Without Grants or Waivers, Can Affordable Assisted Living Exist?

| February 20, 2012

This is a follow-up to Part 2 of a multi-part series exploring the question, “Will the Nation Go Broke Paying for Senior Housing & Long-Term Care?” Check out parts one and three.

While some states are making use of Medicaid waivers to create “affordable” assisted living models, there’s industry consensus that the concept of affordability probably isn’t viable in assisted living facilities.

“It’s a very difficult thing to accomplish, to make a meaningful difference in the cost of assisted living without compromising the service,” says Tom Grape, chairman and CEO of New England-based Benchmark Senior Living.

The only real way to provide truly affordable assisted living is with a reimbursement or grant of some form from the government, he says.

“There’s no way to offer it without some payment from an outside source, and I don’t think that’s going to happen in the near term,” Grape told SHN.

He broke down the economics of an assisted living community: Roughly 70 cents of every dollar goes toward operating costs, another 20 cents goes to mortgage or debt services, and the remaining 10 cents is left for cashflow.

“Someone could give you the building for free, and it would reduce costs by 20%. But once you start chipping away at 70% of operating expenses… you can chip away at the margin, but you still have to provide three meals a day, and all the other basic services,” he said.

And until there’s some sort of government waiver program set in place, residents often end up relying on their families to “chip in,” Grape said.

“The long-term solution that is best for the country is an expanded long-term care insurance product, whether publicly or privately sponsored, but I don’t think a new large-scale reimbursement program from the government’s likely, so I think the situation will likely remain as is for most of [the next 10 years].

Andrew Carle, a former senior living administrator and the founder and executive in residence of George Mason University’s seniors housing administration program, agrees wholeheartedly with Grape. He’s done extensive research on the topic of technology and its role in senior care, including how it can help senior living facilities reduce costs and become more efficient.

Despite the possibility of using technology to cut costs, it’s not enough to constitute affordability.

“There are fixed costs that you can’t do anything about,” he says. “There’s an opportunity to make things more affordable, but not actually affordable with technology.”

He says that some of those currently using various technological developments in their senior housing communities are actually the county-run, low-income senior housing organizations.

This is because they don’t have a business interest in ancillary revenue, says Carle.

In general, while it’s possible to make facilities “more” affordable and efficient, he says, there will probably never be a truly affordable model because at a certain point, it’s just not possible to trim costs any further.

Written by Alyssa Gerace


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Category: Assisted Living, Senior Care, Senior Housing

Comments (5)

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  1. Rick Banas says:

    Illinois has an afforadable assisted living program that works. The program operates under a Medicaid waiver and is called Supportive Living. Currently, there are 133 Supportive Living communities in operation in more than 70 Counties throughout the State. Together, they house about 10,500. On average about 60% of the residents in these communities are on Medicaid.

  2. Sarah says:

    I'd like to read more elaboration about what you mean by "affordable" in the context of assisted living. In the housing context "affordable" is often used to mean the household spends no more than 30% of annual income on housing. However this assumes that individuals are providing other expenses like food and transportation out of the other 70% of income. Assisted living provides some of these needs as well so the appropriate affordable metric may well be more than 30% of annual income. But what % should it be? I would like to see more investigation.

    Thanks.
    -Sarah

    • agerace says:

      Hi Sarah,

      Thanks for raising this question. When I use the word affordable in this article, I'm not referring to federal government guidelines/standards of "affordable housing." It's more in response to a previous article that I wrote, "Will the nation go broke paying for senior housing & LTC," that runs through the picture of LTC costs continuing to rise while the nation's seniors are increasingly unable to afford it. So, I mean "affordable" in a more general sense; as far as I know, there is no government "affordable" assisted living in terms of how much the housing/care costs in relation to a resident's income, besides some states being able to use Medicaid waivers.

      -Alyssa

  3. Kurt says:

    it is a sad commentary that no one remembers Ken Shick's affordable AL model. Marriott effectively destroyed it when they acquired it with the Forum Group in 1997. Ken's company was called Hearthside. He developed 10+ AL buildings and operated them under his "Companion Living" operating philosophy. It was a truly inspirational model that was embraced by all the staff and residents. It was also profitable at a level of contribution by the residents of about $1500 per month on top of the $1000 or so from social security. Assuming a 30 month average length of stay, a resident and their family would have to have about $45k of liquid assets accumulated by the time of admission. That is a level of affordability that opens the AL product to a wide swath of the US.

    • austex says:

      At $2500/mo per person that is not much less than some places here in my home state of Texas and still equates to $30k/yr. Probably still considered unaffordable to many….but I would be curious to read more about Ken Shicks model if you could direct me to a link.