Reverse mortgages are beginning to catch on as a way to fund long-term care, and now, one of the primary reasons borrowers take out out this type of loan—so they can stay at home—could mesh with a developing senior at-home care model: “CCRCs without walls.”
The continuing care retirement communities (CCRCs) without walls model allows seniors to remain in their homes and receive the same continuum of care services they’d get if they were living in a traditional community, using a similar contract structure. Reverse mortgages could be a possible method for financing this new model, but because most programs senior living providers are offering are still relatively new, there hasn’t been much time to see how this product pairing would work.
How do CCRCs traditionally work?
CCRCs offer a continuum of care ranging from independent living (more of a hospitality or lifestyle approach), to assisted living (some assistance with daily activities) to skilled nursing, so the at-home model means people can stay where they are even as they get older and their healthcare needs grow.
The communities generally charge incoming residents an entrance fee, which can start at around $100,000 and depends on the person’s age and health, along with a monthly fee that can range between $2,000 and $5,000.
There are three different types of entrance fee contracts generally used at CCRCs. The one for the “without walls” model is generally a “Type A” contract that basically functions like long-term care insurance by allowing incoming residents to “lock in” at a certain monthly rate when they enter independent living. This rate stays about the same (although in some communities it might increase slightly) as residents advance through the continuum of care.
The new model: CCRCs-without-walls
For this emerging model of CCRCs “without walls,” existing senior living communities are branching out into the surrounding area to provide the same sorts of care to people who want to remain in their homes using a similar contract structure.
It’s not exactly a brand-new concept, as Stephen Maag, Director of Residential Communities at LeadingAge says these programs have been in existence since the 1990s. But development has been slow, he says, with factors including the economic recession and a lack of understanding of the program.
There are currently about 12 existing CCRC-without-walls programs in various stages of development or implementation, Maag estimates, and at least a few have been around for a number of years. Others, like the program started by Evangelical Homes of Michigan, are more recent and were begun within the past couple years.
It’s important to distinguish this model from other CCRCs that have programs providing services to seniors in their homes, ranging from home health care to personal care to chore services, Maag points out.
“The important difference is a CCRC without walls program takes the concept of the life care contract and a bundle of services into the home,” he says in February 2012 paper about the model. “A CCRC without walls contract is a comprehensive approach to providing the health and wellness lifestyle to seniors in their homes. It is not just services which can be purchased on as needed basis.”
CCRCs-without-walls and reverse mortgages
Most people entering a traditional CCRC pay the entrance fee with the help of their previous home’s sale. But this new model is keeping seniors in their homes—but still has the entrance fee component, which Maag found ranged between $20,000 to $70,000 among existing programs.
This could pose a problem for many seniors on fixed incomes. While AARP studies show about 90% of older adults want to remain in their own homes for as long as possible, two-thirds of Americans fear they won’t have enough money for retirement, according to a June 2011 Gallup poll.
That’s where reverse mortgages come into play. Using this type of loan to finance the buy-in to a CCRC-without-walls program “could very easily” be the solution to being able to afford the “Life Care” type of contract, says Dennis Baier, a mortgage broker specializing in reverse mortgages at Chicago-area Wintrust Mortgage Corporation.
“The whole point of a reverse mortgage is keeping a senior in their home and keep them comfortable and familiar in their surroundings,” says Baier, who’s also a part of a task force committed to helping seniors transition from home into retirement living.
Does the model work with the program?
However, reverse mortgages don’t work for everyone, and they won’t necessarily work with this CCRC model, he adds.
“In general, it’s a good idea,” says Norma Coe, associate director for research at the Center for Retirement Research at Boston College. “There is one concern, though, especially when you get to a stage where you need 24-hour care: It’s more expensive to be [providing] it at individual houses.”
The issue is that while a reverse mortgage lump sum may initially help seniors buy into the CCRC model, they might not be able to sustainably afford the monthly fees which may increase as the level of care they need intensifies.
It’s difficult to calculate the premiums for more intensive care, Coe says, adding that it’s “more about the [CCRC] model than whether reverse mortgages are able to pay for it.”
Still, using a reverse mortgage could definitely be an option for those who have high-valued homes, as they have more equity to draw down.
The new model sounds like a perfect fit with reverse mortgages, whose only major requirement other than age and equity is for the senior to be occupying the home, points out mortgage broker Mehran Aram, the owner of Carlsbad, Ca.-based Aramco Mortgage. With that in mind, this could be “a perfect solution,” he says.
But because most of the CCRC-without-walls programs are relatively new, it’s still unknown how the model will work when people get into the higher (and more expensive) levels of care, and methods for payment vary.
“At Evangelical Homes of Michigan we try to provide a variety of options and solutions to assist clients in managing payment of their entry fee for a LifeChoices membership including various payment plan options,” said Denise Rabidoux, president and CEO of EHM. “To date we have not had a client approach us to discuss reverse mortgage as an option.”
EHM, along with certain other CCRC-without-walls providers, hasn’t yet reached the point where “residents” need skilled nursing, according to Steve Hopkins, the vice president of Wellness and Home-based Solutions at EHM.
But receiving care at home is a “very desirable” commodity, Coe says, and demand for this commodity will likely continue to grow.
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