Financing Assistance

9 min read

Is affordable assisted living an oxymoron or feasible?

“Tax credit is the major program designed for affordable housing. Unfortunately, it’s not designed for this.”

What David Carliner, Executive Vice President of Baltimore’s Shelter Development, is talking about is affordable assisted living. For nearly 40 years, Shelter has built an enviable reputation for developing and managing affordable family and senior communities.

“If we think about the low and moderate income sector, we’ve created subsidies for housing,” notes Shelter partner Jeffrey Hettleman. “What we haven’t created anything for is when seniors evolve into needing assistance.”

“When I came here,” Carliner continues, “I thought we were perfectly positioned. But even we can’t figure out something that makes total sense.”

This is far from a casual comment. Carliner served on the Baltimore City Commission on Aging and as President of CHAI, a community-based organization focused on supporting seniors in a variety of residential settings. In fact, what quickly becomes clear in any survey of affordable senior assisted living providers is that there is no easy answer for paying for the services. And as the baby boomers age into their 70s and 80s, the needs and challenges will only become more acute.

Paying for Services
Jeff Hettleman points out, “In an affordable building, you can’t make people pay for services. That has to be on top of housing costs; separate from rent.” That is a burden many, if not most residents cannot afford.

There exist a number of approaches to paying for those services, but none are complete within themselves. All involve stacking of funding sources, and most require some significant hoop-jumping to adapt regulations and procedures to real-world situations.

The Affordable Care Act has greatly expanded what the federal government will pick up in terms of assisting those in affordable housing.

About half the states have taken advantage of the government subsidy program, but by statute that commitment is slated to last five years, after which most responsibility shifts back to the states. Several states have been widely cited as being progressive on senior assistance needs, among the best being Arizona, Illinois, Massachusetts and Ohio.

For states willing to offer them, Medicaid Waivers, introduced in the ACA, can provide a win-win equation: the opportunity for aging residents to stay where they are longer due to the available services, and for the government to avoid the expense of placing them in nursing homes where costs can quadruple. Waivers are federal funding to the states that they can use to test new pilot programs to help deliver and pay for health services, including managed care delivery systems and long-term care services in home and community settings rather than institutional settings. But so far, only seven states have adopted Medicaid Waivers for assisted living, though others are considering it.

“This is an efficient delivery model,” says Carliner, “because if the residents remain living in an affordable building, you can deal with a hundred potential patients instead of one.”

The cost savings for government of allocating funds for aging in place has been demonstrated by several studies. But from Hettleman’s experience, “Medicaid waivers can be incredibly hard to come by.”

“If you accept the waiver,” notes Hettleman, “you’re making long-term guarantees when there is no assurance your state’s waiver program will continue. States make commitments based on whether the budget goes up or down.”

Other Approaches
“We really began in this field (assisted living) around HUD’s Assisted Living Conversion Program (ALCP),” says Michelle Norris, President of National Church Residences Development Corporation of Columbus, Ohio. ALCP, introduced in the Supportive Housing for the Elderly Act of 2010, provides existing developments with grants to convert dwelling units into an Assisted Living Facility or Service Enriched Housing. “They said, ‘we will give you a grant to rehab your building for assisted living, and here are the terms: rebuild to the licensure standards of your state, and meet new eligibility criteria for age, income and physical frailty.

“We passed on this for years because there was nothing in Ohio like the Medicaid Waiver (to pay for the services). When we were finally able to marry the two together, we merged them into a model for affordable assisted living. This was literally the first time anyone in the Ohio HUD office had talked to anyone in the Ohio Medicaid office!”

This type of comment comes up repeatedly in conversations with affordable senior living owners and managers, showing frustration with the piecemeal governmental approach that does not seem to make economic efficiency a primary objective. Though Norris is quick to add that now, “HUD has been thoughtful and strategic enough to make this work.”

She figures an affordable assisted living conversion allows residents to stay another five to ten years before having to move into nursing care. Of National Church Residences’ portfolio of around 350 buildings, six have received ALPC grants.

An example is Chimes Terrace in Johnstown, Ohio, a pilot project converted from straight affordable to assisted living. The conversion used an ALCP grant along with 9% tax credits on top of HUD 202 funds to make 24 of 60 independent living units suitable for assisted living. “It would have been a major jigsaw puzzle with a 100% percent conversion,” says Norris. “But HUD allowed us to grandfather some residents who didn’t need assistance.” She calls Chimes Terrace, “My poster child for It-Should-Never-Be-This-Complicated.”

Building Anew
Also in Ohio, Wallick Communities of Columbus has been able to obtain Medicaid Waivers for anyone who qualifies. “The constraint is that it has to be in a licensed care facility,” says Senior Vice President Sharon Shaffer, “and there are just not enough beds available.” So Wallick is building entire communities for affordable licensed senior care. The first, which will be operated using waivers, employed conventional financing with a three-year loan, then a seven-year second mortgage from the Ohio Finance Agency at the end of construction. Down the road this project will require longer term refinancing through FHA with no cash out. Wallick has a 10% equity position. A second project in Cincinnati uses the same capital stack and has proved the workability of the model. This allowed Wallick to secure investors, including Berkshire Hathaway’s first financing venture in the state, and pay for construction through 4% tax credit equity.

“Since most of the assisted living supply is coming in at around $6,000 a month, we don’t see much competition at our lower price point,” Shaffer notes. “For the next three to five years, this will be a significant portion of our investment activities.” What is unclear, however, is how feasible the model will be if Medicaid Waivers disappear – just one of the many variables that confront this segment of the industry.

On-site Assistance
Another strategy in providing assisted services for low-income senior residents is the presence of on-site advisors. LifeSTEPS, which provides senior assisted services to affordable living communities in California, including USA Properties, has certified social workers at each residential location. At Jewish Community Housing for the Elderly in Massachusetts, these professionals are known as resident services coordinators. Whatever the name, they perform a multitude of functions, all directed toward keeping residents healthy, engaged and contributing to the community.

“They are the linchpins of our service model,” states CEO Amy Schectman of JCHE. “They deeply know who lives here and how their needs and interests are working.”

Just as importantly, they advise individual residents with Social Security, HUD, Medicare and Medicaid, and other support programs to identify and obtain all benefits to which they might be entitled. This can often take considerable load off the housing facility.

Jeff Hettleman also points out that by the time residents reach their 80s, they often don’t have a lot of other expenses, so the 30-percent-of-income-annually rule of thumb in the retirement planning sector no longer applies. A combination of income and assets can often provide the additional care-in-place they need.

While many affordable owners/managers build as much as they can into their operating budgets for resident services, it is seldom enough to cover actual assisted living expenses. At Jewish Community Housing, one of the most efficient organizations in the affordable assisted residential industry, there is always a shortfall between federal and state government grants and subsidies and operating needs. At least $1.5 million is needed from private philanthropy.

“Fundraising is extraordinarily time-consuming,” says Schectman. “And raising money for seniors is really hard. In this youth-oriented culture, people don’t want to think that it will ever happen to them. But each of our programs are not just sweet little additions to people’s lives. They determine core outcomes.”

With this concept in mind, affordable senior owners/managers and partnering services organizations are making a concerted effort with government agencies to stress the efficiencies of the delivery model David Carliner outlined in keeping frail seniors out of nursing homes as long as possible. Medicare normally supports only 21days of in-home nursing care, so the challenge is to prove that reallocating funds, particularly in states that do not currently offer Medicaid waivers, will keep residents just as healthy, a good deal happier, and do it all in a model that is far less costly than current regulations dictate. The idea is that the money follows the individual, rather than the program, providing the needed flexibility.

“We’re having a meaningful conversation with the state,” Wallick’s Shaffer comments. Part of this dialogue is to assure that waiver reimbursement is commensurate with the cost of living.

But the demographic reality is that the challenge is growing and will continue to do so for the foreseeable future, particularly with people living longer and the anticipated increase in need for Alzheimer’s services and memory care.

“A crisis is coming our way that no one’s figured out,” warns Michelle Norris. But on a somewhat more hopeful note she adds, “Sometimes, doing good stuff is complicated.”