How Does a CCRC Payment Structure Work?

A continuing care retirement community (CCRC, or life plan community) is a senior living option that offers residents a range of independent living choices but also provides a continuum of long-term care services including assisted living or skilled nursing care if later needed. In addition to the many social and wellness opportunities afforded to CCRC residents, they (and their family) also get peace of mind knowing they will have access to whatever level of care they may need down the road.

Providing lifetime housing and healthcare for residents of a CCRC is not inexpensive, however. To ensure the community’s current and long-term financial viability, it is crucial for CCRCs to accurately price residency contracts. In many cases, CCRC contracts are formulated by actuarial consultants who strive to predict future costs and liabilities for the community’s resident population as a whole. But it’s important to read the fine print as the details of CCRC residency contracts can vary rather significantly from one community to the next.

There are some common denominators among most CCRC contracts, however. Typically, the payment structure of CCRC contracts can be broken down into two main parts: buy-in structure and monthly payment structure. Let’s take a closer look at each of these.

CCRC buy-in structure

The buy-in structure determines how much a new CCRC resident will pay up-front to move into the independent living portion of the community. For the majority of CCRC contracts, there are three main types of buy-in structures:

Entry Fee: The incoming resident pays an entry fee that may or may not be refundable — in all or in part — in the future, depending on the terms of the contract.
Equity: The new CCRC resident purchases the independent living residential unit, which may be resold later.
Rental: There is no up-front payment or purchase to move into the CCRC, other than a nominal community fee.

>> Related: A Closer Look at CCRC Entry Fees

CCRC monthly payment structure

The monthly payment structure set out in a CCRC’s contract determines how the independent living resident’s monthly fee will adjust if they begin to need some level of care services. As with the buy-in structures described above, there also are three common types of monthly payment structures found within CCRC contracts:

Fee-for-service: Once an independent living resident begins requiring care services, their monthly fee will increase to reflect the market rate of such care.
Modified: This is a fee-for-service model as well, however the cost of any needed care services is typically discounted, so therefore the resident does not pay the full market rate for care. As another modified option, a CCRC contract may provide a certain number of days of care services at no extra charge before the resident’s monthly rate increases.
Lifecare: With this contract type, a CCRC resident’s monthly rate does not increase if care services are ever needed. The monthly payment rate is essentially the same regardless of whether a resident is living independently or requires care services.
Note: Some CCRCs that have lifecare contracts have begun offering a monthly payment structure where residents who require care will pay a monthly amount that is equivalent to the average monthly payment of all residents who live in independent living. In other words, a resident in one of the lower priced units could experience an increase in their monthly payment when they begin to need care services. Conversely, a resident living in the CCRC’s higher priced independent living units could actually see a decrease in their monthly payments should they begin to require care.

The interconnection between buy-in and monthly payment structures

All other things being equal, you can expect there to be a trade-off between the amount paid for the buy-in and the amount paid monthly.

For example, a lifecare contract will usually require a larger entry fee for buy-in (and possibly even higher monthly fees for independent living) than a modified or a fee-for-service contract. However, with a lifecare contract, the resident would pay less each month for assisted living or skilled nursing care services.

As another example, a fee-for-service contract will usually require a lower entry fee for buy-in (and likely lower monthly fees for independent living residents) than a lifecare contract, however the monthly payment amount would increase should care services be needed.

It’s important to again emphasize the caveat above — “all other things being equal.” This is because there are often other factors involved in CCRC pricing, just as there are other types of factors that impact the standard housing market (location, home size, inventory supply/demand, etc.).

Let’s say you are comparing a lifecare community in a rural area of Pennsylvania to a fee-for-service community located on the water in Portland. In this particular example, you would almost be guaranteed to pay more for the fee-for-service community simply because of the attractive location — just as you would for a standard home in a more desirable location.

In addition to location, the level of services and amenities offered by a community also factors into the overall cost structure of a CCRC.

Understanding what you are getting for your money

The decision to move to a CCRC will impact both your quality of life and your finances. That’s why it is so important to understand what your buy-in and monthly payment costs might be, now and in the future. The following chart shows how buy-in structures could be paired with monthly payment structures:

This chart shows that there are six possible combinations of buy-in “options” and monthly payment “options.” You’ll also note that rental contracts always operate with a fee-for-service monthly payment. In addition, the monthly fee rate for independent living at a rental community will most likely be higher than the monthly fee at an entry fee community — again, all other things being equal.

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