What Happens If You Run Out of Money in a Continuing Care Retirement Community?

What the law in Missouri, Kansas, Nebraska, Iowa, and Florida says, what your contract has to tell you, how Medicaid treats the entrance fee you already paid, and the questions to ask before you write that check.

What Is a Continuing Care Retirement Community?

A continuing care retirement community is a campus where you start out in independent living, and assisted living and nursing care sit on the same property for later. The idea is that you move once, and when your health changes you move across the campus instead of across town. Some communities call themselves life plan communities. Kansas law uses the term continuing care.⁵ Nebraska law uses the term life care contract.⁸ They are describing the same arrangement.

The money part is what makes it different from renting an apartment. You pay a large lump sum up front, called an entrance fee, and then a monthly fee on top of it for as long as you live there. Kansas law defines the entrance fee as a transfer of money or property made “as full or partial consideration for acceptance of a person as a resident.”⁵ In plain language, it is what you pay to get in.

That entrance fee comes straight out of your retirement savings. It is the single biggest check most people ever write after they buy a house.

What Happens If You Run Out of Money in a Continuing Care Retirement Community?

Your contract answers this, not the brochure, and in four of the five states we serve the law does not answer it for you.

Here is what each state requires.

Florida

Florida is the one state of the five that puts a real floor under the resident.

Florida law says that dismissing a resident because the resident cannot pay is not just cause, at least until the unearned part of the entrance fee has been used up by the community.¹ And if that entrance fee runs out within 90 days of the missed payment, the law says the community “may not require the resident to leave before 90 days from the date of failure to pay,” and during those 90 days the resident pays “a reduced fee based on her or his current income.”¹

That protection is not the community carrying you for free. What it does is make them use up the part of your entrance fee they have not earned yet, and then give you 90 days past that at a reduced fee. Once that runs out, Florida law does not say what happens next. Your contract does.

Missouri

Missouri law requires the community to be certified by the state, and it requires entrance fees collected before you move in to be held in an escrow account.⁷ It also gives you seven days to rescind the contract after you sign, with everything you paid refunded, and says no one can be required to move in until those seven days are up.⁶

What Missouri law does not do is tell a community what to do when a resident runs out of money. We read the Missouri sections covering continuing care, 376.900 through 376.950, and there is no provision on it.⁶⁷

Kansas

Kansas requires the contract to include “a statement describing health and financial conditions required to continue as a resident, including any changes in either health or financial conditions of the resident.”⁴

That sentence is doing a lot of work. Kansas requires the community to tell you its rule. It does not tell the community what the rule has to be.

Iowa

Iowa is close to Kansas. Iowa requires the contract to include “a statement of the policy of the facility or program with regard to the conditions under which the resident is permitted to remain in the facility or program in the event of financial difficulties affecting the resident.”³

Iowa adds one thing Kansas does not. A provider cannot dismiss or discharge a resident before the contract expires “without just cause and sixty days’ written notice of intent to cancel.”³ Iowa does not define whether running out of money is just cause. Florida does. Iowa does not.

Nebraska

We looked for a Nebraska law covering continuing care contracts and could not find one. The only place Nebraska statute defines a continuing care retirement community is inside the Nursing Facility Quality Assurance Assessment Act, which is a law about assessments on nursing facilities, not a consumer protection law about your entrance fee.⁸

Being straight with you: not finding a law is not the same as proving there isn’t one. If you are looking at a Nebraska community, ask the community and ask your attorney which state law applies to your contract.

Nursing home costs in the states we serve: Missouri, Kansas, Nebraska, Iowa, Florida.

Does Medicaid Count the Entrance Fee You Already Paid?

It can.

Nobody writes a six-figure entrance fee check unless they have the money to do it. The trouble could show up later. It could show up years later, when the care has gone on longer than anyone planned and the savings are gone. That is when people apply for Medicaid.

Medicaid only pays once you are down to almost nothing. In the states we serve, one person has to be at $2,000 to a little over $6,000 in countable assets before Medicaid pays a dime. Related: Who Pays for a Nursing Home If You Have No Money?

Now go back to that entrance fee you paid years earlier. If your contract says part of it comes back to you or your family when you die or move out, Medicaid can look at that refund and call it your money, still available. Federal law has a rule written for continuing care communities that says your entrance fee counts as money available to you when all three of these are true:⁹

• your contract lets that money be used to pay for your care if you run short,
• you or your family would get back whatever is left of it when you die or leave, and
• the fee did not buy you an ownership stake in the community.

All three have to be true, and your contract is where you find out. What it comes down to is not complicated. If you can still get at that money, Medicaid counts it as money you still have, and you spend it on your own care before Medicaid pays anything.

That is the trade a refundable contract makes, and it cuts both ways. The refund is what protects the money you meant to leave your family. It is also the thing that can keep you paying your own way long after you thought Medicaid would have taken over.

What Is the Average Entrance Fee for a Continuing Care Retirement Community?

We couldn’t find a current official number.

No federal or state agency we could find publishes a current national average entrance fee. The last federal study of these communities is the Government Accountability Office report from June 2010, which put entrance fees for the most inclusive contract type at roughly $160,000 to $600,000, with monthly fees of roughly $2,500 to $5,400.¹¹

That report is more than sixteen years old. It gives us an idea, not actual costs.

Every one of these states requires the community to give you its own numbers in writing. Kansas requires the contract to include “a description of all fees and or charges required of residents.”⁴ Missouri requires the state certificate and annual report to be available to you before your rescission period runs out.⁶ Iowa requires a disclosure statement and gives you thirty days after you receive it to rescind.³ Florida requires the contract to describe the circumstances under which you can stay if you hit financial trouble.²

An average doesn’t really tell you the story you’re looking for. You want the numbers for the one community, or more than one, that you are actually considering, and the law says they have to give it to you.

Will Medicare Pay the Entrance Fee or the Monthly Fee?

No.

Medicare’s own website says it: “Medicare doesn’t pay for long-term care.”¹⁰ The same page says Medicare and most health insurance, including Medicare Supplement Insurance, do not pay for long-term care services, and “You pay all costs for non-covered services, including most long-term care.”¹⁰

Medicare can pay for a limited stretch of skilled nursing care after a qualifying hospital stay, and that is covered on the pillar page. Related: How Much Does Long-Term Care Cost Per Month? It does not pay to get you into a community and it does not pay your monthly fee.

What Happens If the Community Runs Out of Money?

You can do everything right and still be exposed, because you are not just buying care. You are lending a large sum of money to a business.

The Government Accountability Office looked at this in 2010 and said 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.”¹¹ The report also describes a Pennsylvania case where residents “relinquished the refundable portion of their entrance fees” during a restructuring after bankruptcy.¹¹

Subordinate means you stand behind those lenders in line. The report is dated 2010, and we have not found a newer federal study, so treat the specific examples as history and the structure as the point.

This is why Missouri’s escrow rule matters and also why it only goes so far. Missouri escrows entrance fees collected before you move in, and releases them once the unit is ready and the financing tests are met.⁷ Once you are living there, that protection has already done its job.

Is a Continuing Care Retirement Community Worth the Money?

That is not a question anybody can answer for you from the outside, and anyone who answers it fast is selling something.

What we can tell you is what you are actually buying with the entrance fee.

What you get:

• One move instead of two or three, at an age when moving is hard.
• Care happens on the same campus, which matters most to the spouse who would otherwise be driving across town every day.
• A monthly cost that, depending on the contract type, may rise less than the open market when your care needs go up.
• A decision made while you are both healthy enough to make it together, instead of in a hospital hallway.

What you give up:

• A large piece of your savings, gone from your control on day one.
• A monthly fee that continues for life and can be raised.
• A refund that depends on your contract terms, your state, and the community still being solvent.
• Flexibility. That money is committed to one campus and one organization.

Neither list settles it. Your situation settles it.

An entrance fee is essentially the liquidity question in its purest form. Money you cannot get back at the moment you need it was never really liquid. Related: Is Your Retirement Money Really Liquid? What Traditional Planning Never Quotes You

What Is the Best Age to Move Into a Continuing Care Retirement Community?

There is no right age, so don’t believe anybody with some rule of thumb.

Most communities screen for health when you apply, and a waiting list can run years, so people who wait until they need care sometimes find the door has closed. That is the practical pressure behind the question. It is also exactly the pressure a salesperson uses.

What would likely work better for you is to ask the money question first, because it does not change with age. If you write this check at 72, what is left, what does it have to produce every month for the rest of your life, and what happens to the survivor when one of you is gone?

Questions to Ask Before You Write the Check

Ask these of the community, in writing, and keep the answers.

• What exactly happens if I can no longer pay the monthly fee? Show me that paragraph in the contract, not the brochure.
• Is there a benevolence or financial assistance fund? Who funds it, is it discretionary, and has anybody ever been turned down?
• Is your health center certified for Medicaid? If it is not, where do I go if I need Medicaid?
• How much of my entrance fee is refundable, on what schedule, and what triggers the refund?
• Can my entrance fee be used to pay for my care if I run short? Your answer decides how Medicaid treats that money.⁹
• How many times have you raised the monthly fee in the last ten years, and by how much each time?
• Show me the audited financial statements and the occupancy rate.
• What is your debt, who holds it, and where would residents stand if the community were reorganized?

Take the contract to an attorney before you sign and use the rescission window your state gives you. Missouri gives you seven days.⁶ Iowa gives you three business days, or thirty days after you get the disclosure statement.³

How My Team and I Would Look at This

We do not start with the entrance fee. We start with the life.

What do you want your days to look like, who do you want to be near, and what does that cost every month? Once that is on paper, the question stops being “can I afford the entrance fee” and becomes “after the entrance fee, does the income still cover the essentials, the adventures and experiences, and the memories with the people you love, for as long as we both live?”

An entrance fee does not just reduce your savings. It changes the math on every month that follows, including the month after one of you is gone.

For a lot of the people we work with, the work is building an income floor underneath that monthly fee first, using part of the savings and never all of your money, so the fee is covered by income arriving every month instead of by selling off pieces of the nest egg. That money still comes out of what you built. What changes is the way it arrives. Related: Lump Sum vs. Monthly Income: Which Should You Choose in Retirement?

Whether a continuing care retirement community fits is a conversation, not a rule.

Frequently Asked Questions

If you are weighing a continuing care retirement community, or any long-term care decision, and you want to see what it does to your income for the rest of your life before you sign anything, my door is open. No pitch. No pressure. Never any pressure. First your life, then your money. You know where to find me.

All figures are as of the dates shown and are for education only. Medicaid and VA rules and amounts vary by state and change. This page is not legal, tax, or Medicaid planning advice. Questions about your own Medicaid eligibility belong with an elder law attorney in your state.