Continuing Care
Retirement Communities –
a solution for an ageing
population?
UNIVERSITY OF SOUTHAMPTON, 1999
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF SOCIAL STATISTICS
A dissertation submitted in partial fulfilment of the requirements for the degree of B.Sc. (Social Sciences) Economics with Actuarial Studies
[Graded Second Class Honours (Upper Division), June 1999]
An Abstract
This project examines the problems of ageing, both for individuals and society, and to what extent continuing care retirement communities (CCRCs) can help solve these problems. It looks at the characteristics of a CCRC and at the pitfalls and problems of running one, as illustrated by the difficulties encountered in running CCRCs in the USA.
Hartrigg Oaks, the first CCRC in the UK, is used as a case study in evaluating whether CCRCs might be successful in Britain. The problems of financing a CCRC are also considered as they help illustrate why, even though Hartrigg Oaks seems a success, CCRC development in the UK may still be slow.
Contents
An Abstract
Contents
List of figures, tables and boxes
Introduction
1. Ageing
1.1 Why is ageing a problem?
1.2 Why is ageing a particular problem now?
2. What is a Continuing Care Retirement Community?
3. Running a CCRC
4. Past Mistakes by CCRCs
5. Hartrigg Oaks – a Case Study
6. Summary and Conclusions
Reference List
Bibliography
List of figures, tables and boxes
Table 1 Response of people to risky situations
Table 2 Percentage of UK population at oldest ages
Figure 1 Births per 1000 population, England and Wales, 1920-80
Figure 2 Past and projected dependency ratios for the UK
Figure 3 Proportion of (a) women and (b) men who remained unmarried by ages 30, 40 and 50 in England and Wales
Figure 4 Using reserves to manage CCRC cash flow
Table 3 CCRC bankruptcies in 30 US states, 1989-1992
Box 1 Community fee at Hartrigg Oaks
Box 2 Residence fee at Hartrigg Oaks
Box 3 Hartrigg Oaks guarantee
Introduction
Only one thing in life is certain - death. There is an indisputable ring of truth about that old cliché but it also does not tell the whole story. Death may be a certainty but the time of death remains unknown - we do not know how long our future will be. This uncertainty creates a risk of not dying - a risk of growing old, and it is dealing with that risk that is one of the fundamental problems of preparing for later life. Another uncertainty, the one on which most of this project will concentrate, is that "although increased longevity is welcomed, there is concern about the quality of the extra years". (Sidell, 1995 p. xv).
So what are these concerns? Some of them are over the future state of our health and the direct or indirect effect that deterioration of our health will have on our lives. Firstly and foremostly the effects of ageing may prevent us from living entirely independently, for instance inability to do laundry or shopping. In some cases this may ultimately become total dependence on the help of others. Equally, there is the concern that while our health is good we can enjoy our retirement. This includes factors such as living in a residence in which we are able to live independently, living in pleasant surroundings and having things to keep us occupied.
This project considers the possible requirements of older people and in particular explores in detail one possibility for meeting the needs of older people, the Continuing Care Retirement Community, including the applicability to the UK of this American idea.
1. Ageing
1.1 Why is ageing a problem?
As people grow older their health deteriorates. We have all read about seventy-year-old tennis players or ninety-year-old golfers, but they are the exceptions rather than the rule. For most people old age and the resulting decline in health brings with it a gradual reduction in the number of things that they can do unaided. To begin with these may be leisure activities like tennis or golf, but eventually activities of daily living may be affected. This may include ability to climb stairs or go shopping, for instance, and ultimately may include washing, dressing and eating. In other words the person may become completely dependent of the help of others.
This in turn places a burden on their immediate family, should they choose to offer care, and can cause further unhappiness to the person concerned in addition to that caused by their condition. If they need constant care they may end up in an institution, such as a nursing home. This causes financial worries to the individual (and their family) in addition to the inevitable feelings of isolation and unhappiness caused by moving to an unfamiliar place full of old people they don’t know at a time when they really need support. Kastenbaum (1979) sums this up by asking "[are institutions] a place to live or a place to die? Can one bear to spend those final years among strangers in a strange place?"
If all of this were a certainty, whilst it would not make anything more pleasant, at least planning for old age would be easier. Of course that is not the case - we do not know at age thirty (or even sixty) whether we will be a ninety-year-old golfer, in need of constant care at eighty, or even still be alive at seventy. No one wants to put all their money aside to pay for care in old age only to die young and no one wants to spend their last years in misery and poverty - but with inadequate plans this may happen. This uncertainty is probably the most important problem of ageing; not only do our lives contain a risk of dying, but also a risk of surviving beyond the point at which we have the health and wealth to look after ourselves. The costs of a long life are very large, and the probabilities of it happening very small. Table 1 illustrates that this makes some form of insurance sensible. If events are very likely controlling for those events makes the most sense. If costs and probabilities are small the risk can safely be ignored and absorbed as part of day-to-day living. Care costs are too large to be ignored so insurance is the best solution.
Table 1 – Response of people to risky situations
1.2 Why is ageing a particular problem now?
Ageing is not just a problem for individuals but for society as a whole. In the coming years it will become an increasing problem for society. In 1962 only 71% of 16-year-old males in England and Wales survived to retirement age (ELT 12). Today 80% do (ELT 15). In 1962 a just-retired man aged sixty-five could look forward to an average of 12 years in retirement; today they look forward to 14.25 years. ELT are cross-sectional life tables and figures from cohort tables (that follow the lives of a group of individuals born in the same year) would be even higher. In addition these figures are set to rise (Farrar, 1999) and not all of these extra years will be in good health; this lower mortality increases uncertainty over the quality of old age as well as increasing its average length.
In recent years not just mortality has fallen but fertility as well (Figure 1). This also has a large effect towards old people becoming an increasingly large proportion of the total population (Table 2). 16% of the population were 65 and over in 1997, 4% greater than in 1961. Even more important is that the number 75 and over, the people who most need care, nearly doubled in proportional terms from 4% to 7% of the population.
This increases the burden of the aged on the rest of society. There will be more and more old people and fewer and fewer young people to look after them, the "ageing population" problem. This is illustrated by rising projected dependency ratios in Figure 2.
Table 2 – Percentage of UK population at oldest ages
Figure 1 – Births per 1000 population, England and Wales, 1920-80
Source: Evandrou, 1997
Figure 2 – Past and projected dependency ratios for the UK
Source: Evandrou, 1997
The role of family and marriage is declining. Figure 3 shows that the proportion of unmarried 40-year-olds (whose parents will be around 68) predicted for 2004 (1964 cohort) is more than double that in 1971 for both men and women. This also increases the burden on society as this results in fewer elders being cared for at home by children or, in future, a partner.
The changing times also introduce further uncertainties in the pattern of old age for society. What will be the effect of increased ethnic minorities, among whom families do still play a large role? Or of the pace of 21st century living, with the nervous breakdowns and workplace stress this may cause? The effects of these may not be known for many years.
In the past if no family was able to look after an elderly person they usually ended up in either a state-run or private nursing home. State-run institutions have a very bad reputation for quality of service whilst private homes can deplete life savings very quickly. Continuing care retirement communities offer an alternative for some people who would otherwise be in such a home or hospital, or struggling to cope in their own homes.
Figure 3 - Proportion of (a) women and (b) men who remained unmarried by ages 30, 40 and 50 in England and Wales
Source: Evandrou, 1997
2. What is a Continuing Care Retirement Community?
A continuing care retirement community (CCRC) is one possibility for older people that attempts to alleviate the problems of ageing. Curiously, there is no one exact definition of a CCRC. Hunt et al (1983) regard anything consisting of housing, some common services and residents who are mostly over 50, but not requiring full-time care, as a ‘retirement community’. The Faculty and Institute of Actuaries (1998) describes a typical CCRC as consisting of "apartments or residential units, a nursing care facility, recreational facility and other service unit in a campus-like setting". This highlights the three key features – 1. purpose-built housing, 2.social and leisure activities and 3.on-site care facilities.
In a CCRC a large amount of care can be provided directly in residents’ homes, typically up to a limit such as 21 hours per week and as long as they can perform a certain number of activities of daily living independently (Humble and Ryan, 1998). This is very different to the traditional approach of moving to a residential nursing home as soon as any care is required. The presence of the care centre is a significant feature as if full-time care is required by a CCRC resident on a temporary or permanent basis they can simply move to the on-site care centre "with minimal disruption to family and social relationships" (Faculty and Institute of Actuaries, 1998). Although this does not prevent health deterioration in any way, it may allow people to remain in their own homes longer than otherwise would be possible and, if full-time care is required, it eases some of the traumatic aspects of the transition process. To an extent, the community acts in the capacity of the missing extended family. Not only is this helpful for those undergoing such a transition, but it eases some of the worries healthy elders may have over their future.
Other aspects of a CCRC can alleviate fears people have about their retirement. Security is generally better in CCRCs than in a typical house, both because CCRC housing is generally modern with secure windows and doors and because some form of centralised security such as CCTV cameras is often provided. CCRCs also provide pleasant, childfree surroundings, which can be very important to old people who are uncomfortable amongst the hustle and bustle of a younger environment. Being amongst many others of a similar age also allows friendships to form more easily and reduces (although does not eliminate) the risk of isolation. For example they won’t feel ‘out of place’ at clubs they join which may happen outside of a CCRC where club members may be mostly younger people.
Having leisure activities close at hand also encourages residents to take part - many older people living elsewhere give up activities solely due to transportation difficulties. Similarly having shops and laundry services nearby makes those household tasks easier. Many CCRCs also provide gardeners for those unable to tend their own gardens.
The most significant feature, however, and the one that truly sets CCRCs aside from other options for elderly people is the way they are financed. Nursing home residents tend to pay a very large annual fee, which includes the cost of all care. Most CCRC residents pay two types of fee, a one-off entry payment and a regular annual or monthly fee for the duration of their stay. The entry fee is often quite large and covers the costs of accommodation, whilst the regular fee is much lower and covers maintenance, communal services and care support costs. The key point, "the unique and attractive feature of CCRC living" as Ruchlin (1988) puts it, is that provided certain health criteria are satisfied on entry the regular fee is partially or entirely independent of the level of care provided. If care is required on a long-term basis life savings will not be quickly depleted as in a nursing home.
This means that as well as providing nice housing in pleasant surroundings a CCRC provides partial or total insurance against the costs of long-term care (LTC). By removing any financial uncertainties about their retirement the CCRC does a great deal to lessen residents’ fears for the future. A bonus is that in CCRCs which provide full LTC insurance residents tend to spend less time in nursing care facilities, perhaps because the CCRC, which bears the cost, only transfers them when really necessary (Conover and Sloan, 1995). The insurance aspect also has wider implications. MacIntyre (1977) suggests that there are two distinct approaches to the problem of ageing; the "humanitarian perspective" and the "organisational perspective". The former involves relieving the distress and suffering of old age - we have already seen CCRCs go some way towards this. The latter involves the state coping with the burden that the elderly impose on it. Many countries are experiencing an ageing population problem and as social security spending rises greater and greater emphasis is placed on private sector solutions such as private pension schemes and private health insurance (PMI).
The PMI provided by CCRCs, and particularly the LTC insurance aspect, look very appealing. There is, however, one major drawback to CCRCs as a national solution - the cost of entry. CCRC entrance fees can be substantial, perhaps over £100,000 for a recently retired couple. Only homeowners or those with substantial savings could afford to join. Although home-ownership is increasing entry fees are still beyond the average elder.
3. Running a CCRC
Retirement communities with on-site care facilities began in the US early this century and most were run on a charitable basis, either by religious organisations e.g. Moosehaven or by firms to care for retired employees. Issues such as marketing, profit and residents’ wealth were unimportant. In the last 30 or 40 years, however, commercial CCRCs have become much more popular and issues such as those above are very important in ensuring the long-term security of such institutions. Even non-profit-making CCRCs must at least ensure they are also non-loss-making. Humble and Ryan (1998) detail a number of considerations and risks facing CCRC operators. The charging structure must be flexible, for example, to allow for "high asset, low income" members, such as a home-owing widow with no occupational pension, and "low asset, high income" members such as a couple who do not own substantial property but have, say, a large personal pension plan. One way to do this, adopted by the new UK CCRC Hartrigg Oaks, will be explained later. Winklevoss and Powell (1984) use the concept of ‘Actuarial Liability’, where a resident’s actuarial liability is equal to the sum of the expected present value of all the benefits they will receive and all the expenses they will incur. They recommend 30 - 40% of actuarial liability as the entry fee (certainly no more than 40%); something to be weighed up against high/low asset/income issues. Branch (1987) reminds operators to plan for equitable distribution of future costs (e.g. building maintenance). They should be distributed continuously over all residents, not just as a one-off charge to those who happen to be resident at the time of the work. This can be tricky, particularly if the amount of future maintenance is very uncertain, however reasonable estimates should be built into the accounting forecasts as depreciation.
The large entry fees represent most of a CCRC’s income, however most of its expenditure will be on care costs in many years time. A newly established CCRC would expect a period where income exceeds expenditure and then a period of the reverse. This requires the use of reserves, built up in the early years and used in the later ones (Figure 4).
Figure 4 – Using reserves to manage CCRC cash flow
Expected income and expenditure predictions must be based on assumptions about investment returns, mortality and morbidity, all of which are subject to error.
There are numerous risks created by the large amount of forecasting necessary in CCRC business plans. Winklevoss and Powell (1984) note that these are exacerbated by the small size of most CCRCs, which means any fluctuations or errors have a big impact on financial security. There are not enough homogeneous risks to pool to reduce the variance to a negligible level. It is worth examining in detail the risks faced by a CCRC and the uncertainties surrounding those risks.
Like all businesses, CCRCs risk their initial marketing failing, and therefore less than full initial take-up. A more CCRC-specific problem is that of ‘Second Generation’ marketing. If average age at the start is 70, by the time a sufficient number of residents have died, moved to the care centre or withdrawn to warrant a new advertising campaign the average age may be, say, 80. This makes the community far less appealing to an active couple say aged 67 and 69. In order to maintain the balance of active, less active and care-dependent people at any time, and over time, it is vital to have entrants coming in continuously whose ages keep the age/sex structure of the community population at its desired level. The inability to attract younger members will cause the CCRC population to age, upsetting the balance and making the problem even worse for the ‘Third Generation’. Empirical evidence (Hunt et al, 1983) suggests average age of residents rises over the first few years of a new CCRC. Appropriate initial entry, i.e. with average age lower than the planned long-term average, provides a possible solution.
Costs may rise quicker than anticipated, particularly for care services where medical breakthroughs may significantly increase length of life of residents at uncertain points in the future. What constitutes "appropriate" care, services or buildings may also change significantly over time as opinions change (Hewitt, 1990). Hewitt also points out the actuarial risks described earlier - mortality and morbidity may be higher, and investment returns lower, than initial predictions. The possibility of more care than expected being needed makes building a large care centre seem tempting, but they are expensive to run and must be full or near full if the CCRC is to be financially sound. One possibility is to ‘rent out’ empty rooms to non-residents or local hospital trusts, but that adds another risk; can suitable tenants be guaranteed? In any case Hewitt recommends regular actuarial review of all CCRCs every 2-5 years, Winklevoss and Powell every 1-3 years, so that any problems will be detected in time for solutions to be developed.
Humble and Ryan highlight another risk - lack of property inflation. Land and buildings are the most valuable assets of a CCRC. A steady increase in their value, at least in line with inflation, is anticipated to provide a source of funds through sale if the CCRC gets into financial difficulties (or wants to close). Some CCRCs charge refundable entry fees and use the interest on these large sums to pay for care. They rely on property inflation as new entrants’ fees will only exceed what they owe in the form of refundable fees due to the last occupant if there has been property inflation. In addition, if house prices fall dramatically a CCRC would look very expensive to a 70-year-old, home owning widow unless entry fees also fell. Falling entry fees and rising medical costs could easily spell disaster.
Finally, Winklevoss and Powell (1984) draw attention to the future ability of residents to pay their regular fees - what happens if residents run out of assets (or more do than was expected)? Throwing out a 94-year-old who needs daily care seems at odds with any social responsibility that a CCRC has, as well as being a Public Relations disaster. Which 74-year-old would entrust their life and savings to an organisation that turns its back on them when most needed? Unsurprisingly there are no examples of this ever happening, even where it is threatened in the initial contract. Instead, operators tend to increase fees for everyone else. It would be sensible, however, for any new CCRC to plan for this eventuality, perhaps by creating a ‘fluctuation reserve’. In good years extra, unanticipated profits are put into this reserve and used to cover unanticipated costs in bad years.
The above problems are further complicated by the fact that whilst all CCRCs must allow for them very little data on CCRCs exists to use as a basis (Society of Actuaries, 1991) and CCRCs vary too greatly to use rules of thumb (Winklevoss and Powell, 1984). Although almost all of these are concerns faced by other types of institution, they form a particular combination of problems peculiar to CCRCs, and it is easy for an operator to overlook one, or miscalculate something, with disastrous consequences.
4. Past Mistakes by CCRCs
As detailed earlier, the complex nature of CCRCs allows many possibilities for errors to be made. It is worth looking at some of the typical mistakes CCRCs in the USA have made and continue to make.
Many CCRC accountants do not recognise the time value of money, as Hewitt (1990 and 1992) points out. This is the notion that £1 now is worth more than £1 in ten years’ time because of interest over those years. £1 in 1999 is in fact equivalent to £1 + 10 years’ interest on £1 in 2009. Such an oversight would cause an operator to want too large a reserve to be set aside, reducing profits and/or causing too high an entrance fee to be charged.
More dangerous are errors that cause too small a reserve to be created. Moorhead and Fisher (1995) show how some CCRCs used mortality assumptions that were too high. Population mortality was being used, ignoring the effects of selection and the life expectancy enhancing nature of a CCRC environment. Selection occurs at entry, as all entrants must show that they are reasonably healthy. CCRC residents can also expect to live longer than average because a CCRC is a ‘nicer’ environment, with more friends and activities and less crime and pollution than an average elderly person’s neighbourhood, and because of the extensive care services a CCRC offers. Ignoring these means that residents live longer than expected; they will stay longer in their residencies and there will be less space available to take new residents. In addition, reserves set aside to fund care services will be insufficient - risking bankruptcy.
Winklevoss and Powell (1984) note another mistake with consequences for the size of the care centre. Some CCRCs failed to take into account that mortality in the care centre would be higher than in the ILUs and ALUs. The extra deaths in the care centre meant that too many of its beds were empty whilst the ILUs remained full so no new residents could enter and cover the costs. Cole and Marr (1984) note that most CCRCs that become insolvent either miscalculate the rate at which they can fill units or experience lower than expected turnover.
Some CCRCs did not even bother to project populations for each type of accommodation at all, or did so only for the first 5 to 7 years - clearly inadequate for such a long-term venture. In a study by the US GAO in 1991 nearly all CCRCs which had defaulted on their debts "had failed to fill up due to inaccurate projections and/or inexperience in marketing". (Conover and Sloan, 1995)
Most CCRCs did not subject themselves to actuarial review, so any problems that did occur were not apparent until it was too late to solve them. Those that did sometimes revealed even more worrying facts - the Society of Actuaries LTC Experience Committee (1991) revealed that one Florida CCRC believed that they had had 100 deaths to date (and presumably were building this experience into future projection models). Actuarial inspection revealed that there had been 139 - most of the extra 39 had occurred in the early years and been forgotten.
As a result of these mistakes some CCRCs went bankrupt. Others survived, although often by drastic measures such as selling land, being taken over or abandoning their LTC insurance principles and becoming fee-for-care institutions. All of this led to bad publicity for the concept of CCRCs.
In the wake of these notable bankruptcies in the late 1970’s and 1980’s many states in the US developed some kind of regulation programme. Regulation varies dramatically from state to state, ranging from none in some states to inspections, compulsory reserves, compulsory actuarial review and a host of enforcement schemes backed up by civil and criminal penalties in others. Regulation should have a positive effect in reducing the number of bankruptcies by detecting problems early and by forcing CCRCs to make sensible provisions in light of the problems described earlier.
It is difficult, however, to measure any such effect empirically. A study by Conover and Sloan (1995) uses US data from 1989-92 for 30 states (756 CCRCs) with varying degrees of regulation in an attempt to examine the effects of regulation on risk of bankruptcy. Table 3 shows that in their sample annual bankruptcy rates were actually higher in states with more regulation. Although not much can be said authoritatively from such a small sample, "it demonstrates that heavy regulation does not provide inoculation against the risks of CCRC insolvency". Using Debt Service Coverage Ratio (DSCR) as a measure of bankruptcy risk Conover and Sloan ran a regression. None of the regulatory variables had a statistically significant influence, however, and the corrected R2 was just .09, meaning that variations in regulation explained only 9% of variation in DSCR. This implies that differing amounts of regulation had no statistically significant effect on reducing bankruptcy risk, as measured by DSCR.
UK regulation of most industries tends to be based on either self-regulation or freedom with disclosure rather than inspections and enforcement powers. If CCRCs become established in the UK regulation could be quite different here to that in the US, with correspondingly different effects, so the results of that study may not be applicable to the UK.
Table 3 - CCRC bankruptcies in 30 US states, 1989-1992
Source: Conover and Sloan, 1995
What is clear is that whether by state regulation, self-regulation, actuarial review or careful management CCRCs must take proper precautions to minimise all risk factors if they are to avoid bankruptcy and remain financially secure in the long term.
5. Hartrigg Oaks - A Case Study
Hartrigg Oaks is the first true CCRC to have been built in the UK. It is situated in the village of New Earswick, Yorkshire, and opened in September 1998. The community was set up by the Joseph Rowntree Housing Trust, a charitable organisation, after research work in the 1980’s by the Joseph Rowntree Foundation and the Policy on Ageing concluded that a ‘pilot’ CCRC in the UK would be worthwhile (Dennis, 1998). It is useful to look at this case study to see what a new CCRC has done to avoid the pitfalls described earlier. One important fact about the development is that although the Trust is a charity, Hartrigg Oaks is not subsidised by them (Box 3) and so it can be compared reasonably to a commercial CCRC. In addition, the Trust wanted to encourage other CCRCs to be set up in the UK, so they tried to set up Hartrigg Oaks as a model that others could follow.
The first important factor is the changing structure. As usual there is an entry fee ("Residence Fee", Box 1) to pay for accommodation and a regular fee ("Community Fee", Box 2) to cover costs of care and other expenses e.g. food. The facility for these fees to be paid in three different ways is important as it allows residents to match their cost structure to their own personal income. This financial flexibility allows more different types of resident to join. The less well off benefit from the "Non-refundable Residence Fee", paying between £38,500 and £62,000 instead of £60-107,000 (albeit with a drawback).
Source: Joseph Rowntree Housing Trust, 1998
This lessens the major problem of CCRCs being too expensive, though the entry fee is still prohibitively expensive for most older people.
Those with high capital and low income can benefit from the "Reduced" Community Fee. A 75-year-old, for example, can reduce his Community Fee by £77 per annum for every £1000 he makes as a lump sum payment. Similarly high income, low capital elders can select the "Annualised Residence Fee" to match this large expenditure to their income.
Data from existing US CCRCs, especially those around Philadelphia, was used in modelling transition rates and creating projections. This sort of data is only now becoming available in large and reliable enough quantities to be useful, so should give new CCRCs such as Hartrigg Oaks a basis that relies less on guesswork than those that failed in the US. Some estimation is inevitable, however, both because past data is only a guide to the future (not a crystal ball!) and perhaps more importantly because there is no past UK data so all adaptations of US data to the UK are to some extent educated guesswork. No one knows for sure whether UK residents are more or less likely than those in the US to move to the care centre in a given year, for example. The NHS will provide many more medical treatments than Medicare does in the US, where private medical insurance dominates. This will impact the types and costs of treatments used and may affect life expectancy in the care centre or transition to it, and so on.
Hartrigg Oaks has sought actuarial advice from the start. Perhaps as a result they have paid greater attention to the long term than many older CCRCs did. 30-year projections of populations in each type of accommodation were used and the "Second Generation" effect has been fully allowed for, with a linear rise in average age of 8 years expected over the first 20 years of operation. They clearly feel confident enough with their prediction to promise no sudden, mistake-correcting fee rises (Box 3) - a tactic used by some faltering US communities (see Chapter 4). This gives an extra reassurance to residents and helps promote the positive image of CCRCs that the Trust hopes will encourage construction of further CCRCs in the UK.
Source: Joseph Rowntree Housing Trust, 1998
There are some risks that cannot be controlled for, e.g. that bad publicity in the US or popularity of another scheme for retirees will make attracting new residents in the future difficult. There is, however, no mention in the actuaries’ report of their calculations (Humble and Ryan, 1998) of a fluctuation reserve, so there are still further risk-reducing measures that could be taken. Hartrigg Oaks have agreed to regular actuarial review, which should at least give opportunities for future problems to be identified and corrective action taken. As for replication by other operators, Humble and Ryan feel that even though there are ways to reduce risks further than Hartrigg Oaks have done "CCRCs still carry many uncertainties and should be established only by organisations with sufficient financial strength to bear these risks". The fact that Hartrigg Oaks is underwritten by the Joseph Rowntree Housing Trust (Box 3) puts it in a position of relative safety in the event of the worst-case bankruptcy scenario. Potential operators are unlikely to be in such a position and if they are unable to fully insure themselves against that risk (and its consequent costs) they are unlikely to commit the large amount of investment required for construction of a CCRC.
6. Summary and Conclusions
How to deal with the care requirements of elderly people is an important question for both individuals and society as a whole (Chapter 1). The number of elderly people has risen over recent years and is set to rise further, so this issue will become increasingly pressing. Solutions will be needed.
CCRCs provide a good solution in many ways. Residents enjoy living there more than in most types of institution, and benefit from the CCRC environment both in good health and as their health deteriorates. CCRCs that offer care with no extra fees provide full insurance against the costs of LTC, as well as the bonus that residents in such institutions tend to spend less time in nursing care units.
There are, however, several large drawbacks. CCRCs are expensive and beyond the means of most elders. To open CCRCs to a wider market schemes are needed such as lower, non-refundable entry fees, government or charitable subsidy or perhaps lower fees in exchange for those residents working as part-time CCRC staff whilst in good health. CCRCs are also difficult to run (Chapter 4) so regular actuarial review may be necessary. More importantly CCRCs, especially those offering full LTC insurance, are less profitable and at more risk of bankruptcy (Chapter 5) than other types of care or residential institutions. This makes it difficult to raise much private finance for CCRC projects.
In recent years the outlook has brightened for CCRCs. Bankruptcy rates are low; 0.33% for CCRCs in the Conover and Sloan 1989-92 study (Table 3). More data is available on both successful and failed CCRCs and, coupled with "learning by doing" improvements, this allows existing CCRCs to be run in a better fashion and new CCRCs (such as Hartrigg Oaks in the UK) to be set up soundly. With incomes rising, the population ageing and recent governments’ tendencies to move from state towards private provision for old age it would appear that the time is right for CCRC expansion in the UK.
In spite of the above it is unlikely that Hartrigg Oaks will prompt many other UK CCRCs in the near future. Potential investors are likely to be cautious - recent improvements may be linked to the business cycle rather than learning, in which case a downturn might be expected within a few years. Many private investors, such as companies who currently run retirement homes, will want to monitor the progress of Hartrigg Oaks, using it as the first source of UK - specific data, before making any long-term investment decisions.
This lack of private finance must be overcome if there are to be more CCRCs. Regulation could be expected to play a part here by reducing the bankruptcy risk perceived by investors, but Conover and Sloan remind us that "there is no direct evidence that heavy regulation of CCRCs has been successful in lowering the risks of bankruptcy or in improving CCRCs financial health". Another alternative for the government is to provide or encourage reinsurance, as the presence of an established CCRC reinsurance market might help tempt new investment. Government subsidies could also be made available towards the high costs of building a community.
CCRCs are too expensive to be a solution for the majority. They are, however, a valuable type of institution for retired individuals or couples owning a house or with substantial savings. By providing homes and LTC insurance for some of those people CCRCs can help society cope with the problems of an ageing population. For this reason further CCRC developments in the UK should be encouraged, perhaps by subsidies, tax incentives or government promotion of the CCRC concept.
Reference List
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Text © 1999 Scott Latham except where indicated
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