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MDS Strategy of the Month – September 2011

(The following article is excerpted from Jim Moore’s latest book Independent Living and CCRCs; Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators, Chapter 39. )

 

Senior Living Affordability Strategies

A Practical Reality or Impossible Dream?

The first rule of sales is to know your customer.  The goal of this chapter is to make you familiar with three economic classes of seniors.  To sell to seniors, one needs to understand these economic classes of senors.  They are:

As you learn about each of these three groups, consider the opportunities that each presents.

  1. The “Entitlement Group” – Incomes Under $12,000

Seniors with incomes under $12,000 per year typically qualify for various government entitlement programs, such as the HUD 202 and Section 8 senior housing, which offer low monthly rent.  But keep in mind that the original concept of the HUD 202 or Section 8 programs assumed seniors would live independently (preparing their own meals, for example).  It was initially presumed seniors would not need assistance with typical activities of daily living.  But many of these programs started over 25 yeas ago.  Thanks to improved health care, among other advances, the number of low income seniors who have aged in place and now need assisted living has skyrocketed beyond the initial projections of a quarter-century ago.  Sadly, there are no consistently-funded entitlement programs to pay for these additional services.  Approximately 19 percent of the country’s age 75+ household are currently member of the “Entitlement  Group”.

  1. The “Gap Income Group” – $12,000 – $30,000

The greatest unmet need in senior housing today is the lack of affordable services and living options aimed at serving seniors with incomes that are moderate, but not low enough to qualify for subsidies or government entitlements.  Nor can these moderate-income seniors afford to fully “private pay” for senior living.  Labeled the “Gap Income Group”, this sector of the senior market has annual incomes between $12,000 and $30,000.  These seniors currently represent about 35 percent of all U.S. households over age 75.

  1. The “Market Rate (Private Pay) Group” – more than $30,000

Many seniors with incomes in excess of $30,000 qualify for “market rate” senior living.  That means they can afford to pay prevailing rates beginning at the lower end of today’s senior living private pay pricing spectrum.  The “market rate” group currently represent s about 47 percent of the nation’s age 75+ seniors.

 

The “Gap Income Group” is caught in an economic squeeze between the other two economic classes of seniors – the very low income group that qualifies for entitlements and the income-qualified market rate group who can afford private pay.  Trapped between these two economic classes, the Gap Income Group is significantly under served and represents very large numbers.  In 2009, 35 percent, or approximately 4.1 million age 75+ households fell into this “trapped” category.

The “Gap Income Group” cannot afford the monthly service fees needed to live in independent  or assisted living.  These monthly fees typically range from $1.600 to $2,900 for independent living, and approximately $2,200 to $4,000+  for various levels of assisted living.  In some cases, Gap Income Group seniors can only afford half that amount.  Some progress is being made with Medicaid Waiver programs for assisted living and moderate income tax-credit senior apartments.  Without considerable spend-down or help from children, a senior’s qualifying annual income would likely have to exceed $30,000 to afford independent or assisted living – and that’s in after-tax dollars!

When the impact of aging-in-place intensifies and reaches crisis level, the Gap Income Group will finally be widely recognized as a huge economic and social challenge.  We need creative solutions to break down the economic barriers.  Financial viability will be very difficult to achieve, but if we can do it, the result will perhaps be the biggest breakthrough in serving seniors in the 21st century.

Call to Action

Keep two very important issues on your radar screen:

  1. Recognize your realistic (affordable) market may be smaller than initially perceived.
  2. If at all possible, consider some meaningful charitable content to help some low to moderate income seniors – especially if you’re a tax-exempt not-for-profit organization.

As an industry, we’ll eventually have to answer the question, “Do we and our government have an obligation to serve this very worthwhile group?”

[Please refer to chapter 39 of Independent Living and CCRC's; Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owners/Operators for the full text which includes additional information, figures, charts and more in depth details about the above concepts.  Book is available from Westridge Publishing @ www.westridgepublish.com]