Amy M. Lampo
Chief Operating Officer, AV Powell & Associates LLC

Amy has nearly 25 years of consulting experience and during that time she has conducted hundreds of comprehensive actuarial studies for CCRCs and CCaHs. Amy is one of the most experienced practicing senior living actuaries in the US today.

A1. What is the optimum size for a CCaH plan and what are the actuarial and pricing implications if a developing CCaH targets a lower stabilized membership census?

We think a successful CCaH plan will have 1,000 or more members. A basic tenet of insurance pricing models is risk-pooling. The larger the group over which risk is spread, the better. In addition, CCaH plans have fixed administrative and marketing costs that can be quite high on a per member basis if the number of members is low.

If a developing CCaH plan targets a lower stabilized membership level, the higher administrative and marketing costs on a per member basis can drive the pricing up.

A2. How will ASC 606 affect CCaH financial statements and pricing?

ASC 606, the accounting standard which addresses revenue recognition, applies to revenue from contracts with customers. It is clear that CCaH plans enter into contracts with their members. So, the accounting standard requires that revenue be recognized as the entity satisfies a performance obligation. The question remains whether there are separate performance obligations for varying levels of service within the plans. So, the verdict is still out on whether or not and how the financial statements of CCaHs will change after implementation of the standard.

ASC 606 will not change the way operators manage their CCaH plans. The cash flow is the same relative to entry and monthly premiums receipts. And, the long-term liabilities of the plans are also unchanged by the standard. So, there would be no impact on pricing from ASC 606. Any changes under the standard will be for GAAP financials only. However, if the cost of administering revised revenue recognition rules adds significantly to the overhead costs of the plan, premiums may have to be increased accordingly.

A3. What are reasonable options for providing credits to entry fee for CCaH members who move into your sister CCRC?

While most CCaH plans are established to keep their members in their own homes, there are some cases where the CCaH member wants to move on-campus to the sister CCRC. There are two options to consider:

  1. The CCaH member continues to pay monthly premiums and maintains full membership in the CCaH plan. The member pays the full entry fee for the contract selected at the CCRC and enjoys the benefits of the CCaH program while residing at the CCRC.
  2. The CCaH member terminates membership in the plan and enrolls in the CCRC contract. In this case, applying a credit for the entry premium paid under the CCaH plan towards the entry fee for the CCRC would certainly promote goodwill. The amount of the credit may vary from 100% to a sliding scale based on the number of months of participation in the CCaH plan.

A4. How does one determine the amount/percentage of fees that might be considered a prepayment of future health care for IRS itemized deductions?

It depends…if the CCaH plan provides only qualified health care benefits, most, if not all, of the fees would be considered a prepayment of future health care for IRS itemized deductions. A conservative approach, even if the plan provides only qualified health care benefits, would be to exclude the portion of fees that are attributable to administrative and marketing costs. If the CCaH plan provides both qualified health care benefits and non-health care benefits (e.g., fitness club membership or handyman services), the amount of fees that would count towards the IRS itemized health care deductions should be based on the portion that relates to the health care benefits only.