CCRCs: The Purpose of Entry Fees

The vast majority of Continuing Care Retirement Communities require an entry fee. Naturally, people often ask, “What is the purpose of the entry fee?” Before answering this question it is helpful to understand the history of entry fees.

The CCRC concept began about a century ago when faith-based and other charitable organizations sought to provide lifetime shelter and care for the aged. In exchange for this promise, residents being cared for were usually required to assign most or all of their assets to the organization. Although well-intentioned, this model was less than scientific and when residents lived longer than expected there often wasn’t enough money on hand to fulfill the organization’s commitment.

In response to the short-coming of this model the idea of entry fees evolved. Rather than collecting the assets of a resident, organizations began establishing minimum entry fees (combined with monthly fees) that were determined to be adequate to cover commitments.

After proving to be more effective, the entry fee model eventually expanded to also offer refundable entry fees. Many prospective residents responded more favorably to this approach because they knew that either they or their heirs would receive back some portion of the entry fee if they ever left the community, or at death.

Today there are over 2,000 CCRC located throughout the United States offering non-refundable, partially refundable, and fully refundable entry fees. Many providers offer multiple options from which to choose.

So, what is the purpose of an entry fee? Primarily, the entry fee helps secure a resident’s contractual access to a continuum of care. This is why CCRCs are the only type of retirement community providing such a promise to its residents. In recent years more rental-only CCRCs have evolved. However, a under rental contract there is either no contractual promise to provide a continuum of care, or the monthly fee will be higher than a comparable entry fee CCRC.

The money received from entry fees is also used to help pay down, or limit, the amount of debt required for development, expansion, or occasional capital projects, which keep the community attractive and competitive in the marketplace.

Finally, many CCRCs- particularly non-profit providers- offer a financial assistance or endowment fund to help ensure that if a resident runs out of money due to a longer than average stay in the healthcare facility or some other unforeseen circumstance, they will not be forced to leave the community. Of course, this would not apply to any situation where a resident mismanaged or intentionally transferred personal assets in order to receive such support.

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