The Reality of CCRC Financial Failure
Despite promises of a secure retirement, some continuing care retirement communities (CCRCs), also known as life plan communities, have faltered financially. This trend became more evident following the economic pressures of recent years, including the pandemic. The result is devastating for residents who have invested hundreds of thousands, or even millions, of dollars in entrance fees, sometimes losing most or all of their life savings.
Notable CCRC Bankruptcies and Closures
Several high-profile cases have highlighted the risks involved:
- The Harborside (Port Washington, NY): This community filed for Chapter 11 bankruptcy multiple times, eventually voiding many resident contracts and jeopardizing entrance fee refunds.
- Unisen Senior Living (Tampa, FL): After its second bankruptcy, Unisen closed, forcing more than 100 residents to relocate.
- Henry Ford Village (Dearborn, MI): The community was sold in bankruptcy, leaving residents with fractional refunds of their original deposits.
- Aldersgate (Charlotte, NC): While it avoided outright bankruptcy, this CCRC required state oversight and a corrective action plan to address years of financial instability, leaving residents waiting months for refund payments.
Warning Signs of a Financially Failing CCRC
Before investing a substantial portion of your life savings, it is vital to research a CCRC's financial health. While facilities may appear thriving on the surface, underlying issues can signal trouble.
Here are some red flags to watch for:
- Low Occupancy Rates: CCRCs rely on a steady influx of new residents to remain solvent. An occupancy rate consistently below 90% is a major concern, as it signals a lack of incoming revenue.
- High Staff Turnover and Low Staff-to-Resident Ratio: Financial stress often leads to understaffing and cuts in wages and benefits, which in turn causes high turnover. This not only affects the quality of care but is a sign of financial strain.
- Rising Costs That Exceed Inflation: While fee increases are normal, large or frequent jumps in monthly fees (e.g., 15–20% annually) can indicate poor financial planning or a desperate attempt to stay afloat.
- Delayed Refunds: Many CCRC contracts stipulate that entrance fees are refunded only after a new resident moves into the vacated unit. If residents or heirs are experiencing long delays in receiving refunds, it could mean the community isn't attracting enough new buyers.
- Negative Financial Indicators: Scrutinize audited financial statements for liabilities exceeding assets or expenses outstripping operating income. Key metrics to evaluate include days cash on hand (ideally 120–200 days) and operating revenue (ideally within 5–10% of expenses).
What Happens When a CCRC Goes Bankrupt?
CCRC bankruptcy proceedings can be incredibly complex and are often devastating for residents. When a facility files for Chapter 11 protection, residents who paid entrance fees are typically designated as unsecured creditors.
In bankruptcy, the hierarchy of creditors is important:
- Secured creditors (like banks and bondholders) are paid first.
- Unsecured creditors (including residents) are last in line and often recover only a small fraction, if anything, of their initial investment.
Beyond financial losses, residents face the trauma of potential eviction and displacement. While some bankruptcy reorganizations protect resident rights, others have voided continuing care contracts entirely.
How to Assess a CCRC's Financial Viability
Protecting your life savings requires diligent research. You don't have to navigate this complex process alone.
- Get a Disclosure Statement: Ask for the CCRC's audited financial statements, which include crucial information on net assets, income, and liabilities. In many regulated states, facilities must provide a disclosure statement to prospective residents.
- Consult a Professional: Engage a financial advisor or attorney with expertise in CCRC contracts. They can help you interpret financial reports and navigate the legal complexities of the residency agreement.
- Check Accreditations and Oversight: Reputable organizations like CARF International accredit CCRCs and provide valuable consumer guides to financial performance. Also, investigate the level of state oversight, as regulation varies significantly.
- Evaluate Key Ratios: Review financial ratios like debt service coverage and cash on hand. A lower-than-average debt service coverage ratio could indicate trouble meeting debt obligations.
- Use Public Resources: For nonprofit CCRCs, you can review tax filings on sites like ProPublica's Nonprofit Explorer to understand their financial history and spending habits.
CCRC Financial Indicators Comparison
| Indicator | Financially Healthy CCRC | Financially Struggling CCRC |
|---|---|---|
| Occupancy Rate | Consistently above 90% | Below 85%, indicating difficulty attracting new residents |
| Days Cash on Hand | 120 to 200+ days of operating cash reserves | Very low cash reserves, unable to weather financial downturns |
| Monthly Fee Increases | Predictable, modest annual increases (e.g., 2–4%) | Large, unpredictable increases (e.g., 15–20%), signaling budget issues |
| Resident Entrance Fee Refunds | Consistent, timely refunds paid as per contract terms | Significant delays in paying refunds due to low occupancy |
| Financial Performance | Operating revenue closely matches or exceeds expenses | Operating expenses consistently exceed revenue, leading to losses |
| Accreditation Status | Accredited by organizations like CARF International, with strong track record | Lacks accreditation or has faced regulatory sanctions due to financial issues |
Conclusion: Navigating the Financial Risk
The unfortunate truth is that some CCRCs have failed, and more are likely to face financial challenges in the future. Factors like complex financial structures, insufficient oversight, and a reliance on a constant stream of new residents can create a fragile system. The ultimate responsibility lies with the consumer to conduct thorough due diligence, scrutinize contracts with a professional, and remain vigilant about the facility's financial health. By asking the right questions and seeking expert advice, you can significantly reduce your risk and secure a more stable future in your chosen retirement home. For a comprehensive guide on evaluating a CCRC's financial standing, refer to myLifeSite's Financial Viability Guide.
