How Prospects Choose a CCRC Contract and Refund Option

The severe economic downturn that began in 2007 altered continuing care retirement communities (CCRCs) in lasting ways, creating a product that is more sensitive to perceived consumer needs and preferences. However, it’s hard to say that consumers are eagerly taking advantage of new contract types and other options, suggest recently released research findings.

The economic crisis devastated the savings and home equity of many seniors, making it difficult or impossible for them to afford the steep entrance fees typical of CCRCs. In response, many communities began to offer rental options—and they still are doing so, even as the economy has bounced back.

Of 89 CCRCs that responded to an in-depth survey and research project conducted by investment bank Ziegler and senior living marketing firm Love & Company last summer, 45% offer rental options, with the growth in these options having occurred primarily in the last five to nine years.


In addition to this prevalence of rental options, more than half of the respondents said they offer at least two of the major Type A (life care), B (modified), or C (fee-for-service) contract types. Again, this diversity of options is relatively new—only 18% of respondents said they have offered multiple contract types for more than 15 years.

Yet, new residents looking at these expanded menus typically are still ultimately choosing the tried-and-true.

“For most communities, the contract type a consumer selects appears to be influenced more by the community itself than by any type of analytical evaluation by prospects,” the report authors wrote. “While many communities have added contract options over the years, and most say they do not have a specific preference for which contract a resident selects, most communities still wind up selling a high proportion of their original contract type.”


Reading the specific market and resident demographic, and offering options that will be in demand, is not an easy task; one respondent put a Type C contract in place in 2010, but has had only 10 contracts over five years of this type. Despite the Type C contract having a lower monthly fee than Type A, most new residents still are opting for Type A.

“We introduced [Type C] because lots of people had long-term care insurance, but we find they still take the Type A, largely because they’re affluent enough that the costs are not significant to them,” the respondent stated.

Still, other communities have seen a more substantial embrace of new contract types. One community that was originally Type C began offering A and B contracts within the last five years. Currently, it has 33% of residents in a Type B and 8% in a Type A.

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Just as with contract types, CCRCs began offering multiple entrance fee refund plans more liberally during the recession, and most still have multiple options. For instance, they might offer a traditional type of refund, in which the refund declines over time, as well as a high refund option, which might be for as much as 100% of the entrance fee. However, higher refund options mean a premium is paid on the entrance fee.

While consumer choice of refund is “complex,” there are two primary factors influencing which refund option a prospect chooses, according to the survey.

One is the pricing relationship between the traditional and high refund options:

– “If the high refund option is priced at a premium of 70% or more over the traditional plan, consumer selection of the high refund plan is very low.”

For instance, in a community that priced its high refund plan at about a 60% premium over its declining balance plan, roughly 75% of residents opted for the high refund plan.

Also important is the relationship between the high refund pricing and home values in a market:

– “If the high refund plan is priced such that the weighted average entrance fee is 20% or more higher than market home values, demand for the high refund plan tends to be low.”

Source: 2015 CCRC Consumer Contract Preferences & Buying Behavior Study
Source: 2015 CCRC Consumer Contract
Preferences & Buying Behavior Study

As these findings suggest, pricing of contracts and refund plans needs to be strategic and take into account market conditions—but competition with other CCRCs actually appears to not heavily influence on fees. Only one community reported that competition has forced it to set fees lower than they feel is appropriate, and 53% of respondents said competition has only a moderate influence on pricing.

Written by Tim Mullaney

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