Continuing care retirement communities (CCRCs) have weathered the recession with few bankruptcies or cautionary consumer tales, according to a government review. But many seniors literally commit their life savings to paying steep entrance and monthly maintenance fees. So the need for careful evaluation of financial and operational details remains very high, and, right now, falls largely on consumers and their families.
[ See America's Best Affordable Places to Retire.] Concerns about consumer problems led the Senate Special Committee on Aging to request an informational study of the CCRC industry by the Government Accountability Office (GAO). The Committee's Democrat staff also produced its own investigative report, based on a more detailed analysis of five unidentified CCRC companies. The Committee, chaired by Wisconsin Democrat Sen. Herb Kohl, is holding hearings to review the findings and seek suggestions about the need for additional consumer safeguards.
CCRCs normally attract healthy residents in their late 70s or early 80s. Occupants normally expect to stay in a CCRC until they die, and can live in a range of independent, assisted-living, nursing units and even dementia care facilities that often are all offered on the grounds of the CCRC.
CCRCs are regulated at the state level, and the GAO report cited an industry study that only 38 of the 50 states even have separate CCRC regulations. Of those states with CCRC rules, the GAO said, there is substantial variation in the type and rigor of state oversight.
"The CCRC model is particularly vulnerable during economic downturns, as stagnant real estate markets drive down occupancy levels in independent living units, which serve as CCRCs’ primary source of profit," the Committee report said. "Financial difficulties for CCRC providers could place a consumer’s investment at risk and raise their monthly CCRC expenditures. In addition, according to the American Bankruptcy Institute Journal, 'the CCRC industry is particularly vulnerable to insolvency, and several CCRCs have failed, primarily as a result of poor financial planning.' "
The most visible problem in the CCRC industry was last year's bankruptcy of Erickson Retirement Communities, a leader and at the time the nation's largest CCRC provider, with 23,000 residents on 19 large campuses around the country. Erickson's individual communities continued to operate, and the company has since been sold.
Neither the GAO or Committee report was able to quantify the industry's problems. There are about 1,860 CCRCs in the U.S., and they had nearly 750,000 residents as of a few years ago. In the past few years, the pace of new construction and the flow of new residents into CCRCs slowed sharply. Construction financing for new projects dried up. Consumers' ability to move into CCRCs was also hurt by the real estate downturn. Selling a home has been the primary funding mechanism for CCRC entrance fees.
The GAO studied eight states in detail for its report. The eight -- California (129 CCRCs), Florida (101), Illinois (108), Ohio (144), Pennsylvania (189), Texas (86) and Wisconsin (49) -- account for 46 percent of the nation's CCRCs.
The agency noted that actual consumer losses at troubled CCRCs appeared rare. It listed several types of financial risks that should be of concern to prospective residents. The largest risk, the GAO said, was losing a sizable entrance fee in a CCRC bankruptcy. "We identified no national data that would reflect the incidence of such losses," its report said, "and several state officials believed that they are rare."
Another risk is that a CCRC may need to raise monthly maintenance payments due to financial pressures. This works a hardship on residents living on fixed incomes. Some residents may need to pay higher monthly living costs out of their refundable entrance fee, thus wiping out a pool of funds that may have been earmarked for their heirs. State rules vary greatly, the GAO said, and it noted that considerable financial protection of residents has been driven by financial reserve requirements and other funding measures required by financial firms as a condition of providing construction financing to the CCRCs.
"Based on our interviews with state officials, we found no assessments of the effectiveness of state regulations in protecting consumers at either the national level or the state level," the GAO said, "and state officials, resident advocates, and experts expressed a wide range of opinions on the adequacy of state law to protect consumers."