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What you need to know about a continuing-care retirement community's finances

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  • Look for a funded status greater than 100%, ideally in the range of 108-110%.
  • Ensure the actuarial ratio is within the recommended range for the type of CCRC.
  • A healthy pricing margin of 10%-15% indicates well-priced contracts.

Choosing a Continuing-Care Retirement Community (CCRC) is a significant decision that involves not only considering the lifestyle and care options but also the financial health of the community. Understanding the financial stability of a CCRC is essential to ensure that it can meet its long-term obligations and provide the promised services. Here’s a comprehensive guide to vetting the financials of a CCRC.

A Continuing-Care Retirement Community (CCRC) offers a continuum of care, from independent living to assisted living and skilled nursing care. This model provides residents with the assurance that their future health care needs will be met within the same community. However, this promise hinges on the financial viability of the CCRC.

Key Financial Indicators to Evaluate

1. Funded Status

The funded status of a CCRC indicates whether the community has sufficient assets to meet its future obligations. A funded status greater than 100% is desirable, with a range of 108-110% providing a buffer for economic uncertainties. This metric ensures that the community can deliver on its long-term promises to residents.

2. Actuarial Ratio

The actuarial ratio measures the percentage of future expenses that are expected to be covered by future revenues. For Type A or Type B communities, look for ratios of 65%-85% or 80%-100%, respectively. This ratio helps assess the community’s ability to handle adverse financial conditions.

3. Pricing Margin

The pricing margin evaluates whether the CCRC’s contracts are adequately priced. A margin of 10%-15% is typically considered healthy. This ensures that the community can maintain its financial health while providing the necessary services to residents.

Evaluating Financial Statements

Prospective residents should review the CCRC’s financial statements, including the statement of financial position, income statement, and cash flow statement. These documents provide insights into the community’s current financial health and its ability to sustain operations in the long term.

Importance of Actuarial Studies

Actuarial studies project future cash revenues and expenses, reflecting the long-term viability of the CCRC. These studies are crucial for understanding whether the community can meet its future obligations. Focus on the funded status, actuarial ratio, and pricing margin within these studies to get a comprehensive view of the community’s financial health.

Regulatory Considerations

Different states have varying regulations governing CCRCs. If the CCRCs on your list are in regulated states, their state filings can provide valuable information about their financial health. Understanding these regulations can help you make a more informed decision.

Additional Factors to Consider

1. History of Fee Increases

Review the history of monthly fee increases over the past few years. Frequent and significant increases may indicate financial instability. Understanding the reasons behind these increases can provide insights into the community’s financial management practices.

2. Quality of Care

While financial health is crucial, the quality of care provided by the CCRC is equally important. Visit the community, talk to current residents, and review quality measures, especially for skilled nursing facilities. This will help ensure that the community not only has the financial means but also the capability to provide high-quality care.

3. Resident Feedback

Talking to current residents can provide valuable insights into the community’s financial health and overall satisfaction. Residents can share their experiences with fee increases, quality of care, and the community’s responsiveness to their needs.

Evaluating the financial health of a CCRC is a critical step in ensuring that your investment is sound and that the community can meet its long-term obligations. By focusing on key financial indicators, reviewing financial statements, and considering regulatory and quality factors, you can make an informed decision that provides peace of mind for your future.

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