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entitled 'Older Americans: Continuing Care Retirement Communities Can 
Provide Benefits, but Not Without Some Risk' which was released on 
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Report to the Chairman, Special Committee on Aging, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

June 2010: 

Older Americans: 

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

GAO-10-611: 

GAO Highlights: 

Highlights of GAO-10-611, a report to the Chairman, Special Committee 
on Aging, U.S. Senate. 

Why GAO Did This Study: 

A growing number of older Americans are choosing continuing care 
retirement communities (CCRC) to help ensure that their finances in 
retirement will cover the cost of housing and care they may require. 
However, recent economic conditions have placed financial stress on 
some CCRCs. 

GAO was asked to (1) describe how CCRCs operate and the risks they 
face, (2) describe how state laws address these risks, (3) describe 
risks that CCRC residents face, and (4) describe how state laws 
address these risks. To review these areas, GAO analyzed state 
statutory provisions pertaining to CCRCs with respect to financial 
oversight and consumer protection, met with selected state regulators, 
and interviewed CCRC providers, resident’s associations, and consumer 
groups. 

While GAO is not recommending specific action at this time, the 
potential risks to CCRC residents—as well as the potential for this 
industry to grow—highlight the importance of states being vigilant in 
their efforts to help ensure adequate consumer protections for 
residents. 

GAO provided a draft copy of this report to the Department of Health 
and Human Services and the National Association of Insurance 
Commissioners for review, but neither commented on the draft. 

What GAO Found: 

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. 
Developing CCRCs can be a lengthy, complex process that requires 
significant long-term financing and accurate revenue and cost 
projections. Once operational, risks to long-term viability include 
declining occupancy and unexpected cost increases. While few CCRCs 
have failed, challenging economic and real estate market conditions 
have negatively affected some CCRCs’ occupancy and financial condition. 

Seven of the eight states GAO reviewed had CCRC-specific regulations, 
and these states varied in the extent to which they helped ensure that 
CCRCs addressed risks to their long-term viability. For example, while 
each licensed and required periodic financial information from CCRCs, 
only four either examined trended financial data or required periodic 
actuarial reviews. The lack of a long-term focus creates a potential 
mismatch with residents’ concerns over their CCRCs’ long-term 
viability. CCRC bondholders and rating agencies, which focus on long-
term viability, often place requirements on CCRCs that go beyond those 
used by states in their licensing and oversight activities. Regulators 
and CCRC providers GAO spoke with generally believed that current 
regulations were adequate, but some consumer groups felt more 
comprehensive oversight was needed. 

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. Residents can also become 
dissatisfied if CCRC policies or operations fall short of residents’ 
expectations or there is a change in arrangements thought to be 
contractually guaranteed, such as charging residents for services that 
were previously free. 

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 readable, but not all review the content of contracts even 
though some industry participants questioned residents’ ability to 
fully understand them. 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. According to an 
industry study, 12 states 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. 

View [hyperlink, http://www.gao.gov/products/GAO-10-611] or key 
components. For more information, contact Alicia Puente Cackley at 
(202) 512-7022 or CackleyA@gao.gov and Barbara Bovbjerg at (202) 512-
5491 or BovbjergB@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CCRCs Can Help Ensure That Older Americans Have Long-term Care, but 
Face Financial and Operational Risks: 

States We Reviewed Varied in the Extent to Which They Ensured CCRCs 
Address Risks to Their Financial Viability: 

CCRC Residents Face Many Major Financial and Other Risks: 

State Laws Designed to Protect Residents Vary, and Some States Do Not 
Mandate Key Disclosures or Contract Provisions: 

Concluding Observations: 

NAIC and HHS Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: 2009 Entrance and Monthly Fees for Selected CCRCs by Contract 
Type: 

Table 2: Financial Protections in Selected States: 

Table 3: Examples of Required Financial Disclosures in Eight States: 

Table 4: Selected Nonfinancial Disclosure Requirements: 

Figures: 

Figure 1: Summary of General Steps CCRC Developers Use to Establish 
and Finance CCRCs: 

Figure 2: Number of CCRCs and Regulatory Departments Used for State 
Oversight of CCRCs: 

Abbreviations: 

AAHSA: American Association for Homes and Services for the Aging: 

ASHA: American Seniors Housing Association: 

CCAC: Continuing Care Accreditation Commission: 

CCRC: Continuing Care Retirement Community: 

HHS: Department of Health and Human Services: 

NAIC: National Association of Insurance Commissioners: 

NCAL: National Center for Assisted Living: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 21, 2010: 

The Honorable Herb Kohl: 
Chairman: 
Special Committee on Aging: 
United States Senate: 

Dear Mr. Chairman: 

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 continuing care retirement 
community (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. But 
choosing to enter a CCRC can be a difficult decision and is not 
without risks. Moving to a CCRC generally involves a significant 
financial and emotional investment, often with hundreds of thousands 
of dollars at stake. Many older Americans sell their homes, which are 
often their primary asset, 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. 

This report, which responds to your interest in the financial risks 
associated with CCRCs and consumer protections for CCRC residents, 
describes: 

* how CCRCs operate and what financial risks are associated with their 
operation and establishment; 

* how state laws address these risks and what is known about how 
adequately they protect CCRCs' financial condition; 

* risks that CCRC residents face; and: 

* how state laws address these risks and what is known about their 
adequacy. 

To describe how CCRCs are established, operated, and financed and the 
risks they face, we interviewed officials from eight CCRCs and 
obtained relevant documentation to understand their specific 
experiences developing and operating CCRC facilities. We selected 
these CCRCs based on a number of criteria, including size, 
nonprofit/for-profit status, and geographic location. In addition, we 
interviewed a variety of CCRC industry association officials and 
experts, including two attorneys who specialize in CCRCs and managers 
from national financial firms that are involved in the financing of 
CCRCs and other facilities for older Americans. To describe how states 
oversee CCRCs' compliance with financial viability and consumer 
protection requirements and what is known about the effectiveness of 
such requirements, we reviewed statutory provisions pertaining 
specifically to CCRCs with respect to financial oversight and consumer 
protection from eight selected 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. Understanding the extent 
of oversight the entities themselves receive--or the contracts 
residents sign--when they are not specifically regulated as CCRCs was 
beyond the scope of this work, and no national source of such 
information exists. We also 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. Because we judgmentally selected the states and CCRCs we 
reviewed, the information we obtained cannot be generalized to 
additional states and CCRCs. 

We conducted this performance audit from June 2009 to June 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. 

Background: 

CCRCs are one of a number of options older Americans may choose to 
meet housing and other daily needs and especially to receive long-term 
care, which Medicare and private health insurance typically do not 
cover and which can be extremely costly.[Footnote 1] Older Americans 
may use a number of options to pay for their short-and long-term care 
as they age, including relying on savings or investments, purchasing 
long-term care insurance or annuities, entering into a reverse 
mortgage, or relying on government-financed programs such as Medicare 
and Medicaid.[Footnote 2] For CCRCs specifically, many use the 
proceeds from the sale of their homes and any retirement assets to pay 
for the housing and care arrangements. 

CCRCs are generally residential facilities established in a campus-
like setting that provide access for older Americans to three levels 
of housing and care: independent homes or apartments where residents 
live much as they did in their own homes; assisted living, which 
provides help with the daily tasks of living; and skilled nursing care 
for those with greater physical needs. Most residents must be able to 
live independently when they enter into a contract with a CCRC, with 
the intent of moving through the three levels of care as their needs 
change. 

According to industry sources, the CCRC model has existed for over 100 
years, starting with religious and fraternal organizations that 
provided care for older Americans who turned over their homes and 
assets to those organizations. As of July 2009, some 1,861 individual 
CCRCs existed in the United States, most of them nonprofit 
organizations. Over the last 2 decades, the CCRC industry has grown 
and diversified, with religious, fraternal, nonprofit, and for-profit 
entities operating CCRCs of various sizes that have different 
structures, residential and care choices, and payment options. 

CCRCs are primarily regulated by states rather than by the federal 
government. State CCRC regulation developed over time and in some 
instances grew out of the need to address financial and consumer 
protection issues, including insolvency, which arose in the CCRC 
industry in the 1970s and 1980s. States generally license CCRC 
providers, monitor and oversee their financial condition, and have 
regulatory provisions designed to inform and protect consumers. The 
U.S. Department of Health and Human Services (HHS) provides oversight 
of nursing facilities that are commonly part of CCRCs, but this 
oversight focuses on the quality of care and safety of residents in 
those facilities that receive payments under the Medicare and Medicaid 
programs. 

While states primarily regulate CCRCs, Congress has considered 
proposals to introduce greater federal oversight. For example, in 1977 
Representatives William Cohen and Gladys Spellman introduced a bill 
that would provide federal oversight of certain continuing care 
institutions that received Medicare or Medicaid payments or were 
constructed with federal assistance. The bill proposed, among other 
things, requiring that CCRC contracts clearly explain all charges and 
that CCRCs provide full financial disclosures, maintain sufficient 
financial reserves, and undergo an annual audit. While the bill did 
not pass, one industry source noted that several states at the time 
were developing or refining their own CCRC regulation. 

CCRCs Can Help Ensure That Older Americans Have Long-Term Care, but 
Face Financial and Operational Risks: 

CCRCs Can Provide Older Americans with Ongoing Housing and Health Care 
Services: 

CCRCs offer older Americans a range of housing and health care options 
that include independent living, assisted living, and skilled nursing 
units all within the same community. CCRCs generally offer independent 
living units such as apartments, cottages, town homes, or small single-
family homes for incoming residents who are relatively healthy and 
self-sufficient. They also provide residents opportunities to arrange 
for certain convenience services, including meals, housekeeping, and 
laundry and provide amenities such as fitness centers, libraries, 
health clinics, and emergency services. While residents may move back 
and forth among the levels of care to meet changing health needs, 
residents generally move to a CCRC's assisted living facility when 
they need assistance with specific activities of daily living, 
including eating, dressing, and bathing. CCRCs' assisted living units 
are usually located separately from the independent living units and 
skilled nursing facilities. If a resident needs 24-hour monitoring, 
assistance, and care, CCRCs can offer skilled nursing care that 
includes supervision by nurses or other medical staff. 

CCRCs typically offer one of three general types of contracts that 
involve different combinations of entrance and monthly fee payments. 
Some CCRCs may offer residents a choice of the following contract 
types, while others may choose to offer only one. 

* Type A, extensive or Life Care contracts, include housing, 
residential services, and amenities--including unlimited use of health 
care services--at little or no increase in monthly fees as a resident 
moves from independent living to assisted living, and, if needed, to 
nursing care. Type A contracts generally feature substantial entrance 
fees but may be attractive because monthly payments do not increase 
substantially as residents move through the different levels of care. 
As a result, CCRCs absorb the risk of any increases in the cost of 
providing health and long-term care to residents with these contracts. 

* Type B, or modified contracts, often have lower monthly fees than 
Type A contracts, and include the same housing and residential 
amenities as Type A contracts. However, only some health care services 
are included in the initial monthly fee. When a resident's needs 
exceed those services, the fees increase to market rates. For example, 
a resident may receive 30, 60, or 90 days of assisted living or 
nursing care without an increased charge. Thereafter, residents would 
pay the market daily rate or a discounted daily rate--as determined by 
the CCRC--for all assisted living or nursing care required and face 
the risk of having to pay high costs for needed care. 

* Type C, or fee-for-service contracts, include the same housing, 
residential services, and amenities as Type A and B arrangements but 
require residents to pay market rates for all health-related services 
on an as-needed basis. Type C contracts may involve lower entrance and 
monthly fees while a resident resides in independent living, but the 
risk of higher long-term care expenses rests with the resident. 

* Some CCRCs offer a fourth type of contract, Type D or rental 
agreements, which generally require no entrance fee but guarantee 
access to CCRC services and health care. Type D contracts are 
essentially pay-as-you-go: CCRCs charge monthly fees of residents 
based on the size of the living unit and the services and care 
provided.[Footnote 3] 

According to CCRC providers, prospective residents are generally 
screened to determine their general health status in order to 
determine the best living situation. Prospective residents must also 
submit detailed financial information that includes income and tax 
records to ensure that they can pay CCRC fees over time. Industry 
participants noted that entry fees--typically made as a large lump-sum 
payment--can represent a substantial portion, if not all, of potential 
residents' assets.[Footnote 4] Residents must also be able to pay 
monthly fees, which typically cover housing and convenience services 
associated with housing and are based on the type of contract, size of 
the living unit, and level of care provided. As we have seen, these 
fees may also include all or some health care services. CCRCs use a 
variety of techniques to determine fees, including actuarial studies 
and financial analyses. For example, one CCRC we reviewed uses 
actuarial studies with mortality and morbidity tables to assess the 
likely inflow, outflow, and turnover of the CCRC occupants. Other 
CCRCs use some combination of resident statistics, Medicare and 
Medicaid reimbursement rates, marketing needs, and operating costs. 
Table 1 provides information on the range of entrance and monthly fee 
costs for the eight CCRCs we reviewed and illustrates how--depending 
on contract type--costs may change for consumers as they move among 
the independent, assisted, and skilled nursing living units. 

Table 1: 2009 Entrance and Monthly Fees for Selected CCRCs by Contract 
Type: 

Entry fee; 
Range of CCRC Fees by Contract Type[A]: A-Life Care: $160,000 to 
$600,000; 
Range of CCRC Fees by Contract Type[A]: B-Modified: $80,000 to 
$750,000; 
Range of CCRC Fees by Contract Type[A]: C-Fee for Service: $100,000 to 
$500,000; 
Range of CCRC Fees by Contract Type[A]: D-Rental: $1,800 to $30,000. 

Independent living monthly fee; 
Range of CCRC Fees by Contract Type[A]: A-Life Care: $2,500 to $5,400; 
Range of CCRC Fees by Contract Type[A]: B-Modified: $1,500 to $2,500; 
Range of CCRC Fees by Contract Type[A]: C-Fee for Service: $1,300 to 
$4,300; 
Range of CCRC Fees by Contract Type[A]: D-Rental: $900 to $2,700. 

Assisted living monthly fee; 
Range of CCRC Fees by Contract Type[A]: A-Life Care: $2,500 to $5,400; 
Range of CCRC Fees by Contract Type[A]: B-Modified: $1,500 to 
$2,500[B]; 
Range of CCRC Fees by Contract Type[A]: C-Fee for Service: $3,700 to 
$5,800; 
Range of CCRC Fees by Contract Type[A]: D-Rental: $4,700 to $6,500. 

Nursing care monthly fee; 
Range of CCRC Fees by Contract Type[A]: A-Life Care: $2,500 to $5,400; 
Range of CCRC Fees by Contract Type[A]: B-Modified: $1,500 to 
$2,500[B]; 
Range of CCRC Fees by Contract Type[A]: C-Fee for Service: $8,100 to 
$10,000[C]; 
Range of CCRC Fees by Contract Type[A]: D-Rental: $8,100 to $10,700[C]. 

Source: GAO analysis of information obtained from eight selected CCRCs. 

[A] Fee ranges reflect different size living units among the CCRCs GAO 
visited, with smaller units being less expensive. The entrance and 
monthly fees above were for single occupancy. Additional fees may 
apply for double occupancy, additional meal service, or other 
amenities. 

[B] Agreement provides 60 days of assisted living or skilled nursing 
care, after which the prevailing rate for either assisted living or 
skilled nursing services, less a 10 percent discount, is charged. 

[C] One CCRC noted that their facility would bill Medicare Part A, 
Medicare Advantage plans, or any other available insurance for any 
qualified skilled nursing stays before billing the resident for 
nursing care, when available. 

[End of table] 

Establishing a CCRC Is a Complex Process That Involves Several Risks: 

According to industry participants, building and operating a CCRC is a 
complex process that typically begins with an initial planning phase. 
During this phase, the company assembles a development team, makes 
financial projections, assesses market demand, and determines the 
kinds of housing and services to be offered.[Footnote 5] Initial and 
longer-term planning also entails assessing funding sources and 
seeking funding commitments from investors and lenders, particularly 
construction loans and state tax-exempt bond proceeds, where 
applicable.[Footnote 6] During the developmental phase, developers 
will presell units to begin building capital to fund construction of 
CCRC housing and other facilities and begin construction. Once the 
initial phases of construction are complete, CCRC providers have move-
in periods for new residents, continue marketing efforts to build 
toward full occupancy, complete construction, and begin making long-
term debt service payments (figure 1). 

Figure 1: Summary of General Steps CCRC Developers Use to Establish 
and Finance CCRCs: 

[Refer to PDF for image: illustration] 

Initial planning: 
* Assemble initial development team; 
* Establish site location; 
* Conduct market study; 
* Conduct feasibility study; 
* Establish cost and revenue projections; 
* Begin architectural design; 
* Determine housing and service types; 
* Develop initial pricing structure; 
* Begin state licensing processes. 

Initial funding steps: 
* Determine equity levels; 
* Market units for pre-sale; 
* Seek funding commitments from lenders; 
* Pre-sell units to generate liquid funds/collateral; 
* Pursue state tax-exempt bond proceeds, if applicable; 
* Secure construction loan. 

Construction and initial occupancy: 
* Finalize architectural plans; 
* Continue marketing and pre-sales efforts; 
* Begin initial phases of construction; 
* Seek long-term financing at most affordable rates; 
* Begin initial occupancy; 
* Assume debt service payments. 

Project stabilization: 
* Complete additional phases of construction; 
* Manage move-in periods; 
* Continue marketing efforts and build toward full occupancy; 
* Assume long-term debt service payments; 
* Establish and manage wait list efforts. 

Sources: GAO analysis; Art Explosion (images). 

[End of figure] 

CCRCs, like other businesses, face a number of risks during the start- 
up phase. 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 pre-sales 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. 

Second, entrance fees and monthly fees may ultimately prove to be 
inadequate to cover the CCRC's costs. CCRCs generally have to keep 
prices low enough to attract residents and stay competitive but high 
enough to meet short-and long-term costs. Determining appropriate fees 
can, in itself, be a complex process because it involves projecting a 
number of variables into the future, including occupancy levels, 
mortality rates, medical and labor costs, and capital improvement 
costs. For this reason, many CCRCs use actuarial consultants to help 
in these determinations. CCRCs that set fees too low may have to 
significantly raise entrance and other fees to meet the costs of care 
and future capital improvements. Fee increases can take the form of 
larger-than-projected monthly fees for assisted living or nursing care 
and fees on other miscellaneous services, both of which can affect 
residents' long-term ability to pay and the competitive position of 
the CCRC in the marketplace. 

CCRCs may face other financial risks, including unforeseen events that 
lead to higher-than-expected costs. For example, many nonprofit CCRCs 
rely on property tax exemptions when estimating CCRC costs and 
developing CCRC projects. According to industry associations and a 
state regulator, however, difficult economic times are causing some 
municipalities to look for new sources of revenue, and some may be 
reevaluating property tax exemptions previously granted to CCRCs. Loss 
of these exemptions can be very costly; for example, industry 
participants attributed one recent CCRC failure in Pennsylvania in 
part to the loss of its property tax exemption. 

Established CCRCs Face Risks from Low Occupancy Levels and Challenging 
Market Conditions: 

Once operational, CCRCs generally depend on high occupancy rates to 
remain financially viable in the long term and may be at risk if 
occupancy levels drop below certain levels. Several industry 
participants--including actuaries, CCRC managers, and industry groups--
noted that high occupancy and the ability to quickly fill vacancies is 
necessary for CCRCs to fund general operations, build financial 
reserves, including reserves to satisfy refund obligations with 
respect to entrance fees, when applicable. CCRCs' general operational 
model depends on having residents enter independent living units and 
pay entrance and monthly fees. The often large entrance fees can help 
CCRCs maintain cash reserves, and the monthly fees collected from 
independent living residents--whose cost to the CCRC is generally 
lower--help subsidize care for residents who require assisted living 
or nursing care. CCRCs also rely on high occupancy levels and the 
ability to quickly fill vacancies to help finance refunds of entrance 
fees, which under some contracts may be required when a resident 
vacates a unit.[Footnote 7] These refunds represent substantial 
financial obligations that CCRCs must meet and can significantly 
affect operations because fees are used to maintain a certain level of 
liquidity, or cash on hand. CCRC officials said that refunds were 
usually contingent on having a new resident move into the vacated unit 
and that a recent reduction in occupancy levels has meant former 
residents and their families have had to wait longer for refunds. For 
example, some CCRC officials noted that due to real estate market and 
other factors, refunds are taking several months longer than during 
stronger market conditions. 

CCRCs also face risks from external economic factors that are out of 
their control and could adversely affect occupancy levels and 
financial condition. First, slow real estate markets, such as those of 
the last several years, can make it very difficult for older Americans 
to sell their homes to pay CCRC entrance fees. As a result, according 
to CCRC providers, occupancy levels at many CCRCs have fallen over the 
past several years. In addition, because older Americans may be 
staying in their homes longer and thus moving into CCRCs at a higher 
age, residents may spend less time in independent living units than 
they had in the past. This can negatively affect CCRCs' long-term 
financial condition because residents in independent living may help 
subsidize those living in assisted living or nursing care. Second, 
declining equity and credit markets, which have also been a feature of 
the recent financial crisis, can also affect occupancy and financial 
condition. During the development phase, CCRCs often depend on access 
to credit in order to complete construction, and reduced access to 
funds can be problematic. For example, CCRC and state regulatory 
officials suggested that tightening credit and real estate markets, 
combined with Erickson Retirement Communities' reliance on borrowed 
funds, were the primary financial challenges that resulted in 
Erickson's 2009 filing for bankruptcy protection (see sidebar on 
Erickson Retirement Communities). In addition, occupancy can depend on 
CCRCs' ability to remain attractive to new residents by maintaining 
and upgrading their facilities. While the ability to maintain and 
upgrade facilities depends in part on long-range planning, it can also 
depend on access to credit. CCRC officials said that over the last 
several years the availability of both state financing and commercial 
bank financing had diminished due to tightened credit markets. 
[Footnote 8] 

Although few CCRCs have closed or declared bankruptcy over the last 20 
years, recent economic conditions have negatively affected the 
financial condition of many facilities and highlighted some of the 
risks that they face. One rating firm, which produces an annual 
industry outlook for CCRCs, said the outlook for CCRCs in 2009 and 
into 2010 is negative because of their declining liquidity and other 
financial ratios, tightening financial markets, and difficult real 
estate markets. The firm also noted, however, that the negative effect 
of the slow real estate market and falling occupancy levels could be 
softened somewhat by some favorable factors, including strong demand 
for entrance into CCRCs, effective management practices, and favorable 
labor costs. 

[Side bar: 
Erickson Retirement Communities: 

Erickson Retirement Communities was one of the largest CCRC 
developers. Typically it built large non-profit CCRC facilities, each 
with 1,500 to 2,000 units, for middle-income residents. Erickson 
established a construction firm to build CCRCs and a management 
company to help operate its facilities. Another part of Erickson’s 
CCRC business model generally involved leasing the land and facilities 
it developed to separate independent, non-profit CCRCs, which it 
created. These non-profits would then often eventually end up 
purchasing the CCRC facilities. As of February 2010, Erickson had 
developed 18 CCRCs that provided homes and services to approximately 
22,000 residents. 

Erickson, however, filed for bankruptcy in 2009. Like many CCRCs, 
Erickson used construction loans and other financing instruments to 
meet the considerable cost of building CCRC facilities and ready them 
for occupancy by older Americans. According to Erickson officials, a 
number of conditions contributed to their financial challenges and 
bankruptcy filing. Declining economic and real estate conditions 
slowed the demand for and purchase of CCRC units and challenged Erickson
’s ability to raise revenue needed to develop CCRCs. Simultaneously, 
tightening credit markets reduced or eliminated Erickson’s ability to 
access new sources of capital or to restructure or refinance existing 
loan arrangements. These conditions prevented Erickson from meeting 
debt service and other CCRC expenses and led to its bankruptcy filing. 
Ultimately, Erickson emerged from bankruptcy with a new owner, Redwood 
LLC, in May 2010. Despite the ownership change, Erickson officials do 
not expect any CCRC residents’ contracts or living conditions to be 
impacted, as those contracts were with the CCRCs themselves, which 
were not part of the bankruptcy filing. 
End of side bar] 

States We Reviewed Varied in the Extent to Which They Ensured CCRCs 
Address Risks to Their Financial Viability: 

States We Reviewed Generally Used Similar Licensing Requirements, but 
Some Required More Information Than Others: 

To help ensure that CCRCs address the risks they face during their 
start-up period, seven of the eight states we reviewed used a similar 
application and licensing process. For example, these seven states 
required CCRC providers to submit detailed financial information on 
CCRC projects for review by regulators. Most states we reviewed also 
required financial feasibility studies as part of the licensing 
process.[Footnote 9] These studies included projected income and 
expense information, alternative pricing structures, and, for CCRCs 
planning to charge entrance fees, estimates of the CCRCs' ability to 
resell its units that are based on actuarial assumptions. 

Among the states we reviewed that license CCRCs, some required more 
information from CCRCs than others. For example, California, Florida, 
and New York required CCRCs to conduct and provide a market study as 
part of its application for licensing, while others--Illinois, 
Pennsylvania, and Wisconsin--did not.[Footnote 10] Such studies can 
include descriptions of the market area and targeted consumers as well 
as projections of how long it might take the CCRC to reach a stable 
occupancy level. Pennsylvania required CCRCs to provide a market study 
only if one was being conducted to help obtain project financing. One 
state we reviewed--New York--required CCRC providers that offer Type A 
or B contracts to conduct an actuarial study during the licensing 
process to help project long-term expenses and revenues and help 
regulators assess financial viability over time. 

States We Reviewed Varied in Their Efforts to Ensure That CCRCs 
Addressed Risks to Their Operations, with Some Focusing More on Long- 
Term Viability Than Others: 

To help ensure that CCRCs addressed risks to their operations, states 
we reviewed generally required that CCRCs periodically submit 
financial information, but the type of information required and what 
they did with it varied. Of the states we reviewed that license and 
oversee CCRCs, most required CCRCs to submit audited financial 
statements each year to demonstrate their basic financial health, 
including balance sheet, income, and cash flow information. These 
statements generally reflect financial performance for the past year 
and provide a financial snapshot of a point in time, and are not 
assessments of longer-term financial trends or financial stability. 

To help ensure that CCRCs addressed risks to their long-term 
viability, a few states we reviewed required periodic actuarial 
studies, but the others did not. In particular, California, New York, 
and Texas required periodic actuarial studies, but only for CCRCs that 
offered contracts which incur long-term liabilities by guaranteeing 
health care services over the long term.[Footnote 11] One state we 
reviewed--Florida--did not require periodic actuarial studies but did 
analyze financial trend and projection data to help track the 
direction of the financial condition of CCRCs over time. Florida 
regulators said that they maintained a spreadsheet containing 
financial information on CCRCs dating back over a decade and used the 
data to develop financial trend information on each CCRC, including 
trends of ratios related to CCRCs' revenues and expenses. Florida 
officials said that since CCRCs generally do not go from stable 1 year 
to financially distressed the next, their trend data enabled them to 
identify early on CCRCs that might be in trouble. 

According to industry participants, actuarial studies can help in 
quantifying long-term liabilities and planning for ways to meet them. 
For example, some said that the studies can provide CCRC management 
with the information needed to make appropriate plans to meet future 
liabilities and contractual obligations and to set appropriate prices 
for short-and long-term housing and care options. In addition, some 
noted that actuarial studies can help regulators identify potential 
threats to CCRCs' long-term viability. For example, New York officials 
noted that requiring an actuarial study from CCRCs every 3 years 
provided 10-year cash flow projections and CCRC information on 
actuarial assets and liabilities that were critical to understanding 
long-term viability. According to industry participants, only an 
actuarial study incorporates mortality, morbidity, and other 
information unique to a CCRC to help it anticipate and make plans to 
address risks to its long-term viability, such as lower-than-expected 
occupancy levels and higher-than-expected costs. Without actuarial 
studies, they said, a CCRC may appear financially stable in the short 
term yet still face threats to its long-term viability. 

To help ensure that CCRCs have funds available to pay for expenses 
such as debt service and operations, most of the states we reviewed 
also required CCRC providers to maintain some minimum level of 
financial reserves. According to state regulators, the primary purpose 
of reserve requirements is to ensure enough time for a financially 
distressed CCRC to reorganize or restructure financing while keeping 
the CCRC operational for its residents. For example, these reserves 
could be used to help make debt service principal and interest 
payments, pay for operating expenses, or assist with difficult 
economic times or other types of contingencies. Reserve requirements 
in the states we reviewed were typically expressed in terms of total 
debt service payments for a time period ranging from 6 months in 
Illinois to 1 year in states such as California, Florida, New York, 
Pennsylvania, and Texas. Some states also required a reserve for 
operating costs that ranged from 2-½ months to 1 year. New York, by 
comparison, required debt service and operating cost reserves along 
with an additional reserve for CCRC facility repairs and replacement. 
One state--Wisconsin--did not have reserve requirements. Wisconsin 
state officials said that their statutory authority generally focused 
on the content of CCRC resident contracts. While these reserve 
requirements can provide a CCRC with enough time to work to improve 
financial conditions, several industry participants said that reserves 
are not intended to ensure viability over the long term. In addition, 
one industry official said that CCRCs experiencing financial 
difficulties are often purchased by other CCRCs. 

Finally, though most states required CCRCs to submit financial 
information, not all states we reviewed did financial examinations. 
According to regulatory officials, California, Florida, Illinois, New 
York, Pennsylvania, Texas, and Wisconsin all had the regulatory 
authority to financially examine CCRCs to assess financial condition 
or viability, but only Florida, New York, and Pennsylvania had 
conducted examinations.[Footnote 12] Some states also said that they 
maintained ongoing communication with CCRC management, particularly 
when regulators had any questions or needed clarification on financial 
documents under review. These state regulators said that the informal 
communication channels helped them to understand CCRC operations 
better than they would if they relied on periodically reported 
information alone. 

Industry Information Suggests Most States Regulate CCRCs and Do So 
with Various State Departments, but Some Have No CCRC-Specific 
Regulations: 

While we did not survey all 50 states as part of our review, according 
to one industry study, 38 states have some level of regulation 
specifically addressing CCRCs, while 12 states plus the District of 
Columbia do not.[Footnote 13] Among the 38 states that have CCRC- 
specific regulation, CCRCs are overseen by a variety of state 
departments. Some states oversee CCRCs through departments that 
concentrate on insurance, financial services, or banking. Other states 
regulate CCRCs through departments of social services, aging or elder 
services, or community affairs. Figure 2 provides information as of 
2009 on the states that specifically regulate CCRCs, the type of 
department with oversight responsibility, and the number of CCRCs in 
each state.[Footnote 14] In addition, all nursing homes--including 
those that are part of a CCRC--are subject to federal oversight if 
they participate in Medicare or Medicaid programs.[Footnote 15] 
Because some states do not appear to have CCRC-specific regulations, 
an entity in one state might be licensed and regulated as a CCRC while 
a similar entity in another state may not. While we did not review 
laws and regulations in the states that did not appear to have 
specific CCRC regulations, to the extent that states do not license 
CCRCs and oversee their contracts, residents in those states may not 
receive the same protections as CCRC residents in states with such 
regulations. One of the eight states we reviewed--Ohio--did not 
specifically license or regulate CCRCs. However, an industry official 
from Ohio said the separate components of CCRCs operating within that 
state are generally regulated as if they were stand-alone entities. 
For example, Ohio's Department of Health regulates assisted living and 
nursing home facilities. In prior work that also looked at the 
regulation of financial contracts across states, we have pointed out 
the importance of ensuring that consumers entering similar contracts 
receive similar regulatory protections across states. That work, which 
was designed to provide insights for the development of a federal 
financial services regulatory framework, also highlighted the 
importance of, among other things, providing consistent consumer 
protections in similar situations and ensuring consumers receive 
useful information and disclosures.[Footnote 16] In a recent report 
looking at regulation of the insurance industry, a function carried 
out by the states, we pointed out the importance of state regulation 
supporting the goals of this framework.[Footnote 17] 

Figure 2: Number of CCRCs and Regulatory Departments Used for State 
Oversight of CCRCs: 

[Refer to PDF for image: U.S. map and associated data] 

Number of CCRCs: 

Alabama: 15; 
No CCRC-specific regulation. 

Alaska: 0; 
No CCRC-specific regulation. 

Arizona: 33; 
Regulatory department: Insurance. 

Arkansas: 9; 
Regulatory department: Insurance. 

California: 129; 
Regulatory department: Social Services. 

Colorado: 27; 
Regulatory department: Financial services. 

Connecticut: 28; 
Regulatory department: Social Services. 

Delaware: 12; 
Regulatory department: Secretary of State. 

District of Columbia: 6; 
No CCRC-specific regulation. 

Florida: 101; 
Regulatory department: Insurance regulation. 

Georgia: 23; 
Regulatory department: Insurance. 

Hawaii: 3; 
No CCRC-specific regulation. 

Idaho: 6; 
Regulatory department: Finance. 

Illinois: 108; 
Regulatory department: Public Health. 

Indiana: 65; 
Regulatory department: Secretary of State. 

Iowa: 65; 
Regulatory department: Insurance. 

Kansas: 70; 
Regulatory department: Insurance. 

Kentucky: 20; 
Regulatory department: Health and Family Services. 

Louisiana: 8; 
Regulatory department: Health and Hospitals. 

Maine: 7; 
Regulatory department: Insurance. 

Maryland: 42; 
Regulatory department: Aging. 

Massachusetts: 29; 
Regulatory department: Elder Affairs. 

Michigan: 39; 
Regulatory department: Financial and Insurance regulation. 

Minnesota: 58; 
Regulatory department: County Recorder. 

Mississippi: 4; 
No CCRC-specific regulation. 

Missouri: 48; 
Regulatory department: Insurance. 

Montana: 4; 
No CCRC-specific regulation. 

Nebraska: 18; 
No CCRC-specific regulation. 

Nevada: 2; 
No CCRC-specific regulation. 

New Hampshire: 17; 
Regulatory department: Insurance. 

New Jersey: 39; 
Regulatory department: Community Affairs. 

New Mexico: 11; 
Regulatory department: Aging and Long-Term services. 

New York: 54; 
Regulatory department: Health. 

North Carolina: 60; 
Regulatory department: Insurance. 

North Dakota: 5; 
No CCRC-specific regulation. 

Ohio: 144; 
Regulatory department: 
No CCRC-specific regulation. 

Oklahoma: 21; 
Regulatory department: Insurance. 

Oregon: 22; 
Regulatory department: Human services. 

Pennsylvania: 189; 
Regulatory department: Insurance. 

Rhode Island: 8; 
Regulatory department: Health. 

South Carolina: 41; 
Regulatory department: Consumer Affairs. 

South Dakota: 18; 
No CCRC-specific regulation. 

Tennessee: 23; 
Regulatory department: Commerce and Insurance. 

Texas: 86; 
Regulatory department: Insurance. 

Utah: 1; 
No CCRC-specific regulation. 

Vermont: 2; 
Regulatory department: Banking, Insurance, Securities, and Health Care 
Administration. 

Virginia: 56; 
Regulatory department: Insurance. 

Washington: 30; 
Regulatory department: Health. 

West Virginia: 6; 
No CCRC-specific regulation. 

Wisconsin: 49; 
Regulatory department: Insurance. 

Wyoming: 0; 
No CCRC-specific regulation. 

Sources: GAO analysis of CCRC industry data; Art Explosion (map). 

[End of figure] 

Debt-Related Requirements and Accreditation Standards Generally Exceed 
Those of State Regulators and Often Focus on Long-Term Viability: 

When CCRCs obtain financing through debt instruments such as loans or 
bonds, creditors and bondholders often impose financial requirements 
and standards that are designed to ensure that CCRCs can repay the 
borrowed funds. For example, state regulators and industry 
participants said states and lenders require CCRCs to maintain levels 
of reserves that are intended to give the facilities enough time to 
meet financial challenges such as refinancing or restructuring debt. 
According to regulators and industry officials, lender and bondholder 
reserve requirements generally exceed those of state regulators. As 
noted earlier, most states we reviewed have reserve requirements that 
focus on a short period such as 6 months or a year. But a CCRC 
provider noted that lender and bondholder requirements are generally 
more stringent and may require reserve levels twice as high. In 
addition, bondholders may conduct analyses that appear to go beyond 
those used by states. For example, according to one company that 
facilitates financing for CCRCs, bondholders might require quarterly 
financial statements as well as annual statements. 

In addition, some nonprofit CCRCs that obtain state-based financing 
choose to be assessed by rating firms to help determine their ability 
to repay long-term debt.[Footnote 18] We reviewed one rating firm's 
guidelines, which contain many quantitative and qualitative variables 
to assess CCRCs' credit quality and financial solvency. The guidelines 
include financial ratio analysis, trend analysis of financial ratios, 
review of cash flow statements, and the use of recent actuarial 
studies for CCRCs offering Type A contracts as well as certain 
qualitative factors--such as strength of management and governance--to 
make assessments about long-term viability. Officials from the rating 
firm noted that their metrics were more focused on CCRCs' ability to 
pay on their bond obligations over the long term. 

Some CCRCs may also choose to become accredited by an independent 
organization. As of April 2010, 300 CCRCs had become accredited by the 
Continuing Care Accreditation Commission (CCAC), according to a 
commission official.[Footnote 19] Accreditation involves an initial 
review that assesses CCRCs on an extensive set of standards. For 
example, the financial aspects of the accreditation process include 
analyses of many financial ratios, including profitability, liquidity, 
and capital structure, to assess a CCRC's financial solvency, identify 
trends, and compare them to industry benchmarks. While accreditation 
standards do not require periodic actuarial studies, according to CCAC 
officials CCRCs are expected to use actuarial and other information to 
appropriately set their fees. Two CCRC providers and accreditation 
officials suggested CCAC's standards represent best practices and 
guidelines for CCRCs and they help to assess short-and long-term 
financial stability. 

Regulators and Industry Participants Held Different Views on the 
Effectiveness of State Financial Oversight of CCRCs: 

State regulators from the eight states we reviewed generally reported 
that their regulations and regulatory efforts were adequate to 
properly oversee the financial condition of CCRCs. Some suggested that 
the small number of CCRCs that were financially distressed, insolvent, 
or had filed for bankruptcy pointed to the adequacy of state 
regulatory oversight. In addition, officials from one state noted that 
they periodically review audited financial statements and other 
required information, and have the authority to do on-site inspections 
of CCRCs' books and records. However, they noted that audited 
financial statements generally do not contain information that would 
cause further review through inspection. One state agency had broader 
statutory authority but an official there said that financially 
regulating CCRCs was not their central mission. Another state official 
commented that they lacked the staffing resources to do more than 
review audited financial statements. 

Officials from one residents' association we spoke to expressed 
concerns about the overall financial condition of CCRCs and how it 
affects their housing and care, while another believed regulatory 
requirements were generally adequate. Residents' association officials 
who expressed concerns said regulators needed to provide more overall 
financial oversight to compensate for the short-term focus that most 
CCRCs have on their financial solvency. They said that most CCRCs 
tended to emphasize the availability of liquid assets to cover 
operating costs such as debt servicing as the most significant 
indicator of financial health. The officials noted that this approach 
emphasized short-term liquidity and current asset and liability 
information and did not sufficiently consider long-term liquidity, 
liabilities, capital planning, and budgeting. Another state residents' 
association official provided a different view and said that its state 
statute established strict financial requirements that helped 
discourage speculative CCRC operators from entering the market and 
encouraged long-term stability in the state's CCRC market. 

CCRC providers did not convey strong positive or negative views about 
the strength or effectiveness of CCRC regulation but did provide 
various insights. One CCRC provider said that the extent and 
effectiveness of regulators' financial oversight of CCRCs varied from 
state to state but noted that for oversight to be effective, states 
would need specific expertise. The provider also felt that state 
agencies that had devoted few resources to CCRC oversight might lack 
the requisite expertise. Another CCRC provider said its state 
regulator required each provider to annually submit a report 
containing a number of financial indicators and expressed hope that 
the regulator would use the data to create a database to monitor 
financial trends. The provider said that the statutes were adequate, 
noting that few CCRCs had failed in their state. By contrast, 
actuaries GAO spoke with said that, overall, only a few states 
nationwide were appropriately using actuarial studies to assess CCRC 
providers and that many states were using very little actuarial 
information for financial oversight. Actuaries said this situation 
reflected the wide variety of state laws and regulations on CCRCs and 
noted that states that did not require actuarial studies could have a 
difficult time assessing the adequacy of CCRCs' short-and long-term 
pricing structures and long-term financial position. 

CCRC Residents Face Many Major Financial and Other Risks: 

CCRC Residents Face a Number of Financial Risks: 

Although CCRCs offer older Americans the benefit of long-term 
residence and care in a single community, residents face a number of 
financial risks in the course of their relationship with their CCRC. 
For example, residents could lose the refundable portion of their 
entrance fees--which may amount to hundreds of thousand of dollars or 
more--if a CCRC encountered financial difficulties. According to state 
officials in two states and a CCRC expert, residents are at a 
disadvantage because any claim they have on a CCRC that is forced into 
bankruptcy is subordinate to the claims of secured creditors, such as 
tax-exempt bondholders and mortgage lenders. As a result, residents 
are grouped with all other unsecured creditors, which generally 
include everyone who does business with the CCRC, for recouping any 
financial losses in the case of CCRC financial distress. 

We identified no national data that would reflect the incidence of 
such losses, and several state officials believed that they are rare. 
For example, a California official told us that there had been at 
least two situations in the 1990s in which California residents had 
nearly lost their entrance fees but that these situations had been 
resolved in the residents' favor. However, Pennsylvania officials told 
us about a financially insolvent CCRC in Pennsylvania whose residents 
lost the refundable portion of their entrance fees in 2009 when the 
facility was sold to a new operator. According to the officials, the 
CCRC became financially distressed and filed for bankruptcy after it 
lost its tax-exempt status and became liable for substantial state and 
local taxes.[Footnote 20] As part of the negotiations to fulfill 
residents' contracts and maintain services under the new owner, 
residents relinquished the refundable portion of their entrance fees. 
The state officials noted that this concession had limited residents' 
ability to move to another CCRC, since they would no longer receive a 
portion of their entrance fee to pay the entrance fee at the new 
facility. In addition, residents' heirs were deprived of the 
refundable portion of the entrance fee. 

Residents can also face greater-than-expected increases in monthly and 
other fees that can erode their existing assets or make the CCRC 
unaffordable to them. Officials of CCRCs, an expert, and resident 
advocates told us that CCRC residents were at risk of having to pay 
monthly fees that rise beyond their ability to pay. According to some 
state and CCRC officials we contacted, CCRCs in financial distress may 
need to increase monthly fees beyond the typical yearly increase 
outlined in the contract. Such increases can occur for a number of 
reasons--for example, to continue to operate when occupancy rates 
drop, to make necessary or deferred physical improvements, cover 
unplanned increases in operational expenses such as rising labor 
costs, or to keep the facility competitive in order to attract new 
residents. 

Residents may be living on a fixed income and may not be able to 
afford these increases, especially over an extended period. CCRC 
providers in Florida and Wisconsin said that they had had residents 
who exhausted their assets earlier than planned because of monthly fee 
increases. According to CCRC operators, residents are not generally at 
risk of being required to leave a CCRC when they exhaust their assets 
but instead use the refundable portion of their entrance fee, if there 
is one, to cover monthly costs. When these funds are gone, the CCRC 
uses charitable funds, voluntarily contributed by other CCRC 
residents, to support the residents. 

CCRC residents also face the risk of losing their residence and 
familiar surroundings in the event of a CCRC closure. According to 
CCRC and elder care experts, closures occur for a number of reasons, 
including bankruptcy or an operator's decision to consolidate multiple 
CCRCs and close less profitable locations. Although state officials 
and other CCRC experts indicated that such events are rare, they have 
happened. For example, a residents' advocate and state regulators told 
us that in 2007, a CCRC in California that had lost $11 million over 
10 years closed due to consistently low occupancy rates. Several 
residents were dissatisfied with the CCRC's handling of their 
contracts and resisted the proposed transfer to an alternate facility, 
and filed a lawsuit against the facility. Ultimately, they were 
removed from their residence when the CCRC closed. According to CCRC 
and elder care experts, residents who must move when their CCRC closes 
face the risk of trauma during and after the transfer to a new CCRC 
facility. One resident advocacy group told us that a forced move can 
be very disruptive to members of a CCRC population, in some cases with 
consequences for their physical and emotional well-being. 

Residents also Face Other Risks Related to CCRC Operations: 

Residents may not be satisfied initially--or over the long term--with 
the CCRC into which they have moved and may have limited financial and 
other recourse. For example, dissatisfied residents may have limited 
ability to move out. According to an expert on CCRCs, some residents 
may experience "buyer's remorse" after entering a CCRC if the 
community, services, or other aspects of the CCRC do not match their 
initial perceptions. These advocates told us that residents were often 
focused on certain elements of care and housing, such as amenities and 
culture, when choosing a CCRC and might not, for example, pay enough 
attention to financial information that could affect them. Residents 
who wish to move, for instance, may find that the contractually 
designated rescission period has ended and that moving will result in 
significant fines or reductions to the refundable portion of their 
entrance fee. But these financial losses can limit their choice of 
other long-term care options that require a similar investment. 
Residents also face the risk of being transferred involuntarily from 
one level of care to another or of not being able to obtain on-site 
assisted living or nursing care when needed. Policies regarding 
admission and discharge from different levels of care can be subject 
to state law, but this decision can be a point of contention as well 
[Footnote 21]. One 2009 study states that relocation within a CCRC and 
between levels of health care is one of the most stressful events 
older adults face because it threatens their autonomy--that is, their 
ability to make decisions for themselves.[Footnote 22] Individuals 
representing various parts of the CCRC community told us that the 
transfer from one level of care to another is often regulated by state 
law and that, while residents may disagree with the decision to 
transfer, the CCRC, in some cases must move them over their 
objections. CCRC residents generally enjoy continuous residency in the 
same community regardless of the level of care. However, state 
regulators and resident advocates told us that while many CCRCs 
without space in assisted living or skilled nursing guarantee space to 
residents in a nearby facility for no additional cost, residents can 
face additional stress due to the transfer outside of their contracted 
community. 

Residents' dissatisfaction with CCRC management, policies, or services 
can grow out of a lack of full understanding of contracts and related 
disclosure documents or may result from ambiguities in the contract, 
according to representatives of CCRC management and resident 
organizations. Although state officials told us that many CCRC 
residents are highly affluent and educated consumers, others noted 
that some consumers do not understand the contractual provisions or 
disclosures. Further, experts and resident advocacy groups said that 
the contracts are very lengthy and detailed, containing terms that are 
difficult to understand and potential ambiguities, and they noted that 
some residents might not fully understand their rights and 
responsibilities or the obligations of the CCRC. Finally, a statewide 
resident's association in Florida noted that some residents have 
become unhappy with service or policy changes made through the 
residents' handbook that they believed were contractually guaranteed. 
CCRC contracts and the residents' handbook are different documents and 
some residents do not fully appreciate the difference until an issue 
arises. Further, some CCRCs may impose additional fees during times of 
financial hardship. According to Florida CCRC operators, for example, 
CCRCs may impose fees on services that were previously free, such as 
transportation to activities in the local community. 

State Laws Designed to Protect Residents Vary, and Some States Do Not 
Mandate Key Disclosures or Contract Provisions: 

Regulating Contract Content and Clarity: 

According to a CCRC industry study, of the 38 states that have some 
level of regulation specifically addressing CCRCs, 34 states collect 
and review the standard form contract that the CCRC enters into with 
residents.[Footnote 23] Based on our analysis of CCRC industry data, 
about four out of every five CCRCs are located in states that collect 
and review these contracts. The industry summary also indicates that, 
of the 38 states with CCRC-specific licensure laws, 30 require that 
CCRC contracts include a provision that confers on residents a 
"cooling off" period in which the resident has the right to cancel a 
contract and receive a full refund of the entrance fees, less certain 
costs. The prescribed periods during which such cancellation rights 
may be exercised range from prior to occupancy to as long as 1 year 
after occupancy, and they allow residents to cancel the contract 
without penalty or forfeiture of previously paid funds. 

Of the eight states we reviewed, seven require that CCRC license 
applicants, as part of the licensure process, submit a copy of the 
contract form to be entered into with residents. In some of those 
states the contract form must be approved by the state. A few of the 
states we reviewed required that the contract be legible or written in 
clear and understandable language. Regulators from New York, 
Pennsylvania, and Wisconsin said that they review the contract for 
understandable language. Seven of the state laws we reviewed also 
require CCRC contracts to provide for a minimum time period in which a 
resident has the right to cancel the CCRC contract without forfeiting 
their paid entrance fees. Such cancellation periods vary across these 
seven states from 7 days after signing the contract to 90 days after 
occupancy. 

States we reviewed varied in how they collected and reviewed the 
contract. For example, officials in Wisconsin told us that they played 
an active role in ensuring that the contract contained the items 
required by law and met readability criteria. In some states, such as 
Pennsylvania, staff uses checklists or other tools to ensure that the 
content meets state requirements and readability standards. Officials 
in Wisconsin told us that contract reviews there were less structured 
and that staff generally used their own judgment to decide whether 
contracts were deceptive, incomplete, or obscure. States can also levy 
significant penalties if they find that a CCRC uses a contract that 
has not been reviewed and approved by the state. For example, 
California officials told us that if they found that a resident had an 
unapproved contract, the provider would be required to return all 
entrance and monthly fees (in total, including the costs incurred for 
services) to the resident. The state can also revoke the CCRC's 
certificate of authority, rendering the facility unable to accept 
entrance fees or offer new contracts. 

Protecting CCRC Residents' Fees and Deposits: 

Some states directly protect the financial interests of residents by 
(1) establishing requirements for fees and deposits to be escrowed, 
(2) addressing criteria for monthly fee increases, or (3) placing 
liens on CCRC assets on behalf of residents or confer a preferred 
status on resident claims on such assets in the event of liquidation. 
[Footnote 24] As table 2 shows, escrow requirements varied among the 
eight states we reviewed but in general mandated setting aside some 
portion of the down payment or entrance fee for all units in a CCRC. 
The portion of down payments or entrance fees required to be set aside 
in an escrow account varied among the eight states we reviewed. Escrow 
requirements are aimed at ensuring the stability of a CCRC during 
start-up and construction and its ability to provide the services set 
out in the contract with residents. Six of the states we reviewed 
required that CCRCs escrow some portion of consumer deposits or 
entrance fees it received and such funds are not released to the CCRC 
until ascertainment of certain benchmarks, such as a certain 
percentage of construction completed or long-term financing committed. 

Table 2: Financial Protections in Selected States: 

States: California; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 10% of 
entrance fees from 60% of pre-sale units; 
Conditions of release: 50% of construction completed and long-term 
financing committed; 
Policies on fee increases: CCRCs must include a statement in the 
contract that says changes in monthly care fees shall be based on 
projected costs, prior year per capita costs, and economic indicators; 
Liens, preferred claims, or other protections for fees paid: Preferred 
claim for residents if necessary, subordinate to secured creditors. 

States: Florida; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 100% of 
entrance fees from 70% of presales; 
Conditions of release: completed construction and long-term financing 
commitment; 
Policies on fee increases: CCRC must justify increases in maintenance 
fees above Consumer Price Index to residents; 
Liens, preferred claims, or other protections for fees paid: Preferred 
claim for residents, subordinate to secured creditors. 

States: Illinois; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 50% of 
entrance fees OR letter of credit for equal amount of pre-sale units; 
Conditions of release: staggered release during construction, and, if 
necessary, long-term financing commitment; 
Policies on fee increases: None; 
Liens, preferred claims, or other protections for fees paid: None. 

States: New York; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 25% of 
entrance fees from 60% (or 10% of 70%) of pre-sale units and equal 
amount of costs; 
Conditions of release: construction is complete on the individual unit 
or a maximum price contract is in place and mortgage or other long-
term financing is committed; 
Policies on fee increases: CCRCs must develop a formula to adjust 
entrance and monthly fees to be approved by Superintendent of 
Insurance; 
Liens, preferred claims, or other protections for fees paid: None. 

States: Ohio; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: None; 
Policies on fee increases: None; 
Liens, preferred claims, or other protections for fees paid: None. 

States: Pennsylvania; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 50% of 
all fees and 35% of each fee for pre-sales, 50% of cost; 
Conditions of release: Financing is committed; 
Policies on fee increases: None; 
Liens, preferred claims, or other protections for fees paid: Lien for 
residents if necessary, subordinate to secured creditors. 

States: Texas; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrowed funds: 100 
percent of entrance fees; 
Conditions of release: (1) 50% of the units have been reserved; 
and (2) entrance fees totaling 90% of various costs have been 
received, and (3) long-term financing for construction has been 
secured, but release is also contingent upon the establishment of a 
loan reserve fund; 
Policies on fee increases: None; 
Liens, preferred claims, or other protections for fees paid: Lien is 
attached on the date when a resident first occupies a facility, 
subordinate to certain secured creditors. 

States: Wisconsin; 
Escrow requirements-Percentage of entrance fee from specified 
percentage of units, conditions for release: Escrow is required but 
not specified; 
Policies on fee increases: None; 
Liens, preferred claims, or other protections for fees paid: Preferred 
claim for residents, subordinate to secured creditors. 

Source: GAO analysis of ASHA and AAHSA State Regulatory Handbook, 
2009, and statements of state regulators. 

[End of table] 

Some of the states we reviewed addressed increases in CCRCs' monthly 
fees or required CCRCs to justify increases to residents. As table 2 
shows, Florida requires CCRC providers that raise monthly maintenance 
fees above the consumer price index to provide an explanation for the 
increase to CCRC residents. In California, regulators address fee 
increases by requiring CCRCs to include in every continuing care 
contract a provision that states that changes in monthly care fees 
shall be based on projected costs, prior year per capita costs, and 
economic indicators. New York law provides that monthly fee increases 
beyond the previously approved rating methodology must again be 
approved by the Superintendent of Insurance. 

According to the industry summary, 12 out of 38 states that license 
CCRCs have the authority to place a lien or another form of 
protection, such as a surety bond or preferred claim, to ensure that 
residents have some financial recourse if a CCRC enters bankruptcy. Of 
the eight states that GAO reviewed in more detail, the regulators of 
five indicated that they place a lien for the benefit of the 
residents, or that the residents have a preferred claim on the assets 
of the CCRC facility in the event of liquidation. In Texas, for 
example, a lien attaches to facilities and assets of the CCRC provider 
when a resident moves into a facility. In Pennsylvania, the regulating 
department has the option of filing a lien on property or assets of a 
provider or facility to secure the obligations under CCRC contracts. 
According to one expert and some regulators, preferred claims and 
liens offer limited protection; however, as such claims are generally 
subordinate to those of all other secured creditors, such as 
bondholders and commercial lenders. 

Further, some of the states we reviewed required CCRCs to communicate 
with regulators and residents before a potential closure in order to 
reduce the financial and other impacts on residents. In California, 
CCRCs that are slated to close must submit plans to regulators that 
generally address refunds and include a time frame for transferring 
displaced residents to other facilities. [Footnote 25] In Florida, if 
a CCRC ceases to operate due to liquidation or pending liquidation, 
regulators use the unencumbered assets of the CCRC to provide 
relocation and other assistance to displaced residents.[Footnote 26] 

Disclosing CCRCs' Financial Condition to Consumers: 

States may also require that CCRCs disclose information pertaining to 
the financial condition of the CCRC. According to the regulatory 
history and literature we reviewed, requiring the disclosure of 
information about the past, present, and projected future financial 
conditions of CCRCs allows current and prospective residents to make 
informed decisions before entering a facility. Among states we 
reviewed that had such a requirement, we found that the format, 
extent, detail, and timing of these disclosures varied considerably. 
For example, Illinois state law simply requires that a CCRC provide 
residents with a statement that reflects the provider's financial 
condition and that, at a minimum, includes disclosure of short-term 
assets and liabilities. On the other hand, the Florida statute 
requires CCRCs to file an annual report in such form as the regulating 
entity prescribes, and such statement must include, at a minimum, an 
audited balance sheet, a statement of income and expenses, and a 
statement of changes in cash flow, as well as a list of reserve assets. 

The extent of additional disclosure requirements also varied across 
the states we reviewed. As table 3 indicates, disclosures can include 
information with significant financial implications to residents, such 
as fee schedules, a history of fee increases, refund policies, and the 
status of residents' claim on the assets and facility of a CCRC in 
case of bankruptcy or insolvency. For example, California requires 
CCRCs to provide residents with a history of fee increases over the 
past 5 years. California, Florida, and New York require that residents 
receive advance notice of any increases or changes to monthly fees. 
California and Wisconsin require CCRCs to disclose to residents that 
any claims they have against the CCRC in the event of its liquidation 
may be subordinate to secured creditors, such as mortgage lenders. 

Table 3: Examples of Required Financial Disclosures in Eight States: 

Selected financial disclosure: Financial conditions of facility; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Check]; 
New York: [Check]; 
Ohio: [Check]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Check]. 

Selected financial disclosure: Fee schedules; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Check]. 

Selected financial disclosure: Fee adjustment policy; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected financial disclosure: History of fee increases; 
California: [Check]; 
Florida: [Empty]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Empty]; 
Wisconsin: [Check]. 

Selected financial disclosure: Reserve funding provisions; 
California: [Check]; 
Florida: 
[Check]; 
Illinois: [Empty]; 
New York: [Empty]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected financial disclosure: Expected source of funds for 
development of facility[A]; 
California: [Check]; 
Florida: [Empty]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected financial disclosure: Refund policies; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Check]. 

Selected financial disclosure: Status of resident claim on CCRC assets 
in case of bankruptcy or insolvency; 
California: [Check]; 
Florida: [Empty]; 
Illinois: [Empty]; 
New York: [Empty]; 
Ohio: [Empty]; 
Pennsylvania: [Empty]; 
Texas: [Empty]; 
Wisconsin: [Check]. 

Source: GAO review of state CCRC law, and contacts with state 
regulatory officials. 

[A] For facilities that have not yet been developed. 

[End of table] 

Statutory provisions regarding the delivery and timing of disclosures 
to prospective residents also varied among the states we reviewed. For 
example, while the states we reviewed required providers to disclose 
financial information to prospective residents prior to signing the 
CCRC contract, five states we reviewed also required that such 
information be subsequently disclosed periodically to residents. 
[Footnote 27] Exactly where and how the information must be disclosed 
can vary as well. For example, some states require that financial 
information be posted in public areas of the CCRC, others require 
providers to convene periodic meetings with residents to discuss the 
financial condition of the facility, and still others that financial 
information is made available to residents upon request. A New York 
state official said the state posts the results of any CCRC 
examinations on a Web site so that consumers can access the 
information and compare results across CCRCs. 

Some of the states we reviewed performed on-site audits and 
examinations of CCRCs on a periodic basis to help ensure consumer 
protections, including the disclosure of important financial 
information. The states we reviewed generally have discretionary 
authority to conduct on-site audits or examinations, but some are 
required to conducted periodic audit or examinations.[Footnote 28] For 
example, the Florida regulatory authority is required to conduct on- 
site examinations at least once every 3 years and may visit more 
frequently if regulators receive complaints from residents. Such on- 
site exams may include inspections of financial information, 
contracts, and disclosures and conversations with staff, management, 
and residents. Other states said that they had the authority to 
conduct on-site investigations but had not done so. For example, 
regulators in Texas said that they have not yet faced an issue with a 
CCRC that would compel them to conduct an examination or 
investigation, but historically have exercised other regulatory 
authority over CCRCs for financial oversight. Regulatory officials 
told us that the state had relied on documents submitted by CCRCs and 
has called CCRC management on an informal basis to obtain additional 
information or clarification when necessary. 

Disclosing Nonfinancial Policies and Practices: 

Other requirements mandate disclosure of policies that may have 
important implications for the length and quality of residents' stay 
at their CCRC. Some states we reviewed required that CCRCs explicitly 
disclose policies regarding (1) the conditions under which a resident 
could remain in the event the resident experiences financial 
difficulties, and (2) conditions under which residents would be 
required to move to a higher level of care. For example, Pennsylvania 
requires that each CCRC contract describe the circumstances under 
which a resident may remain at the facility in the event the resident 
has financial difficulties. California specifically mandates that 
CCRCs offering life care contracts subsidize residents who are unable 
to pay their monthly or other fees, provided the financial need of the 
resident does not arise from the resident's own action to divest of 
his or her assets. 

Seven of the states we reviewed also have specific, nonfinancial 
provisions that must be contained in the residential contract or 
disclosure statement, but these provisions varied, as shown in table 
4. For instance, some states not only require disclosure of certain 
policies, but specifically prescribe minimum procedures that CCRCs 
must follow while other states require that certain policies be 
disclosed to residents but do not prescribe the substance of those 
policies. For example, in addition to requiring that the resident 
contract describe the procedures and conditions under which a resident 
may be transferred from a designated living unit, the applicable 
California statute prescribes minimum transfer procedures. These 
policies must be disclosed at the time that the contract is signed in 
an effort to ensure that residents understand how they will move 
through the continuum of care. Florida and New York also require that 
residents be advised of policies for transferring residents among the 
levels of care but do not specifically set those policies. According 
to an expert, such policies have been a point of friction between 
residents and CCRC management. As table 4 indicates, some of the 
states we reviewed did not have such certain disclosure requirements. 

Table 4: Selected Nonfinancial Disclosure Requirements: 

Selected non-financial disclosures Information about the provider; 
California: [Check]; 
Florida: [Empty]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Affiliation of CCRC with any 
religious/charitable group; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Summary of recent state inspection 
results; 
California: [Empty]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Empty]; 
Texas: [Empty]; 
Wisconsin: [Check]. 

Selected non-financial disclosure: Available services; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Check]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Check]. 

Selected non-financial disclosure: Description of physical property of 
the facility; 
California: [Empty]; 
Florida: [Empty]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Copy of the contract; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Policy in the event that resident 
has financial difficulties; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Non-voluntary transfer to a higher 
level of care policy; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Empty]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Policy regarding admission/ 
discharge from levels of care; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Empty]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Rules and regulations of the 
facility; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Empty]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Empty]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Policies regarding life changes 
such as marriage or death of a spouse; 
California: [Empty]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Check]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Selected non-financial disclosure: Health and financial requirements 
for residence at facility; 
California: [Check]; 
Florida: [Check]; 
Illinois: [Empty]; 
New York: [Empty]; 
Ohio: [Empty]; 
Pennsylvania: [Check]; 
Texas: [Check]; 
Wisconsin: [Empty]. 

Source: GAO review of state CCRC law and contacts with state 
regulatory officials. 

[End of table] 

Other Regulatory Protections: 

Some state regulations are aimed at ensuring that residents can 
communicate their concerns to management and receive ongoing financial 
and nonfinancial information concerning a CCRC by forming residents' 
councils and creating a residents' bill of rights. Six of the states 
that we reviewed required that residents of a CCRC be allowed and 
encouraged to form groups in order to communicate with management, 
including Ohio which has no other CCRC specific law. CCRC management 
coordinates with representatives from the resident groups to 
communicate information on the facility's financial condition, fee 
increases, policy changes, and other issues. In Florida and 
California, for example, the resident councils are the designated 
recipients of mandated disclosures such as reports on the CCRCs 
financial condition, and fee structure. Two states we reviewed 
prescribed a statutory residents' bill of rights and required CCRCs 
provide a copy of such rights to residents prior to their occupancy. 

Finally, some of the state regulators we interviewed indicated that 
they require CCRCs to provide marketing and advertising materials for 
approval. One regulator we spoke with commented that claims or 
incidents of false advertising were rare to nonexistent. Residents had 
not highlighted this issue as a major concern for consumers. 

Opinions Differed on the Effectiveness and Adequacy of State 
Regulations: 

Based on our interviews with state officials, we found no assessments 
of the effectiveness of state regulations in protecting consumers at 
either the national level or the state level, and state officials, 
resident advocates, and experts expressed a wide range of opinions on 
the adequacy of state law to protect consumers. First, state officials 
and others noted the importance of certain CCRC law provisions. For 
example, regulatory officials in Florida said that requiring CCRCs to 
provide financial information publicly through a state was necessary, 
because without such information residents would be unable to compare 
in-state CCRCs in a uniform manner and regulators would be unable to 
ensure that residents had enough information to make an informed 
choice of facilities. Members of a national association of CCRC 
residents expressed concern that some state laws might not address the 
terms of the residency contract, including the refundable portion of 
the entrance fee and residents' rights within the contract, such as 
the ability to renegotiate fees in the event of a CCRC sale due to 
financial insolvency.[Footnote 29] Additionally, members of this 
association expressed concern that CCRCs in financial difficulties 
might not notify residents if states did not require CCRCs to provide 
disclosures regarding CCRCs' financial condition. Seven of the eight 
states we contacted did have a CCRC law that required such disclosure, 
but one--Ohio--did not. 

Other experts and resident advocates we interviewed pointed out 
possible further improvements to state laws. For example, a law 
professor with expertise on the Pennsylvania law told us that states 
should take a greater role in facilitating the ability of prospective 
residents to access information about CCRCs for purposes of making 
meaningful comparisons.[Footnote 30] For example, states could publish 
information about the financial and operating conditions of CCRCs in a 
statewide database so that CCRC residents could make comparisons 
across the statewide industry. The law professor advocates that states 
could publish information about (1) the numbers and types of 
complaints about CCRCs, (2) comparative information on entrance fees 
and monthly fees, and (3) instances of the state requiring a CCRC 
provider to give revised financial projections. Similarly, 
representatives of two statewide resident's groups said that residents 
would like to see states require that CCRCs provide disclosures on 
their financial condition along with an extensive, understandable 
explanation of the disclosure. 

Finally, although state laws differ significantly in breadth and 
detail, it is not clear that CCRC residents in states with less 
stringent requirements are necessarily at greater risk than residents 
in heavily regulated states. In one state, regulators told us that 
despite extensive CCRC regulation, a CCRC bankruptcy cost residents 
the refundable portion of their entrance fees. In another state, 
regulators said that, while the CCRC law is not as extensive as in 
other states, they are not aware of any CCRCs that have faced 
bankruptcies or failures. In part, protection may come from the CCRCs 
themselves. In our contacts with CCRCs, we found that some took steps 
that went well beyond what the state law required. The Illinois 
statute, for instance, requires comparatively fewer disclosures than 
other states, such as California and Florida, and, according to an 
Illinois regulatory official, does not mandate that CCRCs provide 
financial information on an ongoing basis. Nonetheless, officials from 
CCRCs in Wisconsin and Illinois told us that they provided additional 
disclosures, beyond what is required by state law. Representatives 
from one CCRC told us that they offered prospective residents a 
lengthy "discovery phase" so that residents were not unpleasantly 
surprised after signing the contract or moving in. In this discovery 
phase, prospective residents discussed their expectations with staff, 
had a meal at the CCRC, and visited with current residents and staff. 
The CCRC had also established a residents' finance committee that 
received ongoing budget and other financial information and gave 
residents a vehicle for communicating with management. Finally, the 
CCRC provided a quarterly operating budget to each resident and made 
other financial information available upon request. CCRC officials in 
several other states, including California and Pennsylvania, told us 
they exceed statutory requirements. Nonetheless, because we visited 
only seven CCRCs in the course of our work, we do not know how 
widespread such actions are. 

Concluding Observations: 

CCRCs can help ensure that older Americans have access to housing and 
health care in a single community as they age. However, entering a 
CCRC often means committing a large portion of one's assets, and while 
CCRC bankruptcies have been rare, and few residents have lost their 
housing or their entrance fees, a CCRC failure could put residents in 
a difficult financial situation. As a result, residents have a strong 
interest in fully understanding the long-term viability of their CCRC 
and their contract with it. However, resident contracts and CCRC 
finances are often complex, and prospective residents may find it 
challenging to evaluate the risks they face or the likelihood that a 
particular CCRC has done sufficient long-range financial and 
operational planning. Such difficulties, coupled with the stress that 
recent economic events have placed on CCRC finances, underscore the 
importance of regulators being vigilant in their efforts to monitor 
CCRCs' long-term viability and protect consumers. 

CCRCs as entities are not regulated by the federal government, and, 
according to an industry study, 12 states do not appear to have CCRC- 
specific regulations. As a result, an entity that might be licensed 
and regulated as a CCRC in some states may not be in others, and 
resident contracts that might receive regulatory scrutiny in some 
states may not in others. In other work looking at the regulation of 
financial contracts across states, we have pointed out the importance 
of ensuring that citizens entering similar contracts receive similar 
regulatory protections across states. Because there is no federal 
regulator for CCRCs, we are not making a recommendation for specific 
action. However, the potential 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 requiring assisted living and nursing home care increases. 

NAIC and HHS Comments and Our Evaluation: 

We provided a draft of the report to the Department of Health and 
Human Services and the National Association of Insurance 
Commissioners, but neither commented on the draft. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested congressional committees, the Chief Executive Officer of 
the National Association of Insurance Commissioners, the Secretary of 
the U.S. Department of Health and Human Services, and others. In 
addition, the report will be available at no charge on GAO's Web site 
at [hyperlink, http://www.gao.gov]. 

If you or your staff has any questions regarding this report, please 
contact us at (202) 512-7022 or cackleya@gao.gov or (202) 512-5491 or 
bovbjergb@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. GAO staff that made major contributions to this report are 
listed in appendix II. 

Sincerely, 

Signed by: 

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

Signed by: 

Barbara D. Bovbjerg: 
Managing Director, Education, Workforce, and Income Security: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To address concerns about the risks and regulation of CCRCs, we have 
been asked to (1) describe how CCRCs operate and what financial risks 
are associated with their operation and establishment, (2) describe 
how state laws address these risks and identifies what is known about 
how adequately they protect CCRCs' financial condition, (3) describe 
risks that CCRC residents face; and (4) describe how state laws 
address these risks and identifies what is known about their adequacy. 

To describe how CCRCs are established and operated, methods CCRCs use 
for initial financing and on-going operations, and what initial and on-
going risks CCRCs may experience, we interviewed CCRC providers, CCRC 
industry associations--including the American Association for Homes 
and Services for the Aging (AAHSA), American Seniors Housing 
Association (ASHA), National Association of Insurance Commissioners 
(NAIC), and National Center for Assisted Living (NCAL)--and two 
attorneys who specialize in housing and health care for older 
Americans.[Footnote 31] In addition, we met with officials from eight 
CCRC facilities. We selected these providers based on the providers' 
geographic diversity, facility size, non-profit or for-profit status, 
type of contracts offered, and income or market segment served. We 
also met with state CCRC regulators from eight states--California, 
Florida, Illinois, New York, Ohio, Pennsylvania, Texas, and Wisconsin. 
We selected these states due to the states' geographic diversity, CCRC 
population size, and type of state regulatory department with CCRC 
oversight responsibility. Because we judgmentally selected the states 
and CCRCs we reviewed, we cannot generalize information we obtained to 
other states or CCRCs. In addition, we reviewed literature and 
academic articles by experts in the senior living industry. 

To describe what state laws exist to ensure CCRCs' financial 
stability, and what is known about how adequately they protect CCRCs 
financial condition, in the eight states we selected we reviewed and 
analyzed state CCRC laws that govern the financial aspects of CCRC 
licensing and periodic state oversight, and met with selected state 
regulatory officials. In addition, we met with industry associations, 
CCRC providers, and two attorneys who specialized in housing and 
health care for older Americans. We also met with two actuaries, two 
actuarial industry associations, and members of CCRC residents' 
associations that work with CCRC management on behalf of older 
Americans who reside in CCRCs.[Footnote 32] 

To describe what risks CCRC consumers face, as well as what state laws 
exist to protect consumers from financial and other risks, and what is 
known about how adequately they protect consumers, in the states we 
selected we reviewed and analyzed state laws pertaining to 
specifically to CCRCs that are designed to inform and protect 
consumers, and met with selected state regulatory officials. We also 
reviewed summary information on laws and regulations across all states 
that was compiled by an industry association. We also reviewed 
examples of CCRC disclosures and other information provided by CCRCs 
in states we reviewed. In addition, we met with industry associations, 
CCRC providers, and two attorneys who specialize in housing and health 
care for older Americans. In addition, we met with members of CCRC 
residents' associations that work with CCRC management on behalf of 
older Americans who reside in CCRCs. 

We conducted this performance audit from June 2009 to June 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. 

[End of section] 

Appendix II: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Alicia Puente Cackley (202) 512-7022 or cackleya@gao.gov: 

Barbara D. Bovbjerg (202) 512-5491 or bovbjergb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, 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 made key contributions to this 
report. 

[End of section] 

Footnotes: 

[1] Other options for short-and long-term care include home-based 
care, adult day care, and hospice or palliative care, as well as stand-
alone assisted living and skilled nursing facilities. 

[2] Medicare, the federal health care program for elderly and disabled 
individuals, covers up to 100 days of skilled nursing home care 
following a hospital stay but does not cover long-term care. Medicaid, 
the joint federal-state health care financing program for certain 
categories of low-income individuals, pays for the nursing home care 
of qualifying individuals who can no longer live at home. 

[3] Some CCRCs may also admit consumers into their nursing home 
facilities as if it were a stand-alone facility, and have them pay the 
nursing home per diem rate or market rate. Other CCRCs may temporarily 
admit older Americans directly into assisted living or nursing 
facilities to broaden their customer base and generate revenue. 

[4] In this report, we use the term "industry participants" to refer 
to those entities with a role in the CCRC industry, including CCRCs, 
regulators, actuaries, attorneys that specialize in housing and health 
care for older Americans, and industry and resident associations. 

[5] Assessing market demand may occur through market and financial 
feasibility studies that assess key variables such as the number of 
older Americans that may demand CCRC or other living options, the 
income level of potential residents, average age and age subgroups 
within the immediate market area, housing values of prospective 
residents, marital, religious, or other personal characteristics, and 
interest in various architectural designs and amenities. 

[6] Qualified governmental units are permitted to issue qualified 
private activity bonds to provide tax-exempt financing for certain 
private activities. In these cases, the qualified governmental unit 
generally acts as a conduit, meaning that the qualified governmental 
unit issues the bonds, but the nongovernmental entity receiving the 
benefit of tax-exempt financing is required to provide the funds to 
repay the bonds. 

[7] CCRCs may offer refund options to residents, which are part of 
some contracts. According to industry participants, these options 
include: (1) fully refundable entrance fees, which tend to be more 
expensive at the outset but involve the full return of the entrance 
fee amount to the resident or the resident's family; (2) partially 
refundable entrance fees that allow for the return of a certain 
percentage of the entrance fee within specified time limits; (3) 
declining scale entrance fees, which involve reducing the amount of a 
refund by a certain percentage each month over a specified period of 
time; and (4) nonrefundable entrance fees that are not refundable 
after a certain period of time. 

[8] According to industry participants, non-profit CCRCs may try to 
obtain financing from states, which sometimes have funds available 
through the issuance of bonds. They also added that banks' letters of 
credit have been important for CCRCs because they have helped CCRCs 
access capital for development and operational purposes. 

[9] Texas law does not require CCRC applicants to conduct feasibility 
studies but if one is available, the applicant is required to submit 
it. 

[10] Texas law does not require CCRC applicants to conduct market 
studies but if one is available, the applicant is required to submit 
it. 

[11] California requires CCRC providers to perform actuarial studies 
for type A contracts. New York and Texas require providers to submit 
actuarial studies for all Type A contracts and those Type B contracts 
that result in long-term liabilities. 

[12] Of the states we reviewed that had examination authority, the 
required examination frequency ranged from "as-needed" to about every 
4 years. 

[13] 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, 
2009. 

[14] Ziegler Capital Markets provided the data contained in Figure 2. 
For information on the number of CCRCs in each state, Ziegler 
considered CCRCs to be age-restricted properties that make a 
combination of independent living, assisted living, and skilled 
nursing services (or independent living and skilled nursing) available 
to residents. Resident payment plans vary and include entrance fee, 
condo/co-op, and rental programs. Not all of the living components, 
particularly nursing care, must be on the same campus with independent 
living. Ziegler's definition may differ from those used by states for 
regulatory purposes. 

[15] Nursing homes must meet minimum standards set by the Social 
Security Act in order to participate in Medicare and Medicaid 
programs. The federal standards focus on the delivery of care, 
resident outcomes, and facility conditions provided by each nursing 
home. These quality standards, totaling approximately 200, are grouped 
into 15 categories, such as Resident Rights, Quality of Care and 
Facility Practices. State agencies assess the compliance of a nursing 
home to the federal quality standards by conducting comprehensive 
assessments. These assessments occur on average once a year, and 
complaint investigations are performed as needed. 

[16] GAO, Financial Regulation: A Framework for Crafting and Assessing 
Proposals to Modernize the Outdated U.S. Financial Regulatory System, 
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C.: 
Jan. 8, 2009). 

[17] GAO, Insurance Reciprocity and Uniformity: NAIC and State 
Regulators Have Made Progress in Producer Licensing, Product Approval, 
and Market Conduct Regulation, but Challenges Remain, [hyperlink, 
http://www.gao.gov/products/GAO-09-372] (Washington, D.C.: Apr. 6, 
2009). 

[18] Higher credit ratings can improve the terms or reduce the cost of 
financing for the CCRC. 

[19] The Continuing Care Accreditation Commission is part of the 
Commission on the Accreditation of Rehabilitation Facilities, a 
nonprofit organization that operates accreditation programs for 
various health and human services, including CCRCs. 

[20] According to a state official, after construction, the tax-exempt 
status of the CCRC was challenged, and it was determined that the 
facility was in fact liable for local taxes, which amounted to about 
$4.5 million in back taxes, in addition to future unanticipated taxes. 
This led to the financial insolvency of the CCRC, which filed for 
bankruptcy and faced a need to restructure. 

[21] For example, members of one state CCRC residents' organization 
said that if room in the next level of care is not available, the CCRC 
contract will require that a resident be placed in another facility 
until on-site space becomes available. However, the other facility 
could be some distance away, which could create difficulties for the 
residents and their family. They added that this had not been a 
frequent problem. 

[22] Tetyana Pylypiv Shippee, "But I Am Not Moving" Residents' 
Perspectives on Transitions Within a Continuing Care Retirement 
Community," The Gerontologist, Vol. 49, No. 3, 418-27, (Apr. 16, 2009). 

[23] 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, 
2009. 

[24] Escrow is a deed, a bond, money, or piece of property held in 
trust by a third party to be turned over to the grantee only upon 
fulfillment of a condition. 

[25] State regulators in California said that CCRC closures in 2007 
were behind recently enacted state legislation on CCRC closure 
procedures. Residents involved in one closure filed complaints 
expressing unhappiness with the procedures and, in some cases, 
complained that they had suffered trauma from it. 

[26] In addition, whenever an order of liquidation has been entered 
against a CCRC provider, the Florida Department of Children and Family 
Services and the Agency for Health Administration are required to (i) 
evaluate the eligibility of displaced residents for assistance or 
programs administered by those agencies, (ii) develop a plan of 
relocation with respect to residents requesting assistance, and (iii) 
counsel the residents regarding such eligibility and such relocation. 
See Fla. Stat. § 651.117. 

[27] In some states such financial disclosure is mandated by statute. 
In other states, providers are required only to make such disclosure 
if requested by the prospective resident. 

[28] Ohio does not have a specific authority to do on site exams at 
CCRCs generally. The state may have discretionary authority to examine 
assisted living or skilled nursing portions of a CCRC, but this is 
beyond the scope of our review. 

[29] Residents in CCRCs that are in bankruptcy or are sold may need to 
negotiate their contracts with the new owner in order to maintain a 
percentage of their entrance fees. 

[30] Pearson, Katherine C., "Continuing Care Retirement Communities, 
State Regulation, and the Growing Importance of Counsel for Residents 
and Their Families," The ABC's of Continuing Care Retirement 
Communities, Pennsylvania Bar Association Quarterly, October 2006. 

[31] We consulted with Mr. Paul M. Gordon, Partner, Hanson Bridgett, 
LLP and author; and Ms. Katherine C. Pearson, Professor of Law and 
Director, Elder Law and Consumer Protection Clinic, Pennsylvania State 
University. 

[32] The two actuaries we consulted were Mr. A.V. Powell, Chief 
Executive Officer, A.V. Powell and Associates, and Ms. Faye Albert, an 
independent actuarial practitioner. 

[End of section] 

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