Consumer protection and CCRCs

Continuing care retirement communities (CCRCs) have attracted the attention of the federal government and two parallel investigations of the industry have prompted a congressional committee to urge states to pay closer attention to CCRC operations in order to protect consumers.

As a result, some states could decide to look more closely at CCRCs, particularly those that have little or no regulations regarding the industry.

The Senate Special Committee on Aging held a hearing in late July where it issued a report of its investigation into the industry, pointing out risks to consumers who choose CCRCs, and noting that 12 states exercise no regulatory control over CCRCs at all. A second study, conducted by the Government Accounting Office (GAO) essentially confirmed the committee’s conclusions.

The panel, led by Sen. Herb Kohl (D-Wisc.), did not recommend specific action to be taken by Congress or the U.S. Department of Health and Human Services (HHS), but it raised several cautionary flags for consumers regarding potential risks that could be incurred by choosing CCRCs as an option for living in their latter years.

“The fact is that while CCRCs are a good residential option for many retirees, entering into an agreement with one can pose financial risk,” said Kohl. “If these companies are going to take the life savings of seniors, they need to be able to guarantee they will be around to provide the lifetime of care they promise.”

The committee also issued a checklist for state regulators and urged them to expand or improve oversight of CCRCs. “We are calling on state regulators to beef up their oversight,” said Kohl. “Every state should be requiring proof of their long-term viability from CCRCs and ensuring transparency and strong consumer protections for residents.”

The committee’s investigation, which resulted from an analysis of five CCRCs across the nation, identified these major problems and risks for potential residents:

  • Unstable financial conditions that can lead to serious cash flow problems and even bankruptcy of the CCRC

  • Inability or refusal to repay refundable deposits to residents who wish to leave

  • Questionable strategies designed to limit a company’s tax liability that can result in remedial action by taxing authorities and result in reduced financial viability

  • Lack of clear information about the company’s financial strength being provided to potential residents

  • Questionable policies regarding transitions to higher levels of care and the resulting increases in fees

The GAO report identified similar concerns. “While CCRCs offer long-term residence and care in the same community, residents can still face considerable risk,” its report said. “For example, CCRC financial difficulties can lead to unexpected increases in residents’ monthly fees. And while CCRC bankruptcies or closures have been relatively rare, and residents have generally not been forced to leave in such cases, should a CCRC failure occur, it could cause residents to lose all or part of their entrance fee. Residents can also become dissatisfied if CCRC policies or operations fall short of residents’ expectations or there is a change in arrangements thought to be contractually guaranteed, such as charging residents for services that were previously free.”

“The fact is that while CCRCs are a good residential option for many retirees, entering into an agreement with one can pose financial risk.” -Sen. Herb Kohl (D-Wisc.)

The GAO said most states reviewed in its study take steps to protect the interests of CCRC residents, such as requiring the escrow of entrance fees and mandating certain disclosures. But not all require disclosure of policies covering moving between levels of care, and 12 states lack CCRC-specific regulations entirely.

The committee’s report said that while many states provide protections regarding the escrow of entrance fee deposits, factors taken into consideration for releasing the money vary widely. “Some companies may use the initial entrance deposits to finance development, make repairs, or repay other residents or beneficiaries rather than keeping deposits in the bank,” the report said, adding that three of the five companies surveyed use entrance fee monies to repay construction loans. In the case of a Pennsylvania CCRC, the committee said residents believed their deposits were being held in safe escrow accounts, but when the company went bankrupt, they discovered that their money had been spent.

In the committee’s report, it cited the following areas for recommended CCRC legislation:

  • Licensing. Requirements should be established for providing project financial information, cash flow indicators, occupancy data, actuarial, financial feasibility and market studies, the fee schedule, reserve levels, and escrow accounts.

  • Reserves. Minimum reserve levels and escrow accounts should be prescribed.

  • Recurring monitoring and analysis. Annual audited financial statements should be reviewed by the states, financial information and ratio trend data required, fee schedules monitored, financial projects required, and occupancy levels monitored.

  • Periodic reviews/examinations. States should examine financial conditions every three to five years; periodic actuarial studies should be required; marketing, business practices, general operations and consumer complaints should be examined; status updates on financial and operational matters should be required.

  • Disclosures to consumers. These should include audited financial reports, information on accreditation, key financial indicators, financial forecasts, occupancy trends, average length of time for entrance fee refund payments; financial condition disclosure; fee schedules, information on fee adjustment policies, reserve funding levels and sources; sources of funds for development, repair, or facility replacement, refund policies and revenue sources; and status of any resident claims on assets in cases of bankruptcy or insolvency.

  • Non-financial. CCRCs should provide consumers with information about the provider and management, affiliations with religious or charitable groups, summaries of recent state examinations, description of the property and amenities and services, copy of the contract including termination provisions, information on financial assistance policies, requirements for admission or discharge from different levels of care, rules and regulations, policies regarding life changes such as marriage or death of a spouse, and annual or operating reports.

The report pointed out that choosing a CCRC can be complex due to disparate state regulations and variations in the types of contracts offered. “Residents need to be aware of the risks that CCRCs pose and consider retaining independent counsel to review these complex agreements,” the committee advised.

While federal legislative or regulatory actions were not recommended, clearly CCRCs have caught the attention of an important congressional committee. That is worth noting.

Bob Gatty has covered governmental developments of the trade and business press for more than 30 years. He is founder and president of G-Net Strategic Communications, Sykesville, Maryland. Long-Term Living 2010 September;59(9):14-17

Topics: Articles , Risk Management