CCRCs Can Help Ensure That Older Americans Have Long-Term Care, but Face Financial and Operational Risks

		CCRCs Can Provide Older Americans with Ongoing Housing and Health Care Services

CCRCs offer older Americans a range of housing and health care options  that include independent living, assisted living, and skilled nursing units all  within the same community. As a result, CCRCs  absorb the risk of any increases in the cost of providing health and long- term care to residents with these contracts. When a resident’s needs exceed those services, the fees  increase to market rates. As a result, accurate projections of  future revenues and costs are important as a CCRC becomes operational. States We Reviewed Varied in the Extent to Which They Ensured CCRCs Address Risks to Their Financial Viability

		States We Reviewed Generally Used Similar Licensing Requirements, but Some Required More Information Than Others

To help ensure that CCRCs address the risks they face during their start-up  period, seven of the eight states we reviewed used a similar application  and licensing process. For example, these seven states required CCRC  providers to submit detailed financial information on CCRC projects for  review by regulators. In particular, California, New York, and Texas required periodic  actuarial studies, but only for CCRCs that offered contracts which incur  long-term liabilities by guaranteeing health care services over the long  term. In addition, some noted that actuarial  studies can help regulators identify potential threats to CCRCs’ long-term  viability. Because some states do not appear to  have CCRC-specific regulations, an entity in one state might be licensed  and regulated as a CCRC while a similar entity in another state may not. While we did not review laws and regulations in the states that did not  appear to have specific CCRC regulations, to the extent that states do not  license CCRCs and oversee their contracts, residents in those states may  not receive the same protections as CCRC residents in states with such  regulations. In addition, bondholders may conduct analyses that appear to go beyond  those used by states. For example, dissatisfied residents may have limited  ability to move out. Policies regarding admission  and discharge from different levels of care can be subject to state law, but  this decision can be a point of contention as well. According to Florida  CCRC operators, for example, CCRCs may impose fees on services that  were previously free, such as transportation to activities in the local  community. State Laws Designed to Protect Residents Vary, and Some States Do Not Mandate Key Disclosures or Contract Provisions

		Regulating Contract Content and Clarity

According to a CCRC industry study, of the 38 states that have some level  of regulation specifically addressing CCRCs, 34 states collect and review  the standard form contract that the CCRC enters into with residents. Protecting CCRC Residents’ Fees and Deposits

Some states directly protect the financial interests of residents by (1)  establishing requirements for fees and deposits to be escrowed, (2)  addressing criteria for monthly fee increases, or (3) placing liens on CCRC  assets on behalf of residents or confer a preferred status on resident  claims on such assets in the event of liquidation. However, entering a CCRC  often means committing a large portion of one’s assets, and while CCRC  bankruptcies have been rare, and few residents have lost their housing or  their entrance fees, a CCRC failure could put residents in a difficult  financial situation. Such difficulties, coupled  with the stress that recent economic events have placed on CCRC  finances, underscore the importance of regulators being vigilant in their  efforts to monitor CCRCs’ long-term viability and protect consumers. However, the potential risks to  residents that result from committing a considerable amount of money to  a CCRC highlight the importance of states being vigilant in their efforts to  help ensure that CCRC residents’ long-term interests are adequately  protected. NAIC and HHS Comments and Our Evaluation

We provided a draft of the report to the Department of Health and Human  Services and the National Association of Insurance Commissioners, but  neither commented on the draft. Appendix I: Objectives, Scope, and Methodology

To address concerns about the risks and regulation of CCRCs, we have  been asked to (1) describe how CCRCs operate and what financial risks  are associated with their operation and establishment, (2) describe how  state laws address these risks and identifies what is known about how  adequately they protect CCRCs’ financial condition, (3) describe risks that  CCRC residents face; and (4) describe how state laws address these risks  and identifies what is known about their adequacy.
Why GAO Did This Study

A growing number of older Americans are choosing continuing care retirement communities (CCRC) to help ensure that their finances in retirement will cover the cost of housing and care they may require. However, recent economic conditions have placed financial stress on some CCRCs. GAO was asked to (1) describe how CCRCs operate and the risks they face, (2) describe how state laws address these risks, (3) describe risks that CCRC residents face, and (4) describe how state laws address these risks. To review these areas, GAO analyzed state statutory provisions pertaining to CCRCs with respect to financial oversight and consumer protection, met with selected state regulators, and interviewed CCRC providers, resident's associations, and consumer groups. While GAO is not recommending specific action at this time, the potential risks to CCRC residents--as well as the potential for this industry to grow--highlight the importance of states being vigilant in their efforts to help ensure adequate consumer protections for residents. GAO provided a draft copy of this report to the Department of Health and Human Services and the National Association of Insurance Commissioners for review, but neither commented on the draft.

What GAO Found

CCRCs can benefit older Americans by allowing them to move among and through independent living, assisted living, and skilled nursing care in one community. They offer a range of contract types and fees that are designed to provide long-term care and transfer different degrees of the risk of future cost increases from the resident to the CCRC. Developing CCRCs can be a lengthy, complex process that requires significant long-term financing and accurate revenue and cost projections. Once operational, risks to long-term viability include declining occupancy and unexpected cost increases. While few CCRCs have failed, challenging economic and real estate market conditions have negatively affected some CCRCs' occupancy and financial condition. Seven of the eight states GAO reviewed had CCRC-specific regulations, and these states varied in the extent to which they helped ensure that CCRCs addressed risks to their long-term viability. For example, while each licensed and required periodic financial information from CCRCs, only four either examined trended financial data or required periodic actuarial reviews. The lack of a long-term focus creates a potential mismatch with residents' concerns over their CCRCs' long-term viability. CCRC bondholders and rating agencies, which focus on long-term viability, often place requirements on CCRCs that go beyond those used by states in their licensing and oversight activities. Regulators and CCRC providers GAO spoke with generally believed that current regulations were adequate, but some consumer groups felt more comprehensive oversight was needed. While CCRCs offer long-term residence and care in the same community, residents can still face considerable risk. 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. Most of the states GAO reviewed take steps to protect the interests of CCRC residents, such as requiring the escrow of entrance fees and mandating certain disclosures. For example, a number require contracts to be readable, but not all review the content of contracts even though some industry participants questioned residents' ability to fully understand them. Also, not all require disclosure of policies likely to have a significant impact on residents' satisfaction, such as policies for moving between levels of care. According to an industry study, 12 states do not have CCRC-specific regulations, meaning an entity in 1 state may be subject to such regulations while a similar entity in another state may not, and consumers in some states may not receive the same protections as those in others. In contrast, some CCRCs voluntarily exceed disclosures and protections required by state regulations.