Continuing Care Retirement Communities (CCRCs) offer a positive and welcome service to those people who want to provide for their own old age without burdening others. CCRCs should be encouraged as a matter of public policy.
CCRCs should be a safe haven for aging Americans, yet a Government Accountability Office study in June 2010 was titled, “Continuing Care Retirement Communities Can Provide Benefits, But Not Without Some Risk.” The word that jumps out is RISK.
That led to a Senate hearing in July 2010 which concluded that further regulation was desirable but that it was most appropriately implemented at the state level. NaCCRA’s “Model Laws” project responds to that call for improved state regulation.
There is now a lack of clarity of just what is comprised within Continuing Care. Many contracts are difficult for ordinary people to understand, resulting in disillusionment and confusion among people who have trusted providers with large entrance fee investments. There is a need for greater contract clarity.
Finances, too, are complex for an undertaking as comprehensive as is a capably managed CCRC. The lack of clear and demonstrably sound financial standards can lead to inequities, distress, and occasional financial failures. There is a need for standards to promote greater financial rigor among those CCRCs that don’t now meet the highest standards.
In many states, CCRC regulation is under the jurisdiction of the insurance departments. For insurance regulation nationally, the insurance departments of all fifty states, the District of Columbia, and the five territories convene as the National Association of Insurance Commissioners (NAIC) with the purpose of developing uniform laws to:
Many of these standards and model laws are highly technical, which is why insurance laws are crafted within the NAIC for enactment by the state legislatures.
CCRC residents should have the same protections as other purchasers of insurance. We offer Model Laws similar to those that the NAIC maintains for insurance regulation. We call on the NAIC to take up these models to protect the vulnerable consumers who invest in entry fee contracts with CCRCs.
The legislative and regulatory context for Continuing Care Retirement Communities has been varied and quixotic among the several states. The industry could benefit from a more systematic approach to contracts and financial management.
The portfolio of standards presented here seeks to reward the most responsible providers while giving residents the protections they deserve.
By exposing these Model Laws for public scrutiny, NaCCRA seeks to open a dialogue that can:
● systematize the contractual and regulatory framework for CCRCs,
● reward those providers that are exemplary in their service to senior housing and services,
● give residents the protections that many assumed they had when they moved in,
● assure prospective residents that the CCRC living model is one that they can trust. and
● help providers who conform to these standards assure prospective residents that they can ● proceed to invest in a Continuing Care Contract without inordinate qualms.
Below is a list of NaCCRA’s proposals related to a particular standards element.
CCRC provider Boards of Directors should balance the interests of residents with those of other stakeholders, including executives and employees, in keeping with the purpose and well-being of the enterprise. The composition of the Board should reflect this balance.
Residents of CCRCs should have the same financial protection in the event of provider impairment as life and annuity insurance policyholders have. This requires legislation adapted from the insurance precedent.
Some contracts leave more of the future financial risk with residents than do others. Entering residents are expected to have sufficient assets (in addition to their entrance fees) or other guarantees to ensure they can pay future provider fees as they come due. That resident asset threshold is higher when providers shift risk to residents.
This model law establishes benchmarks to ensure that entering residents who do not have care-inclusive (Type A) contracts can afford the added risk they thereby assume.
CCRC Fiduciary Act
Residents in CCRCs and participants in Continuing Care at Home (CCAH) programs constitute a class of elderly citizens who are often more vulnerable and gullible than are younger people in the prime of life. Accordingly, those who serve this class should be held to a high standard of duty and conduct.
Financial Viability and Rehabilitation Act
Residents in CCRCs and participants in Continuing Care at Home (CCAH) programs are particularly vulnerable to provider financial impairment and other impacts. They should have protections similar to those accorded to insurance company policy holders.
This resident protection requires legislation like that proposed here, which is adapted from the insurance precedent.
Proposed Standard: CCRC Standard Valuation
CCRC residents must be assured that funding for deferred services promised—in return for their entrance fees and monthly payments—will be there when needed. It is important that such commitments be valued currently together with projections of expected future income. For insurance companies, analogous valuations are conducted by actuaries.
This standard extends to CCRCs a similar standard for financial integrity. It requires legislation like that proposed here, which is adapted from the insurance precedent.
Prepaid Medical Reserve
Many CCRCs advise their residents that a portion of their Entrance Fees may be currently tax deductible as prepaid medical expenses. There is not now, however, any requirement that those funds be earmarked for the intended purpose, which places the related tax deductions in jeopardy.
This standard calls for the CCRC to establish a reserve item for amounts designated for prepaid medical expenses to ensure that such amounts are in fact used for that purpose.
Entrance Fee Continuing Care Contracts, like single premium annuities, bring in cash in return for long-deferred promises. That requires trust and prudence in the investment of funds.
Of course, investment in the CCRC itself is an appropriate investment, assuming that the facility is operated to ensure a fair investment return. Insurance companies have long had regulated investments to avoid speculations that can undermine their risk averse mission.
This Model Law extends investment protections to Continuing Care contract holders, similar to those that life and annuity insurance policyholders already have.
Currently, there is no required correlation between Continuing Care Contract forfeiture provisions and the value of the services provided thereunder. This standard would correct that imbalance.
There has also been controversy about a widespread industry practice in which payments of promised refund or death benefits are dependent on successor residents. This has led to delays in the payments of funds and denial by providers of liability for promised refunds.
This standard would apply to CCRCs’ nonforfeiture principles comparable to those that have long applied to the life and annuity insurance industry. The legislation modeled here is adapted from the insurance precedent.
Continuing Care Contracts are now written by providers and must be accepted before a person eligible for residence is allowed to move in. The result is that some contracts are one sided. There is a need to balance the interests of residents with those of the executives and of the CCRC they lead.
Moreover, Continuing Care Contracts can be quite complex and difficult for ordinarily educated people to understand. This can lead to confusion and disappointment.
The standard proposed in the accompanying model law applies to Continuing Care Contracts concepts analogous to those governing life and annuity insurance contracts.
Model CCRC/CCAH Standard Contract Provisions Law
Continuing Care at Home
There is a movement to encourage Continuing Care at Home (CCAH) programs as an adjunct to CCRCs or in place of CCRC residence. By their nature, such programs involve more enterprise risk than do brick-and-mortar CCRCs. They verge on becoming very liberal long-term care insurance, but without the regulatory oversight applicable to insurance.
This standard would limit such programs to what is reasonable, given the constructive purposes that such CCAH programs can meet.
Conversion to Enable Resident Ownership
A few CCRCs have an ownership model. The condominium form, which involves fee-simple ownership, creates transfer delays and difficulties at the death of a resident. These difficulties can be avoided with specifically tailored cooperative ownership models.
Moreover, such models can enable the gradual conversion of existing CCRCs to an ownership model that is more compatible with the large entrance fees that are often required. Existing residents can retain their existing arrangements for life if they wish, while those residents who choose ownership, and new residents who may prefer ownership, can purchase an commensurate interest in the cooperative corporation together with a lifetime lease to occupy a specified unit.
This law is adapted from laws that have allowed New York City apartments to convert from rental to cooperative ownership.
Highly detailed, reactive, regulatory requirements for advance approval of facilities inhibit providers’ responsiveness to changing needs. They also run up costs, even though they are intended as a protection for the public. Capital investment often lies fallow awaiting inspection or approval.
Thus, excess regulation involves considerable cost for providers, which drives up the cost of housing and services provided for the aging. Regulation also inhibits innovation which might otherwise improve the services offered.
Such oversight, approval, and inspection is redundant for responsible providers who are voluntarily in compliance with all requirements. This legislation would allow a provider to earn a “trusted status.” This would facilitate the certification and inspection process by allowing self-certification for those providers who achieve and maintain an exemplary record.
While this legislation is proposed at the state level, Federal legislation is also involved because of Federal oversight of Medicare, Medicaid and the Patient Protection and Affordable Care Act of 2010.
Federal Trusted Provider Status
Because CCRCs are subject to oversight by the Federal Centers for Medicare and Medicaid and other federal agencies, federal legislation is needed to implement a targeted oversight program allowing responsible providers to earn Trusted Status.
Accordingly, this model Federal enactment is included in this portfolio of proposed standards and legislation.
Proposed Standard: Federal End of Life Palliation
Once it is clear that the end of life is approaching, care needs shift from restoration to comfort. Recent hospice legislation has moved in this direction.
The model law suggested here would clarify personal rights of choice as life’s end approaches.