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Differentiating Between Continuing Care Retirement Community Contracts

I have been involved in two recent cases where I was hired to provide a second opinion to seniors who were seeking to move to a Continuing Care Retirement Community* (CCRC) in Cook County of Illinois. I wasn’t surprised to learn during my initial consultation that neither of them knew how to differentiate between the types of contracts that were available. I have listed a summary of each type of CCRC contract below and a broad definition of the entrance fee that grants access to them:

Entrance fee – An amount of money that allows a senior admission to the community and guarantees the future health costs of all the residents that reside there. A portion of the fee can be refunded to the individual or his/her estate if s/he moves out or passes away. The money is usually not refunded until the unit has been re-occupied, which is a fact that most people aren’t aware of.

Type A Contract -This is referred to as a “true” Life Care contract. Certain types of care are included in the CCRC’s contract for individuals who enter the community at the independent level (ie. the senior can care for themselves) and have passed the requirements of a financial application. Monthly fees don’t increase as a result of moving to a higher level of care such as assisted living or skilled nursing, except for the cost of extra meals and other personal expenses. If you have a member of a couple who requires the higher level of care, but the other does not, one can remain in the independent living area while the other moves to the higher level of care. The couple continues to pay only for the monthly fees charged for independent living. For example, a couple enters at the independent level and the monthly fee is $2,000 per person. One of them suffers a stroke and needs to move to the assisted living area. S/he is still only responsible for the $2,000 fee plus the cost of extra meals and expenses. The person remaining in independent living pays $2,000 as well. This is a wonderful contract as the costs of future care is predictable!

Type B Contract – This is often called a “modified” Life Care contract. It provides a limited number of days in the assisted living or nursing home area of the community. There are variations on the number of days which can be quarterly, annually or lifetime in amount. After the days are exhausted, additional days are normally billed at the market rate or a discounted rate. If both members of a couple need a different level of care, or one stays in the independent area, once the days are exhausted, they pay the monthly fee plus the market rate for the higher level of care. So, one person pays the independent rate, and one pays the cost of the higher level once the days are gone. For example, the person in independent living continues to pay $2,000. If the spouse needs assisted living, they would pay around $4,500 plus meal and expenses.

Type C Contract – Residents pay the market rate for care services. Rates will depend upon the level of care and the community. In the absence of an entry fee, this contract is sometimes referred to as a Type D, but it basically translates to a month to month rental.

Please note, this is generally what these contracts mean. Caution should be taken as each contract at every community is slightly different.

What I found disturbing during my conversations with my clients is that they had looked at communities that were of the Type B contract, and were totally unaware that the other types of contracts even existed. Therefore, I gave them alternative options to explore communities that offered the predictable costs of a Type A contract. They had also explored 90% refundable contracts. Both seniors were unaware that 100%, 50%, and 0% refundable contracts were available.

Why would someone entertain a 50% refundable or 0% refundable contract? Some people don’t care about leaving a large sum of money to their family. Instead, they would rather put down a lower entrance fee and invest their money in something else.

As you can see, an uneducated customer can make a huge mistake investing in one of these organizations unless they totally understand how the contracts work. And, if you or a loved one is entertaining moving into one of these communities, I suggest that you ask to take a trial stay for one month. You wouldn’t buy a car without taking it for a test drive, would you?

*A Continuing Care Retirement Community or CCRC is a community that offeres independent living, assisted living, and nursing home care all on one campus. The senior can change levels of care without leaving the community.