based on an understanding of the net worth and future income
of the prospective resident compared with the projected cost of
residency at the CCRC. This underwriting is particularly critical for CCRCs that offer a fee-for-service contract, since some
residents might spend an inordinate amount of time in nursing
care at high personal expense.
In its analysis of the regulatory structures of eight states, the
GAO reports that state laws designed to protect CCRC residents
vary. Some states mandate key disclosures to residents, while
others insist on contract provisions designed to protect residents.
While the reviewed states generally require CCRCs periodically
to submit financial information, the type of information that is required and what the state does with that information differ. Only
a few states require actuarial studies. Among those states that do,
the studies generally are mandated only for communities with
the Type A contract. All eight states require CCRCs to disclose
their financial conditions to current and prospective residents,
but other disclosure requirements—such as fee schedules, fee
adjustment policies, history of fee increases, reserve funding provisions, and refund policies—vary from state to state.
Regulation of CCRCs
Readers will recognize important similarities between the
regulation of CCRCs and the regulation of insurance. The most
important similarity is that CCRC regulation, which began in
California in the late 1970s, occurs primarily at the state level.
The greatest difference, however, is that while insurance regulation is quite uniform from state to state, the regulatory regimen
for CCRCs varies widely from state to state. In fact, 12 states
and the District of Columbia do not attempt to regulate CCRCs
at all. For the 38 states that do regulate CCRCs, in most cases
the insurance department is the state agency charged with that
responsibility. But in some states it is the department of aging,
in others it is the health department, and an altogether separate
agency in still others.
Arguments for placing CCRC regulatory responsibility with
state insurance departments include the fact that departments
of aging or health typically do not have sufficient experience
and expertise in actuarial and financial issues to make judgments about the ability of a CCRC to fulfill its long-term life
care promises to residents.
The fundamental purpose of state regulation is to protect
current and prospective residents of CCRCs, who all have had
long-term promises made to them, while at the same time encouraging the development of a healthy industry that provides
an important public service.
Maryland’s statute and regulations are an example of a
comprehensive CCRC regulatory regimen. The following description of a typical regimen is based primarily on that model,
with comments on important differences from state to state.
For the purposes of discussion, we have subdivided Maryland’s
regulatory regimen into concepts such as licensure, financial
accountability, mandatory contract terms, and resident rights.