The Case for Life Care Insurance Guaranty Associations
John H. Skinner, Ed.D.
Board Member--Freedom Plaza, SCC Chapter of Florida Life Care Resident Association (FLiCRA)
Board Member--National Continuing Care Resident Association (NaCCRA)
The Problem
In the last five years, at least sixteen Life Care Retirement Communities (CCRCs) nationally, including four in Florida, have filed for bankruptcy, which highlights concerns seniors have about moving into a CCRC. Increased operating costs, labor shortages, wage increases, and inflation have driven up the cost of a CCRC contract and monthly service fees which have increased financial stress within the operators as well as deterred prospective buyers.
Prospective buyers first encounter the cost of entrance fees, typically between $200,000 and one million dollars, and a lifetime of monthly maintenance fees. In addition to lifestyle changes, homes must be sold in a soft market, and all involved must be convinced that the huge investment is worth the price. Providers must find the price point that will cover housing and life care needs in uncertain economic times. A buyer must be sure this investment is secure and that the CCRC will fulfill the life care promised.
The lack of such a surety is harmful to the industry. Many failing CCRCs do not keep sufficient reserves to cover the life-time commitments made to CCRC residents. When operators start using residents’ deposits, bonds and existing reserves to cover long term care, the operators may be in financial trouble. Occupancy rates below 80% in established CCRCs is a cause for concern. Some CCRCs with an occupancy rate between 60% to 70% have filed for bankruptcy.
In most states, Offices of Insurance Regulation (OIR) monitor and require compliances as the main deterrent against financial catastrophes. When an operator is not in compliance, the OIR can require appropriate actions to correct deficiencies. Despite state oversight, fraud and bankruptcies are occurring, and residents are placed in limbo. Press coverage highlights increased concerns among potential buyers and their families. CCRC failure may cause residents to lose their investments, and they are last in line for repayment as unsecured creditors. They lose thousands of dollars as well as suffer eviction from their “forever “homes and long-term care. This catastrophic loss of investment creates barriers to finding comparable living arrangements.
When state oversight fails followed by a CCRC bankruptcy, the negative effects of home loss for the residents, loss of jobs for employees, and loss of commerce for service providers are enormous. Nationwide, over 2,000 CCRCs employ approximately one million staff. The local suppliers also lose revenue. Bankruptcy trickles negatively into almost every aspect of the economy.
The Solution
State-sanctioned insurance guaranty associations protect policyholders and claimants in the event of an insurance company’s impairment or insolvency. These associations provide guarantees of continued coverage for insurance policyholders. In Florida, for example, a Life and Health Insurance Guaranty Association serves to protect insurance policy holders. The hybrid nature of CCRCs has resulted in their falling through the insurance guaranty association coverage crack. CCRCs offer “insurance-like” actuarial long term care components. Even with the infrequent closing, residents are always in jeopardy of losing that component of the long-term care contract. There is an urgent need for a Life Care Insurance Guaranty Association to give CCRC residents confidence that their investment is secure. In Florida, for example, the Life and Health Guaranty Association exists and the seventy-one CCRCs could potentially be included under this provision.
A Call to Action
Jack Cumming, of Life Enrichment, and a board member of NaCCRA, recently penned an open letter to Leading Age noting “…if providers and residents were not in tension but were working together for a better living…providers will be more successful if they empower residents rather than themselves.” Residents, owners, operators, legislators and life care advocate organizations must come together in a shared approach to secure life plan communities through a product such as a Life Care Insurance Guaranty Association. This action is both moral and economic. This type of association benefits the industry and improves marketing. This added security helps fulfill the CCRC contracts that promise stability, care and continuity for aging residents who will or have heavily invested in their “forever home.”