Insurance for The Twilight Years

By Jon D. Hull/Los Angeles

Ever tried to calculate the cost of your retirement? Good luck. An average senescence with no surprises can be a lowbudget affair, but beating the actuarial tables may mean a mighty surge in expenses. Nothing is more unpredictable than medical bills, particularly for longterm nursing care, which can be the biggest health expense for the elderly. For that reason, more and more retirees are turning to "life-care communities," which promise to cover all basic needs until death in return for a hefty entrance fee and monthly service payments.

While some religious groups have long maintained such communities, several private companies, including Avon and Marriott, are now getting into the field. Already, about 700 retirement communities across the U.S. provide some form of continuing care for about 200,000 residents. The American Association of Homes for the Aging expects the number of these centers to double in the next decade.

One of the models for the sprouting life-care communities is Mount San Antonio Gardens in Pomona, Calif., a successful independent operation. Retirees, who must be healthy when they move in, pay entry fees that range from $28,300 for accommodations in a studio apartment to as much as $100,000 for the extra comfort of living in a two-bedroom house. Each of the 458 retirees pays a monthly service fee of $892. In return, members receive everything from meals and utilities to housecleaning and the use of a swimming pool and a weight room. But the real benefit is unlimited access to a 55-bed nursing home at no extra cost. While the fees may rise for all residents, individuals who require extensive care pay no additional fee.

That can translate into substantial savings in the event of long-term illness. The average monthly charge at a traditional nursing home is more than $1,800. But the cost of living at San Antonio Gardens, when all fees are prorated over the typical life expectancy, averages just $1,100 a month. The company is able to charge such comparatively reasonable rates because about 70% of the residents die before they need full-time nursing care. San Antonio maintains a $900,000 investment fund to cover cases in which residents outlive their savings.

Unlike San Antonio Gardens, many life-care communities belong to large chains. The biggest provider is Life Care Services of Des Moines, a subsidiary of Weitz Corp., which has managed or developed more than 50 communities nationwide. The Mediplex Group, owned by Avon, has 19 facilities either completed or in the works, largely in California, Arizona and Pennsylvania. Marriott, which is best known for its hotels, has invested $150 million in three projects now under way in Haverford, Pa., Fort Belvoir, Va., and San Ramon, Calif. The company plans to build six more life-care communities by the early 1990s.

What interests Marriott and other companies is the knowledge that the American population is getting older and the elderly are getting wealthier. Since 1970, the number of Americans over 64 has jumped by 9 million, to 29.2 million, and it will rise an additional 6 million by the year 2000. The number of elderly poor has dropped by nearly half since 1970, and almost one-fourth of all elderly households have a median net worth of between $100,000 and $250,000. Their children are not doing nearly so well, and in the two-career marriages of the 1980s, they seldom have room or time to care for Mom and Dad.

Of course, like any investment in insurance, life care may or may not pay off financially. If residents die within a short time without receiving much nursing care, they do not get full value from their entry fees. Because of this potential unfairness, many communities offer at least partial refunds to the families of the deceased. At North Hill, an upscale community in Needham, Mass., entry fees start at an unusually high $102,000 for a studio and run up to $251,000 for a three-bedroom apartment. But members or their heirs receive a 90% refund of the payment upon death or departure. Says Elinor Kirkby, 80, who paid $167,000 in 1985 to live in a comfortably appointed two-bedroom apartment: "I'm happy here, I feel secure. I'll never move again until the undertaker comes."

Not all life-care centers are alike, and prospective entrants are well advised to read the fine print before signing any of the numerous contracts available. Some centers require supplemental medical insurance to cover acute hospital care, while others do not. Some exclude prior ailments from coverage. Many continuing-care communities charge extra for nursing care and thus do not fit the narrowest definition of life-care facilities. At the Pueblo Norte Retirement Village in Scottsdale, Ariz., for example, members are refunded 90% of their entry fee and no longer make their regular monthly payments if they are permanently transferred to the nursing home. But they are charged up to $65 a day for nursing care. That works out to more than $1,800 a month, in the same range as traditional nursing-home fees.

One serious potential risk for retirees is that a private life-care facility will go out of business. So far, 17 states license life-care facilities. Authorities often require providers to maintain a trust fund to cover long- term expenses, but bankruptcy or a sell-off of the business can cause all kinds of difficulties for residents.

Whether or not life care is always a financially smart investment, many Americans are finding that the predictability of a life-care program gives them invaluable peace of mind. "It's an excellent concept," says Lawrence Krause, a San Francisco-based financial planner. "The fear of loss is much greater than the greed of gain." Dean Bowman, 76, and Wife Fate, 75, would agree. They paid $82,000 in 1984 to live in a two-bedroom home in Mount San Antonio Gardens. Says Dean: "There's no question in my mind that we made the right decision. We took an oath early in our marriage that we'd never be a burden to our daughter. Now she knows we're taken care of."