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Concerns Rise About Continuing-Care Enclaves

Concerns Rise About Continuing-Care Enclaves

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Published by shtoledo
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"Learn About Senior In Home Health Care in Toledo, Ohio

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Published by: shtoledo on Oct 01, 2010
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Concerns Rise About Continuing-Care Enclaves
ByELIZABETHOLSONPublished: September 15, 2010
FOR middle- and upper-income retirees who had the money, it wasalmost a no-brainer in recent years to choose living in a continuing-care retirement community. They could move, as the need arose,from independent living to assisted care to skilled nursing care — all without leaving the community. Well-off older people like Charles W. Prine Jr. of Pittsburgh, a formerhome building executive, plunked down six-figure entrance fees fora spot in a spacious, well-kept colony with amenities like organizedoutings, prepared meals and musical performances.“We thought it would be a great place to be,” said Mr. Prine, 84, who,along with his wife, Elizabeth, moved into an independent living unitin nearby Mount Lebanon, in southwest Pennsylvania, in 2002. “It was a kind of insurance so you could be taken care of, at the sameprice, when you or your spouse needed more care eventually.”The community, then called the Covenant at South Hills, was one of about 1,900 aging-in-place operations — many with waiting lists —that sprouted around the country, especially in California, Florida, theMidwest and the mid-Atlantic states, and provided homes for 900,000people.Few of the communities — about 80 percent of which are operated by nonprofit organizations — have closed or gone bankrupt. But concernsare rising about their financial stability, entrance fees and how thefees are used, and reduced services. Governmental inquiries at severallevels have voiced concerns and called on the communities’ operatorsto disclose more information about their finances to residents andprospective customers.Choosing to enter a continuing-care retirement community “can bea difficult decision and is not without significant financial and otherrisks,” said theGovernmentAccountabilit y Office, the in vestigative arm of Congress, in a report released in July.
 
Buyers should consult a lawyer before committing their savings toa promise of lifetime health care, said the G.A.O., which examinedindustry practices at the request of the Senate Special Committee on Aging. The committee produced a separate study of five communities.Larry Minnix, president of the American Association of Homes andServices for the Aging, an industry group, said his group supported theG.A.O.’s recommendations because “putting up an entry fee is a risk,perhaps a little risk, but it is a risk.” According to the studies, the financial risk is that the operators coulduse the entrance fees, which this year averaged about $250,000, tocover operating costs or to pay debts from construction. The entrancefee is generally refundable to residents who move out or to their heirs.Only 875, or fewer than half, of all such communities require entrancefees, said Robert G. Kramer, president of the National InvestmentCenter for Services, Housing and Care, which provides financial dataon housing for older residents.In addition to the entrance fee, most residents pay a monthly billof $2,000 or more that goes to pay for services and maintenance.Because the labor-intensive care for residents in poor health oftencosts more than the monthly fee, the money from new, healthierresidents is sometimes used to help pay for the care of the less healthy.But the flow of new customers has been endangered by the housingdownturn, which has made it difficult for the elderly to sell homesor, at least, to sell them for the price they had anticipated. Thecommunities are “particularly vulnerable during economic downturns,as stagnant real estate markets drive down occupancy levels inindependent living units,” the G.A.O. report found.The communities’ financial models have also come under scrutiny assome heirs and former residents have begun to ask legislators to look into lengthy delays in recouping entrance fees.Recently, questions have also been raised over whether entrancefees are taxable. One operator, the Classic Residence by Hyatt, now renamed Vi, tangled with theInternalRevenue Service over whether entrance fees were prepaid rent, which is taxable income. Tax officials
 
decided that inHyatt’s case, the refundable portion was a loan andnot taxable. But the I.R.S. cautioned that in other situations such feesmight be counted as income.Shivers also went through the industry when Erickson RetirementCommunities, one of the largest operators with 19 communities andmore than 23,000 residents in a dozen states, filed for bankruptcy protection last year after it accumulated $3 billion in debt in a majorexpansion effort. It emerged from bankruptcy in April after being soldto an investment firm.State insurance regulators need to keep better tabs on the financesof such communities, Alicia P. Cackley, the G.A.O.’s director forfinancial marketing and community investment, told the Senate AgingCommittee at a hearing in July.The government’s report noted that 12 states and the District of Columbia do not have specific rules governing the communities. Thereport looked specifically at the practices of eight states: California,Florida, Illinois, New York, Ohio, Pennsylvania, Texas and Wisconsin.Florida, which has 73 licensed continuing-care retirementcommunities with 30,000 residents, is stricter than most states andclosely oversees the $1.4 billion industry there, the state insurancecommissioner, Kevin M. McCarty, testified at the hearing. After several prominent bankruptcies in Florida and nationally  years ago, the regulatory climate for continuing-care retirementcommunities evolved, Mr. McCarty said. Florida’s Legislature this year increased the amount of financial data that must be disclosed toprospective and current residents.If that had been the case in Pennsylvania, Mr. Prine said, hiscommunity might have avoided bankruptcy last year. “That costthe residents the $26 million we paid in refundable deposits,” hesaid. “We didn’t get a penny back.”Concordia Lutheran Ministries, of Pittsburgh, bought the community,renamed it Concordia of the South Hills, and honored the residency agreements and the life-care contracts. But about 100 residents aresuing the previous owner, B’nai B’rith Housing, a nonprofit affiliate of 

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