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The Continuing Care Retirement Community: Financial Models

By R. Gerard Hyland

 In the “NaCCRA CCRC Financial Soundness Committee Interim Report,” Chair Walton T. Boyer, Jr. identified as a key consideration Financial Models.  Continuing Care Retirement Community (CCRC) “entry fees” (also referred to as “entrance fees,” “life-care fees,” “founder fees,” and so on) are at the heart of CCRC stability.  These fees are unique to CCRCs in their magnitude, in the lack of agreement on how they are deter­mined, and how they can appropriately be used. 

 At the heart of the problem with entry fees is that diverse vested interests have different perspectives on entry fees as described below:

 Prospective residents and residents mostly view entry fees as an invest­ment in their remaining lifetime housing and care.  Prospective residents sell their homes and invest a substantial portion of their life savings in the entry fees.  

Actuaries view entry fees, in part, as a means to forward pay for the high cost of end-of-life care in assisted living, skilled nursing, or memory care.[1],[2]    

Internal Revenue Service (IRS) agrees with the actuarial view and allows resi­dents to deduct a substantial portion of entry fees as a health care deduction on income tax returns.[3]

Internal Revenue Service also views entry fees as an interest-free loan by resi­dents to CCRCs.  The IRS would normally require residents to pay an income tax on imputed interest earnings on the loan except for an exemption.  A few years ago, residents joined the American Association of Housing and Services for the Aging (now LeadingAge) in a letter writing campaign to the U.S. Congress to obtain the exemption.[4],[5]

Accountants substantially disagree with actuaries.  The accountant's stan­dards for computing future cost of health care are less stringent than actuar­ial standards.[6] 

Accountants, furthermore, prescribe the standard that once an entrance fee is paid, the CCRC does not owe the resident anything.  Any refundable portion of a resi­dent's entry fee is from the entry fee payment of the prospec­tive resident who takes the vacated apartment.[7],[8]

Investment Bankers look at the cash from entry fees as providing assur­ance for their bond investors.  “An entrance-fee community with bond cove­nants that require minimum liquidity and capital-structure ratios, for example, will focus on the days cash on hand ratio and the debt-service coverage ratio….”[9]  The more funds residents contribute, the greater the liquidity and capital structure ratios are likely to be, and the greater the assurance provided to the bond investors.

Sponsor/Owner of a not-for-profit CCRC usually has little or none of its funds in an operating CCRC.  The de facto “risk capital” for long-term financing is from the unsecured entry fees.  The other major source of financing is secured debt provided by the bond holders.  According to David Reis, CEO, Senior Care Development, LLC, in an interview after placing a stalking horse bid on the bankrupt $272 million Clare at Water Tower in Chicago’s Gold Coast, “The model of a nonprofit getting 100% financing is going the way of the dodo bird. That’s history. Because no one else in this business gets to put no cash in the game, and doesn’t have to have any experience to go out there and operate. Moving forward, a lot of people who buy tax-exempt bonds, who would buy these—they’re gonna find that they’re not gonna want to buy these types of bonds from nonprofit, inexperienced sponsors.[10]















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Federal bankruptcy courts look at the cash from entry fees as funds to be used to repay secured debt—the bond holders.  “…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]

For further information, please refer to the endnotes below.

There is a need to achieve consistency of understanding by all parties on a financial model for CCRCs that protects entry fees for the intended purpose of funding residents’ end-of-life care, and the return of any refundable portion for which residents may have contracted.  Since CCRCs are licensed at state levels, these objectives will also have to be met at state levels.

We would like to hear from you on what you think about the nature of entry fees.  Write to Walt Boyer at  

 Mr. Hyland serves on the ad hoc CCRC Financial Soundness Committee and is a resident at Mary’ Woods, a continuing care retirement community in Lake Oswego, Oregon.

Click on links below to access source materials.

[5] “… [A]bout three to five years ago the residents joined AAHSA (now LeadingAge) in a letter campaign to Congress to get the tax repealed and were successful.” (Email from Charles Paulk to R. Gerard Hyland et al, entitled, “RE: NaCCRA CCRC Financial Soundness Committee, November 15, 2012.