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entitled 'Older Americans: Continuing Care Retirement Communities Can 
Provide Benefits, but Not Without Some Risk' which was released on 
July 21, 2010. 

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Before the Special Committee on Aging, United States Senate: 

United States Government Accountability Office: 

For Release on Delivery: 
Expected at 2:00 p.m. EDT:
Wednesday, July 21, 2010: 

Older Americans: 

Continuing Care Retirement Communities Can Provide Benefits, but Not 
Without Some Risk: 

Statement of Alicia Puente Cackley, Director:
Financial Markets and Community Investment: 


Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss continuing care retirement 
communities (CCRC), the risks they and their residents face, and their 
regulation. A growing population of older Americans is seeking options 
for ensuring that their assets and income in retirement will cover the 
cost of their housing and health care needs. One option for meeting 
these long-term care needs is to enter a CCRC, which aims to provide 
lifelong housing, household assistance, and nursing care in exchange 
for a sometimes sizable entrance fee and ongoing monthly fees. These 
communities may appeal to older Americans because they offer an 
independent lifestyle for as long as possible but also provide the 
reassurance that, as residents age or become sick or frail, they will 
receive the care they need within the same community. But choosing to 
enter a CCRC can be a difficult decision and is not without risk. 
Moving to a CCRC generally involves a significant financial and 
emotional investment. Many older Americans sell their homes, which are 
often their primary assets, to pay the required fees, and, as a 
result, their ability to support themselves in the long run is 
inextricably tied to the long-term viability of their CCRC. Further, 
many CCRCs may be financially vulnerable during periods of economic 
decline--such as the recent downturn--that can result in tight real 
estate and credit markets. 

My testimony is based on our June 2010 report, which is being publicly 
released today and addresses four issues: (1) how CCRCs operate and 
what financial risks are associated with their operation and 
establishment, (2) how state laws address these risks and what is 
known about how adequately they protect CCRCs' financial condition, 
(3) risks that CCRC residents face, and (4) how state laws address 
these risks and what is known about their adequacy.[Footnote 1] 

To address these questions, we reviewed CCRC statutory provisions from 
eight states--California, Florida, Illinois, Ohio, New York, 
Pennsylvania, Texas, and Wisconsin--and interviewed regulators from 
those states. We selected these states based on a number of criteria, 
including extent of regulatory requirements, size of CCRC population, 
and geographic location. We also reviewed summary information found in 
an industry study on laws and regulations across all states.[Footnote 
2] In addition, we also we interviewed officials from eight CCRCs and 
obtained relevant documentation to understand their specific 
experiences developing and operating CCRC facilities. Finally, we 
interviewed national industry associations, actuaries specializing in 
CCRCs, attorneys specializing in senior issues, CCRC providers, 
national and state residents' associations, and officials involved 
with CCRC finance and debt ratings. A full description of our scope 
and methodology is included in appendix I of our report. 

We conducted this performance audit from June 2009 to July 2010 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Mr. Chairman, the following summarizes our findings on each of the 
four issue areas discussed in our report: 

* CCRCs can benefit older Americans by allowing them to move among and 
through independent living, assisted living, and skilled nursing care 
in one community. They offer a range of contract types and fees that 
are designed to provide long-term care and transfer different degrees 
of the risk of future cost increases from the resident to the CCRC. 
However, developing CCRCs can be a lengthy, complex process and CCRCs, 
like other businesses, face a number of risks both during their 
development and after they become operational. First, actual 
construction costs and consumer demand may not match developers' 
forecasts. To attract financing from lenders and ensure adequate 
underwriting for CCRC projects, developers need to generate sufficient 
presales and deposits prior to construction to show a tangible 
commitment from prospective residents. In addition, facilities in the 
start-up stage need to reach full occupancy as quickly as possible in 
order to generate income that will not only cover operational costs 
once built but also help pay down construction loans. As a result, 
accurate projections of future revenues and costs are important as a 
CCRC becomes operational. Once operational, risks to long-term 
viability include declining occupancy, unexpected cost increases, slow 
real estate markets, and declining equity and credit markets. While 
few CCRCs have failed, challenging economic and real estate market 
conditions have negatively affected some CCRCs' occupancy and 
financial condition. 

* With respect to financial oversight of CCRCs, states we reviewed 
varied in the extent to which they ensured CCRCs addressed their 
risks, and some focused more on long-term viability than others. Most 
of the states we reviewed required CCRC providers to maintain some 
level of financial reserves to address financial challenges. In 
addition, most of the states we reviewed required CCRCs to annually 
submit audited financial statements that reflected financial 
performance for the past year. However, only four of the states 
required information that could help them assess each CCRC's long-term 
viability, and three states had conducted financial examinations. 
Three of the states we reviewed required certain CCRCs to perform 
actuarial studies at regular intervals and one used financial 
information submitted over the years to assemble trend information 
including financial ratio trends.[Footnote 3] Actuarial studies, 
according to industry participants, can help CCRCs plan for 
contractual obligations and set appropriate housing and care prices. 
Without them, they noted, a CCRC may appear financially stable in the 
short term yet still face threats to long-term viability. The lack of 
a long-term focus creates a potential mismatch with residents' 
concerns over their CCRC's long-term viability. CCRC bondholders and 
rating agencies, which focus on long-term viability, often place 
requirements on CCRCs that go beyond state licensing and oversight 
activities. While we did not survey all 50 states as part of our 
review, according to an industry study, 12 states and the District of 
Columbia do not have CCRC-specific regulations, meaning an entity in 1 
state may be subject to such regulations while a similar entity in 
another state may not. Regulators and CCRC providers we spoke with 
generally believed that current CCRC regulation was adequate, however, 
some CCRC residents' association officials expressed the need for 
financial oversight that focused on the long-term viability of CCRCs. 

* While CCRCs offer long-term residence and care in the same 
community, residents can still face considerable risk. For example, 
CCRC financial difficulties can lead to unexpected increases in 
residents' monthly fees. And while CCRC bankruptcies or closures have 
been relatively rare, and residents have generally not been forced to 
leave in such cases, should a CCRC failure occur, it could cause 
residents to lose all or part of their entrance fee, which may amount 
to hundreds of thousands of dollars. For example, residents of one 
CCRC in Pennsylvania lost the refundable portion of their entrance 
fees in 2009 when the facility became insolvent after a change in 
municipal tax policy made the CCRC liable for unanticipated local 
taxes. Ultimately, it was sold to a new operator. Residents can also 
become dissatisfied if CCRC policies or operations fall short of 
residents' expectations or there is a change in arrangements they 
thought were contractually guaranteed, such as charging residents for 
services that were previously free. In addition, residents also face 
the risk of being transferred involuntarily from one level of care to 
another or of not being able to obtain assisted living or nursing care 

* Most of the states GAO reviewed take steps to protect the interests 
of CCRC residents, such as requiring the escrow of entrance fees and 
mandating certain disclosures. For example, a number require contracts 
to be written in clear and understandable language, though some 
industry participants questioned residents' ability to fully 
understand them. In addition, not all review the content of contracts. 
Also, states we reviewed varied considerably in the type of financial 
and other disclosures required of CCRCs. For example, some states 
required disclosure of fee schedules and a history of fee increases, 
but other states did not. Also, not all require disclosure of policies 
likely to have a significant impact on residents' satisfaction, such 
as policies for moving between levels of care. In addition, 
regulations in some states require that residents of a CCRC be allowed 
and encouraged to form groups in order to communicate with management, 
while other states had no such requirement. As noted above, 12 states 
and the District of Columbia do not have CCRC-specific regulations, 
meaning an entity in 1 state may be subject to such regulations while 
a similar entity in another state may not, and consumers in some 
states may not receive the same protections as those in others. In 
contrast, some CCRCs voluntarily exceed disclosures and protections 
required by state regulations. 

The report we are releasing today acknowledges that CCRCs can benefit 
older Americans by helping ensure access to housing and health care in 
a single community as they age. However, choosing to enter a CCRC can 
be a difficult decision, and is not without significant financial and 
other risks. Entering a CCRC often means committing a large portion of 
one's assets with the expectation of receiving lifelong housing and 
care. Further, the stress that recent economic events may have placed 
on CCRC finances underscores the importance of regulators being 
vigilant in their efforts to monitor CCRCs' long-term viability and 
protect consumers. The potential financial risks to CCRCs, and the 
risks to residents that result from committing a considerable amount 
of money to a CCRC, highlight the importance of states being vigilant 
in their efforts to help ensure that CCRC residents' long-term 
interests are adequately protected. Such efforts will only become more 
important as the number of older Americans grows. 

Chairman Kohl and members of the committee, this concludes my prepared 
statement. I would be pleased to respond to any questions. 

GAO Contacts and Staff Acknowledgments: 

For questions about this statement, please contact Alicia Puente 
Cackley at (202) 512-7022 or and Barbara Bovbjerg at 
(202) 512-5491 or Individuals who made key 
contributions to this testimony include Patrick Ward (Assistant 
Director), Clarita Mrena (Assistant Director), Joe Applebaum, Emily 
Chalmers, Erin Cohen, Andrew Curry, Mike Hartnett, Marc Molino, Walter 
Ochinko, Angela Pun, and Steve Ruszczyk. 

[End of section] 


[1] GAO, Older Americans: Continuing Care Retirement Communities Can 
Provide Benefits, but Not Without Some Risk, [hyperlink,] (Washington, D.C.: June 21, 

[2] American Association of Homes and Services for the Aging (AAHSA) 
and American Seniors Housing Association (ASHA), The Assisted Living 
and Continuing Care Retirement Community State Regulatory Handbook, 

[3] Florida regulators said that they maintained a spreadsheet 
containing financial information on CCRCs dating back over a decade 
and used the data to develop trends of financial ratios for each CCRC. 

[End of section] 

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