it at daily or monthly nursing care rates. The primary difference between extensive and modified contracts is in the amount of health care risk the community is willing to absorb. The modified contract is appropriate for residents whose financial assets are sufficient to absorb the cost of uncovered health care costs or residents whose need for health care services in the future will not be significantly different than they currently are. Since some health care pre-funding is involved, the resident may be eligible for the IRS medical deduction, but such benefits are less than those received from extensive contracts.

Fee-for-service contracts cover shelter, residential services, and amenities, but require residents to pay full daily rates for long-term nursing care. While the entry and monthly fees are typically less than those of extensive or modified contracts, the resident pays the full cost of any health services. Fee-for-service contracts might be appropriate for residents who desire the option of choices and who are more selective about the services they consume. The resident takes on the full risk of health care costs. A fee-for-service contract could present a serious financial burden for those without significant personal financial resources. Furthermore, the resident does not receive a medical deduction since no health care services are pre-funded.

Although the three entrance-fee contracts listed above are the most common, there is another type of CCRC:

Rental contracts differ in that no entry fee is required and access to health care services is not guaranteed. The rental contract involves an equity agreement where the resident purchases a condominium or cooperative unit instead of paying and entrance fee. Residents who opt for rental contracts feel they can assume the full risk of the cost of their future health care needs as well as the coordination of their care.

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