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Senior Living Contracts Explained

By Christine Hall

When comparing various senior living communities there are several types of contracts which can be extremely varied.  This can be confusing, so be sure to look at the contract language carefully. Learning about the array of contract types and their differences will help you make informed decisions.

There are four basic types of Life Care contracts — Type A, Type B, Type C and Type D.  Some communities will offer only one type, while others will give you options to choose from.

Type A Contracts (also known as Life Care Agreements)

Though this is the most comprehensive contract type, it comes with the highest entrance and monthly service fees.  Only a handful of CCRC (Continuing Care Retirement Communities or Life Plan Communities) offer Life Care Type A contracts.  Type A contracts

• Guarantee a continuum of care for life at the same community whether you are in independent living, assisted living, memory care or skilled nursing. (Make sure you tour all areas of campus including independent living, assisted living, memory care and skilled nursing to see the quality, size, etc. of apartments you may live in as you need more care).
• Life care contracts typically require a fairly substantial entrance fee but offer relatively stable monthly fees with only small adjustments for cost of living/inflation increases, regardless of the lever of care. They’re able to do this because you pay an upfront entrance fee, which essentially prepays for future care. So, while you pay more initially, your monthly fees are predictable, and will typically remain the same even if you need care, which can give you substantial savings in the long run.
• Many communities offer partially refundable entrance fees, where 50%, 75% or 90% of your entrance fee is refunded to you or your estate.
• Many Life Care Type A contracts cover care that Medicare and health insurance plans don’t cover, including long-term skilled nursing and memory care as well as housing.

Type B Contracts (also known as Modified Agreements)

In many ways, the Type B contact is very similar to Type A.  Unlike Type A, the entry fee and monthly service fee will only cover the cost for a specified amount of care needed in the future, and not all care services may be available.  This means your loved one will only have access to a limited number of free days of health care and additional days will be billed at full market rates or an ongoing, minimally discounted rate.  Also, the free days are not completely free since you still pay the monthly service fee, and are merely called free because the care services are offered at no extra cost during these days.

The entrance fee and the monthly rates are usually lower than Type A contracts.

Type B contracts:

• Limit the number of days a resident may reside in either assisted living or skilled nursing care during a year before a change in fee is applied, with additional care billed at daily market rates.
• Care may be billed at a minimally discounted rate.
• Care may be billed at an equalized rate, which means if you’re an independent living resident and you need to move to a higher level of care, the cost increase will equal the current Level of Care Cost.

Type C contracts (also known as Fee-for-Service) (Franke Tobey Jones uses a Type C contract)

With Type C contracts, you only pay for the care you need.  This contract type allows for a lower entry fee than other contracts, and it generally covers some or all independent living services included in Type A and B contracts.  If your loved ones require higher levels of care, such as assisted living, skilled nursing, memory care, or long-term care, your monthly fee will increase to cover the costs.

Entrance fees and monthly fees are typically lower than with other contract types, but if you do need a higher level of care, you pay full market rates.  If you’re an independent living resident and need short-term care, to keep your residence, you’d still have to pay your monthly fee and the cost of housing and care you receive.

Under the Type C contract, a resident receives housing, residential services and amenities as defined in the contract.

• The entry and monthly fees are typically much less than a Type A or B. 
• Some communities only charge a monthly fee.
• The monthly fee covers only the cost of maintaining the living accommodation.
• Although health care services are guaranteed, the resident pays the full cost of any time spent in the health center.
• Some communities with Type C contracts may charge an entry fee and designate this payment as a source of partial funding whenever a resident must reside in assisted living or skilled nursing care.
• Under this scenario the resident may pay a rate that is less than the full cost with the difference being drawn from the entry fee payment. Once the entry fee is fully depleted, the resident is charged the full cost of services.
• Type C contract unbundles many of its services allowing the resident to be selective about types and levels of services.
• The resident does not receive a medical deduction but accumulates actual out-of-pocket costs that are eligible for deduction.
• FTJ refunds entrance fees at a prorated rate for the first five year. Not all communities that use Type C contracts offer entrance fee refunds.

Type D Contracts (Rental)

The Type D, or Rental Contract, provides residents with a living accommodation and some basic amenities.

• With this type of contract, there is no guaranteed access to healthcare services. 
• This type of contract has no entry fee, and the monthly fees cover the cost of maintaining the rental unit.

Refundable Contracts

Many CCRC contracts require the payment of an entry fee.  Type A contracts tend to have higher entry fees than the others.  Entry fees are typically graduated according to the size of the living accommodations.

Refund options may range from no refund after an initial adjustment period, a refund amount that declines over time, or a stated percentage refund.  CCRC contracts with attractive refund provisions must require entry fee payments that are significantly higher than non­refundable contracts.

Assisted Living and Memory Care Contracts

Many assisted living and memory care communities have a one-time move-in fee, which is most often paid upfront. Move-in fees typically range from $1,000 to $5,000.

On top of that, you’ll typically have base fees and care services fees, which you’ll pay each month.

Base fees may include:

• Rent, which is based on the size and location of your residence.
• Services such as housekeeping, meal plan, transportation, activities and programs. There may be some levels of personal assistance included.

Care services fees cover the costs of providing assistance with activities of daily living (ADLs) and personal care services. Communities differ in the way they price them.

• Tiered pricing (also known as Levels of Care pricing) — A variety of care services are grouped into tiers. Each tier allows for a certain number of hours per month.  If you or your loved one doesn’t need much help (a few hours per week, for example), pricing falls into the lowest tier, which is the least expensive.  The more help needed, the higher the tier and the cost.
• Fee for services — Some communities charge by how much time it takes to deliver those services. For example, if you need 15 minutes of help with grooming, 30 minutes of help with meals, and 15 minutes of help with bathing each day, that adds up to one hour of help per day at the community’s service rate.
• All-inclusive — All monthly costs, including care services, are bundled into a single monthly fee. The definition of “all-inclusive” will vary from community to community, however, so make sure you’re clear on what is included. You may be charged extra for medication management or incontinence services, for example.

Skilled Nursing Contracts

Skilled nursing facility/nursing home contracts vary from state to state.  Fees cover services such as medical care, help with ADLs, laundry, meals and activities.

What to look for in a skilled nursing contract:

• Acknowledgment of the federal Nursing Home Resident’s Bill of Rights, which protects residents.
• Cost of care (either daily or monthly).
• Cost of items not included in the daily/monthly charge.
• Policy on retaining the resident’s bed if they leave the facility temporarily.
• Statement on whether the facility is Medicare or Medicaid certified.
• Terms for involuntary discharge — why a resident may be forced to leave against their will (such as not paying rent or putting other residents at risk).
• Mandatory arbitration clause. Some facilities require disputes be settled by a third party rather than in court.

Additional Tips for Reviewing Contracts

• Ask for copies in advance so you have time to review and make notes.
• Ask as many questions as you need to — communities want you to make fully informed decisions.
• You may want to have a lawyer or financial advisor review contracts as well.

Before you make a visit to a community, arm yourself with this information about senior living contracts so you can feel confident in planning your future.

Your needs are our top priority.  If you have any questions regarding contract types, or other questions about senior living, please do not hesitate to call us.  253-756-6621.