- 9-Minute Article
- May 03, 2021
A Guide to the Future of Retirement Communities
Plan ahead for costs associated with nursing homes and continuing care retirement communities.
- What are options for retirees who prefer not to, or can’t, age in their own homes?
- What are the costs associated with continuing care retirement communities?
- How are nursing homes expected to change because of the impact of COVID-19?
While many people may prefer to age at home, others want – or may need – to receive care outside of their home as they age. Continuing care retirement communities (CCRCs), assisted living facilities, and nursing homes are three of the primary options for this group.
While all of these provide medical care on-site, the primary difference is that CCRCs offer a continuum of care, which can begin with independent living and progress to assisted living and skilled nursing as a person’s needs increase. Assisted living facilities typically focus on helping with daily activities, such as bathing, cooking, or getting out of bed. Nursing homes typically specialize in the skilled nursing element.
The costs of assisted living facilities and nursing homes have increased dramatically over the past 10 years.1 By 2030, both assisted living and nursing home costs are expected to increase by more than 35%, with assisted living costs outpacing those of nursing homes.2
While some countries outside the U.S. have government programs that pay for long-term care, Medicare does not pay for most long-term care in a CCRC, nursing home, or assisted living facility. That’s why it’s essential to plan for these future medical care needs.
As financial professionals and their clients look at what retirees’ long-term care needs may be in the future, it’s important to understand the continuing evolution of nursing homes and CCRCs, as well as the costs associated with both.
Care Options Likely to Get More Expensive
The average annual cost for a private room at a Nursing Home was $105,850 in 2020. The annual cost for an Assisted Living facility was $51,600.
Sources: Genworth 2010 Cost of Care Survey; Genworth Financial, conducted by CareScout®, April 2010. Genworth Cost of Care Survey; Genworth Financial, conducted by CareScout®, August 2020. The Ballooning Costs of Long-Term Care; American Action Forum, February 18, 2020.
CCRCs Focus on Continuum
CCRCs accommodate a range of medical care needs on-site – including independent living, assisted living, and skilled nursing care – all within the same community. There are about 2,000 CCRCs in the U.S.,3 and residents typically have the option of starting out in independent living apartments. As their need for care increases, they may choose to transition to an assisted living facility within the same community, which gives them some consistency in location and social atmosphere while still providing them with the level of care they need.
Retirement Communities Offer Luxury Living and Will Target Active Older Adults
When CCRCs were first established, they were cookie-cutter in many ways. With the number of people interested in receiving home care increasing, however, operators needed to find ways to differentiate and appeal to a new demographic of aging retirees. As a result of this shift in demand, several CCRCs have opened with a focus on luxury living, featuring amenities such as high-end restaurants, wine cellars, and movie theaters.
Developers are also marketing some CCRCs to niche audiences, such as the LGBTQIA+ community or active retirees. In one survey published in 2019, 87% of senior housing professionals said they were developing or considering developing projects geared toward active adults, and 97% said they expected that category to grow in popularity over the next three years.4
CCRCs Likely to Target Active Adults
Source: The Changing Face of Active Adult Rental. Senior Housing News, November 1, 2019.
This combination of factors may make a CCRC an attractive option for a retiree who wants the feeling of community and independence but still needs some level of care – and who may not have (or want) a family member to provide it.
Ongoing Costs Are Flexible, but Upfront Costs
Can Be High
Arguably the biggest consideration for those interested in living in a CCRC is cost. Despite their seeming popularity, only about 20% of baby boomers can afford private continuing care, according to some industry estimates.5 The price can be steep – entrance fees average about $300,000 – but costs are even greater for some of the more specialized and luxury-focused communities. Monthly rates at CCRCs can range from $3,000 to $6,000 or even more, depending on factors like location, amenities, and the level of care.6
People interested in CCRCs may be able to control some of their costs by either choosing a package that will cover all levels of support during their occupancy, or selecting only the services they need at their time of move-in and changing them later as their needs evolve.
Nursing Homes Face a Challenging Post-COVID-19 Future
Nursing homes are group facilities that provide around-the-clock care for those who can no longer live independently. Like other forms of care, nursing homes have seen significant price increases, with the cost of a private room increasing by 41% between 2010 and 2020.1 At the same time, occupancy rates have declined overall during the past five years,7 partly because of the advent of CCRCs and the popularity of home care. A healthier senior population may result in shorter stays in nursing homes, which could put additional pressures on their occupancy and, as a result, revenue. When looking to the coming decade, the nursing home model will likely need to adapt to the modernization of health care by providing additional, attractive care options in order to stay competitive.
Reimbursement Models Could Make Modernizing Difficult
Nursing homes have long faced financial challenges, in part due to how the federal government reimburses them for their services.8 The revenue challenges could make it more difficult for nursing home operators to undertake renovations without significant price increases, especially for those who may be paying out of their own pockets.
Nursing homes get most of their revenue from Medicaid and Medicare reimbursements, but Medicaid reimbursements are significantly lower. The average Medicaid reimbursement to nursing homes was only about $215 per patient day as of 2019.7 While that payment amount has been increasing over time, it has historically caused concern, with some studies saying that, in some cases, it may even be lower than the per-patient expenses that nursing homes face.9 One study found that Massachusetts skilled nursing homes with a higher percentage of Medicaid patients tended to have greater financial losses than those with a lower percentage of Medicaid patients.10
This potential shortfall in revenue compared to expenses becomes even more important as the percentage of Medicaid patients in nursing homes has been rising and is currently at about 70%.7 The low reimbursement levels have led to outdated facilities in some instances, as well as an underpaid and undertrained workforce, according to some industry analysts.11
Changing Resident Demographics Create Financial Challenges for Skilled Nursing Facilities
An increasing percentage of residents are covered by Medicaid, which has lower reimbursement rates than what skilled nursing facilities receive from Medicare or private payers.
Source: Annual 2019 Skilled Nursing Data Report: Key Occupancy & Revenue Trends. National Investment Center for Seniors Housing & Care, 2020.
The COVID-19 pandemic has given nursing homes some somber notoriety. In the early stages of the pandemic, nursing home residents accounted for a startling 40% of COVID-19 deaths, even though they made up less than 1% of the U.S. population.11
One result of the pandemic may end up being more government oversight of nursing homes.11 In June 2020, the Centers for Medicare & Medicaid Services formed an independent commission to study nursing homes’ responses to COVID-19. With or without additional regulations, experts believe that nursing homes will need to update their facilities to eliminate shared bedrooms, improve air circulation, and curb the spread of contagious infections.
If these changes require nursing homes to eliminate resident rooms to create more open space, they could end up with fewer rooms to offer to people – and therefore, even more limits imposed on their revenue potential. Again, this could drive price increases to help nursing home businesses remain solvent.
Potential government regulations would likely focus on the safety of the growing senior population. There are organizations with innovative ideas that are already working to provide a pathway to the future of nursing homes and to help provide better options for that population. The Green House Project, for example, is a nonprofit organization that consults with developers to encourage them to build smaller-scale nursing homes.12 These communities feature self-contained units with private rooms and bathrooms. It’s a move away from the more traditional, institutional style, and it may end up being the future blueprint for how nursing homes look and operate.
Developing a Strategy to Pay for Long-Term Care
Financial professionals and their clients should consider starting discussions early about clients’ current health, preferred living arrangements, and care preferences as part of retirement planning efforts. It’s worth considering that an individual may need a combination of home care and some type of facility care, such as assisted living or skilled nursing, during retirement.
While Medicare may not cover long-term care, insurance may be an option. Hybrid life insurance and long-term care have grown over recent years. These policies can give people the flexibility of having money for long-term care that can be converted into a death benefit if they end up not using the long-term care component.13
Having a strategy to pay for long-term care as part of a complete retirement plan – and then reevaluating it on a regular basis – may help prevent some of the emotional and financial stress around long-term care for all involved.
Looking for ways to start a discussion about long-term care? Try these conversation starters:
- As you have more health care needs in the future, would you prefer to receive care in a community setting?
- What are important amenities you might want in a retirement community?
- Do you want to make adjustments to your long-term care plan as you go, or would you feel more comfortable being covered for any needs you may have from the beginning of the process?