Once you are accepted for entry into a CCRC, you sign a contract. For a contract to be considered a continuing care contract, it must provide for lodging, together with nursing services, medical services, or other health-related services, and be either for the life of an individual or a period longer than one year.
Contract
The continuing care contract is a nonnegotiable legally binding contract between the resident and the CCRC, so you should get a copy beforehand and read it carefully and have a lawyer or financial advisor review it. CCRCs have years of experience in operating a CCRC so the contract protects them from practically every eventuality–you not so much. Most CCRCs are reputable but the contracts are primarily to protect them, not you. MAKE SURE YOU KNOW WHAT YOU ARE SIGNING.
Types of contracts
There are typically three main types of CCRC contracts and all of them may or may not be available at all CCRCs. All three types require residents to pay an entrance fee and a monthly fee, which will increase annually based on changes in operating costs and inflation adjustments. They all provide the resident with independent living housing and all the included services and amenities, including limited medical care. For all three types of contracts, a portion of the monthly fee is considered a tax-deductible prepayment for health care.
The primary difference between the types of contracts is in who pay for a higher level of care beyond independent living. The more the CCRC is required to pay, the higher the cost of the contract. Some CCRCs offer a certain number of free stays in rehabilitation, assisted living, or skilled nursing days per month or year.
Type A: Extensive contract
Also known as full risk or life care contracts.
- Approximately 43 percent of CCRCs offer extensive agreements.
- This is the most expensive contract because a CCRC assumes the cost of all healthcare services, beyond those reimbursed by third parties such as Medicare, that you may need. Since the extra costs are in effect a type of long-term care insurance, a larger portion of the monthly fee is considered a tax-deductible prepayment for health care.
- A benefit of a life care contract is that when assisted living, memory care, or skilled nursing care is needed there is little to no increase in monthly fees. This ensures more predictable long-term expenses regardless of potential future healthcare needs.
- You pay a much higher entrance fee (astronomically higher with a 90% refund plan) and your monthly fee is $400 and higher than that of a Type C contract. In return, if you need to move to assisted living, memory care, or skilled nursing in the future, you keep paying your normal monthly fee and only pay for the two extra meals per day.
- You pay a larger entrance fee and you pay more in your monthly fee; however, if a higher level of care is needed, your costs are minimal. However, just as with long-term care insurance, if you never need a higher level of care, the extra money you paid is lost. This type of contract used to be the norm, but it is going out of favor because of the extensive costs.
Equalized pricing contract
Some CCRCs are offering a variation of the life care contract called equalized pricing. It offers the same benefits as the standard life care contract; however, when a resident makes a permanent transfer to a higher level of care, instead of paying the same monthly rate they were paying in independent living, they begin paying what typically amounts to the median cost of all independent living residences within the CCRC.
This means that a resident who was in a lower-priced independent living residence would pay more if higher levels of care are needed, but someone who was in a higher-priced independent living residence would pay less. Thus, in theory, the cost of care for all residents is equalized.
For couples, the equalized rate could take effect for each resident separately as they move from independent living to a higher level of care so this should be considered when planning for the long-term; especially for those who choose to live in a lower-cost independent living residence.
Type B: Modified contract
Also known as partial risk or limited contracts.
- Approximately 29 percent of CCRCs offer modified agreements.
- This type of contract is less costly than Type A, but it also has higher entrance fees and monthly fees than Type because the CCRC is assuming a set percentage of the cost of healthcare. Type B contracts offer the same access to health care as Type A contracts; however, residents pay for care as it is needed at the discounted rate.
- The contract may guarantee access to higher levels of care at a reduced rate, or for a set period before market-rate fees will apply. It may provide residents with higher levels of care for a specified number of days at no extra charge. The contract may place a cap on the total amount of long-term care services for which the CCRC will pay. Once the resident reaches the contract cap, the resident is at full risk for the cost of additional long-term care services.
- This type of contract is primarily for people who already have long-term insurance to cover some of the costs of higher levels of care and like it that they can get even more discounts on the costs. However, as with long-term insurance and the Type A contract, if you never need a higher level of care, the extra costs are lost.
Type C: Fee-for-service contract
Also known as no-risk contracts.
- Approximately 38 percent of CCRCs offer fee-for-service agreements.
- This type of contract has the lowest entrance fees and monthly fees since residents are responsible for the costs of additional health care, beyond those reimbursed by third parties such as Medicare.
- Lower entrance fees mean less money is needed to get into a CCRC and lower monthly fees mean it costs much less per year to live at the CCRC. If a higher level of care facility is needed, you do not have to pay another entrance fee to move and you are guaranteed a bed in the facility; however, you must pay the daily market rates for these services. In addition, if your need for a higher level of care is only temporary, you must keep paying the monthly fee for your independent living unit, usually at a reduced rate since you are not able to benefit from all the services for which you are paying. If the higher level of care is permanent, you keep paying for the independent living unit until you move out, and some CCRCs may require you to continue to pay until the unit is under contract again.
- Although this is the least expensive contract when you stay in independent living and die before needing a higher level of care, it may become quite costly if you need a higher level of care for an extended amount of time.
Equity contract
A lesser-used type of contract.
- Instead of paying an entrance fee, residents purchase their housing units in the same way they would purchase a house, or they purchase a membership or equity share in the community. Under this type of contract, the residents often own the community. This type of contract is less common than the entrance fee types and is more typically offered by CCRCs sponsored by private entities.
- The resident must pay the utilities, maintain the interior of the unit, insure the contents, and deal with a homeowner’s association, and pay a monthly fee. Health care fees are usually paid by residents as needed; however, they may be provided by prepayment via monthly fees or through a separate health care fee.
- When the resident leaves the unit or dies, the resale of the unit is usually limited to those who meet the community's eligibility criteria.
Rental contract
A lesser-used type of contract.
- Residents rent a housing unit just as with any other rental unit. There is no entrance fee or long-term contract; residents pay only an expensive month-to-month rent (plus first and last month’s rent), which typically covers housing and certain specified services, such as meals, in-home health care services, transportation, etc.
- This option includes no coverage for the cost of healthcare but offers the resident the lowest level of upfront expense. The facility is essentially an apartment complex for seniors.
- This type of contract is relatively rare and is typically used in situations where certain units are sitting vacant and cannot be occupied with residents under one of the above contract types.
Improvements to housing units
Permitted modifications and improvements to a housing unit are specified in the contract and must be approved by the CCRC. Usually, the work must be performed by approved contractors and must be paid by the resident. Unless the contract is an equity contract, any increases in equity due to the improvements belong to the CCRC, not to the resident.
Most CCRCs have a pre-occupancy allowance that may be used for renovations. Some CCRCs will completely rehab a unit to the resident’s specifications before move-in, up to a certain cost limit, after which the resident must pay for changes.
Choosing the best contract option
Which type of contract is best for you depends on how much money you have available to pay the costs and whether you want to gamble on how much assisted living, memory care, or skilled nursing you may need in the future.
For couples, choosing a type of plan is even more difficult. Husbands are more likely to die before their wives. If the husband needs long-term assisted living and skilled nursing before he dies, all the couple’s assets may be used up and the wife left with nothing. Also, when one person of the couple dies, any pension that person had may end.
Negotiations
When CCRCs have waiting lists, they usually do not negotiate the terms of a contract. However, if a CCRC is eager to fill empty units, there may be room to negotiate fees and other contract provisions. For example, you might negotiate to pay half of the entrance fee now and half next year. It doesn’t hurt to ask for concessions.
Contract Termination
Contract termination depends on state law. Some states allow 3 days in which you may terminate a contract while others allow 90 days. Most CCRC contracts contain provisions prohibiting divestiture of assets to cause a contract termination.
↩ Back
No comments:
Post a Comment