In a sign that building owners and operators are less willing to take on the financial risks associated with long-term care, fee-for-service arrangements at continuing care projects are becoming more popular, a recent report concludes.
The number of new continuing care projects (CCRCs) offering full benefits for long-term care has declined by about 30%, according to a new study by Ziegler Capital Markets. Meanwhile, fee-for-service arrangements in which residents pay for their own long-term care are now being offered by about one-quarter of all new communities. Also, those offering a discount on long-term care, or Type-B contracts, grew significantly.
“The so-called life-care contract is not as popular,” says Kathryn Brod, author of the study and senior vice president and director of senior living finance research at Ziegler. She attributes the decline of the life-care, or Type-A contract, to the growth of long-term care insurance. About 400,000 new long-term care policies were issued in 2007, according to the American Association for Long-Term Care Insurance.
Brod notes that the pure fee-for-service model, or Type-C contract, “fits like a glove” with long-term care insurance. She adds that some CCRCs with life-care contracts now reduce the entrance or monthly fee for residents with long-term care insurance.
Ziegler based its study on information from its new community database, which tracks developments financed with tax-exempt bonds. Resident contracts from 1990 through 2000 were analyzed and then compared with contracts from 2001 through 2008.
Separately, a study by the American Seniors Housing Association shows that most CCRCs prefer to let residents shoulder the risks of long-term care. About 77% of existing communities offer fee-for-service contracts, according to the 2007 State of Seniors Housing. Only about 14% of the communities offered all inclusive life-care contracts.
The Ziegler study found that new communities usually offer a single contract type. However, communities did offer a variety of refund options.
Life-care contracts are not going away anytime soon, though. Upscale operators in particular still favor the arrangement because it provides the most complete service package. “People have made a choice that this is the last place they plan to live,” says Bill Sciortino, senior vice president of operations at Chicago-based Classic Residence by Hyatt, which only offers life-care contracts.
The big CCRC developer Greystone also favors life-care contracts. And Life Care Services of Des Moines offers life-care at its developed and owned properties. "Ours are high-end communities," says Rich Seibert, vice president and director of corporate marketing at the company.
In contrast, Erickson Retirement Communities offers only a fee-for-service contract at its 23 projects. A company spokesperson says residents don't pay upfront for nursing care they may never use.
In general, communities with fee-for-service contracts tend to have lower entrance and monthly fees than those with life-care arrangements. “Clearly those of us who sell life-care contracts are taking a risk,” says Seibert at Life Care Services. Adds Brod of Ziegler Capital Markets, the hefty upfront entry fee is the developer's “one shot to cover future healthcare costs.”
Contract offerings can affect profits. A lifecare community with high entrance fees provides a stronger cash position for the operator by collecting big fees upfront, says Brod. But she notes the best profit margins are achieved from fee-for-service contracts and independent-living rental buildings.
Looking ahead, Brod expects more CCRCs to offer contracts that limit or offer no healthcare benefits. “The trend will continue.”