If you have begun researching continuing care retirement communities (CCRCs, also known as life plan communities), you have likely discovered that there are both for-profit (FP) and not-for-profit (NFP) options. The vast majority of life plan communities are NFP but the FP providers are beginning to grow their share of the market.

One of the key reasons many seniors are attracted to CCRCs is the sense of security they provide their residents, knowing they will be cared for should they need physical or medical assistance in the future. Some people have concerns about opting for a for-profit CCRC, worrying that if they should ever run out of retirement savings they will be “kicked out” by a community whose focus is on making money.

Most CCRCs–both FP and NFP–do reserve the right to terminate a resident’s contract under certain circumstances, but in reality, many CCRCs–for-profit and not-for-profit alike–strive to provide a home and assistance for residents even if the senior is unable to meet their financial commitment to the CCRC. Thus, I advise seniors and their families that they should not exclude all FP communities from their CCRC search. I have seen language in the residency contracts of FP communities that is virtually the same as that which is typically found in a NFP community, but not always. Some FP providers do make it clear that they will provide notice that a resident must vacate if they exhaust their funds.

In theory, the chances of a resident requiring financial assistance from the community should be relatively low. This is because most CCRCs go through a financial qualification process with new residents, which helps ensure that there is a reasonable chance that the resident has enough money. Furthermore, many providers offer a refundable entry fee, and in this case, if the resident runs out of money then their entry fee refund will almost always be used to offset healthcare expenses before any financial assistance will become available. Finally, for providers that accept Medicaid, residents may qualify for this form of government assistance to cover healthcare expenses when they exhaust their funds.

What is the real difference between the two?

When looking at CCRCs, it is important to understand how each community is run. I always suggest you do your due diligence about the financial outlook of a provider, regardless of whether it is a FP or NFP, because at the end of the day, any available financial assistance depends on the organization’s ability to provide these funds. But in the simplest terms, here are a few of the key differences between a for-profit and a not-for-profit CCRC:

Not-for-profit CCRCs keep earnings in the organization

  • Not for-profit CCRCs fall under section 501(c)(3) of the Internal Revenue Code. According to the IRS, a 501(c)(3) organization “must be organized and operated exclusively for exempt purposes” and “none of its earnings may inure to any private shareholder or individual.” Such entities are usually referred to as “charitable organizations. Indeed, many prospective residents are attracted to the idea that earnings stay in the organization.
  • Not-for-profit CCRCs are often owned by religious or faith-based groups, or fraternal organizations. This often serves as the foundation for a strong mission-based culture that is attractive to many seniors.
  • Most not-for-profit CCRCs are exempt from paying state property taxes and some may suggest that this cost gets passed on to the resident, buy it would be difficult to definitely prove that to be the case across the board. Note: If a not-for-profit CCRC should lose its property tax exemption it could deal a significant blow to the community’s finances.
  • Be sure that the board of directors and management teams are professionally suited to manage the organization. For instance, if the board members have experience governing a church but not necessarily an entire housing and healthcare facility then this could lead to problems later. This may occur when a new community is formed or when a smaller operation expands to a CCRC model.

For-profit communities have a responsibility to investors and/or shareholders.

  • For-profit CCRCs are responsible to corporate investors and/or shareholders who are interested in making money on their investment. According to James M. Moloney, Head of Real Estate and Co-Head of Tax-Exempt M&A at Cain Brothers in San Francisco, for-profits are “run from a financial return perspective, as opposed to the mission-in-perpetuity perspective of the not-for-profits.”
  • This is not to suggest that FP CCRCs do not also reinvest some of their profits back into the facility­–they do. After all, if a CCRC does not provide up-to-date amenities and high-quality services to its residents then the organization will not be successful.

Which is right for you?

I’m not aware of any concrete research showing that one type is appreciably better than another as it relates to financially viability, pricing, services, or otherwise. In fact, as it relates to pricing, research from several years ago shows that operating cost per resident to be very similar among for-profit and not-for-profit CCRCs and that competitive market rate communities offer similar rates regardless of tax status. (Limited research has shown that for-profit nursing homes tend to provide lower quality care than not-for-profit providers. However, this research applies to stand-along nursing homes and may not necessarily translate to nursing homes operating within a CCRC. If the provider is certified by Medicare you can view their healthcare ratings.)

Of course, research is usually based on averages and the experience provided by any particular community vary from the averages. Therefore, regardless of whether you are thinking about a not-for-profit or a for-profit CCRC you should consider other important aspects such as available services and amenities, professionalism of the staff, culture and lifestyle, proximity to places you frequent, financial viability of the organization, and the quality of healthcare services, just to name a few.

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