Tag Archives: senior living community

Potential impact of COVID-19 on continuing care retirement community mortality and morbidity

The health and long-term care industries, including continuing care retirement communities (CCRCs) were among those most directly and adversely affected by the COVID-19 pandemic.

From the early stages of the pandemic, it was apparent that COVID-19 exerted a disproportionate impact on elderly individuals, residents of nursing homes, and those with certain preexisting health conditions. These demographics overlap significantly with the CCRC population, making the COVID-19 pandemic an especially challenging and uncertain time for CCRCs.

In this article, Milliman’s Andrew Dalton and Gregory Zebolsky discuss the impact that COVID-19 could have on actuarial assumptions relevant to CCRCs. They also develop and present representative population flow projections for a hypothetical community with three levels of care, focusing on how the pandemic may change experience over the next several years relative to pre-pandemic expectations.

Actuarial practices help continuing care retirement communities deal with unique risks

Continuing care retirement communities (CCRCs) offer seniors numerous housing and healthcare options. The unique fee structure and full range of healthcare services provided by CCRCs expose them to risks that other types of senior living communities do not face.

Actuarial practices can help CCRCs evaluate and manage such risks through population projections, actuarial balance sheet calculations, pricing analyses, accounting calculations, and other analyses. Milliman’s Gregory Zebolsky provides more perspective regarding these services in his article “An introduction to continuing care retirement communities.”

What type of work do actuaries do for CCRCs? In general, actuaries help these communities manage and analyze risk. Possible actuarial assignments for CCRCs include the following:

Population projections – These projections of the resident population at a CCRC—including independent living, assisted living, and skilled nursing—provide a valuable planning tool for management. Key projection results include independent living units released for resale each year, numbers of deaths (mortality) in each level of care, and numbers of transfers (morbidity) between ILU, ALU, and SNF. These projections also provide an actuarial basis for performing other financial analyses (below). Both open group (includes existing and future new residents) and closed group (existing residents or new entrant cohort only) population projections are performed as of a starting (valuation) date.

Actuarial balance sheet – The purpose of the actuarial balance sheet is to evaluate the CCRC’s ability to satisfy all its obligations to current residents and thus remain a viable operating concern. The actuarial balance sheet provides an analysis of the long-term relationship between the community’s assets and liabilities. The existing resident closed group population projection forms the basis of this financial analysis. The actuarial balance sheet varies from the GAAP (accounting) balance sheet and generally recognizes all income and expenses at the times they occur. No deferral of recognition of entrance fees or expenses occurs. Actuarial calculations include the present value of future monthly fees and other revenues, the present value of future allocated operating expenses in each level of care, and the actuarial values of fixed assets and capital depreciation expenses.

Actuarial pricing analysis – The purpose of this analysis is to evaluate the adequacy of the current pricing structure for new entrants at a CCRC. A theoretical cohort (new entrant model) is projected from entry through the end of the lifetime of all residents in the cohort. This new entrant closed group population projection forms the basis of the actuarial pricing analysis. Actuarial calculations include the present value of all income and expenses incurred over the lifetime of the cohort of residents, including a charge for depreciation of fixed assets.

Actuarial cash flow projection – This basic financial forecasting tool estimates future sources and uses of funds on an open group basis and includes key items such as monthly fees, attrition income, entry fee refunds, health center fee income, operating expenses (separately for independent living, assisted living, and skilled nursing), and others that depend on actuarial estimates. The open group population projection forms the basis of the actuarial cash flow projection.

Accounting calculations – CCRCs are required (under current American Institute of Certified Public Accountants guidance) to calculate the “obligation to perform future services” related to current residents as of the valuation date. They are also required to amortize non-refundable entrance fees into income over the life of the resident and to determine the related deferred entrance fee liability. Actuaries often assist with these calculations.

By utilizing one or more of the above analyses, actuaries assist CCRCs in meeting regulatory requirements, pricing new or alternative residency agreements, evaluating the future need for nursing beds, strategic planning, and many other tasks.

To learn about Milliman’s CCRC consulting services, click here.