Layers of Subsidies

8 min read

An introduction to Affordable Assisted Living  

It can feel as overwhelming as combining algebra and physics into one class. Both affordable housing and assisted living are vital solutions to the issues faced by aging Americans, but they are also each extremely complicated to develop and manage. Trying to provide both services in one project may seem like a task too monumental. But over the past few years, models for such ventures have evolved, lessons have been learned and the sweet smell of success has begun to permeate the market.

Whether or not creation of these versatile facilities that address both financial and health issues can survive and thrive amidst the current Congressional brouhaha over healthcare alterations remains to be seen. Paying the rent for many of the units providing these services requires a layering of subsidies; on top of tenants using their monthly Social Security benefits and Section 8 vouchers must be added Medicare Waiver or Veterans Administration benefits. A Congressional bolt to implode the Medicaid Waiver program might seriously impede further development of extremely valuable living arrangements just as they have begun to find their place in the senior housing market.

The irony (or perhaps stupidity) here is that the current preference and trend towards housing adults with health needs in assisted living rather than prodding them towards nursing homes, costs government programs much less money. “I can take care of four people for what it would cost for one person in a nursing home,” says Conchy Bretos of MIA Senior Living Solutions, a pioneer in the affordable assisted living space. The real “fake news” in American healthcare is the ongoing verbal attack on the Affordable Care Act and its Medicaid expansion, which has truthfully motivated widespread innovation in the health delivery system.

What is assisted living?
Assisted living is housing that also provides 24 hours a day of health watch and care. Facilities do not look to provide individual caregivers for residents, but on a typical day you might see half a dozen care providers rotating amongst a floor of 12-18 private apartments.

The caregivers are generally not nurses or doctors and are present to provide assistance with Activities of Daily Living (ADLs). These include getting in and out of bed, dressing, bathing, walking. In addition, many facilities offer support for what are known as Instrumental Activities of Daily Living, including shopping, housework, laundry, meal preparation, medication management and even money management.

Amongst the medical and care community, the continuum of care (which has become a popular phrase) usually runs from a single family home to a single family home with healthcare to an assisted living facility to a skilled nursing facility.

The rise of assisted living facilities (along with the surge of popularity of the aging in place movement), has confined nursing home residency pretty much to only those with the most complex illnesses. In fact, the period of nursing home residency has vastly decreased to an average of just one year. It is not surprising people prefer the other options. Market-rate assisted living facilities demand rents that a large portion of the older American population simply cannot afford. Rents at Continuing Care Retirement Communities (CCRCs), which offer independent living, assisted living and memory care, can run from $5,000 to above $10,000 per month. Some also have entry or buy-in fees. Affordable Assisted Living serves people with limited income and assets who need an institutional level of care. “Affordable Assisted Living offers a market-rate product at a value discount,” says Sharon Shaffer of the Wallick Communities in Ohio.

Developing Affordable Assisted Living
Assuming the responsibility of providing assisted living in your affordable housing property requires two very separate skill sets. Property management experience is obviously not a qualification for care management. You need expertise in both fields. (In the following story in this issue you will find a case study of Wallick Communities’ development of the Ashford in Whitehall, OH.)

In a session on Affordable Assisted Living at the National Housing & Rehabilitation Association’s Summer Institute in July in Quebec, Conchy Bretos, who became a staunch advocate for these bi-service projects due to her own 96-year old mother’s needs, highlighted some of the obstacles her company, MIA, faced. They included:

  • The developers and equity partners lack of knowledge about assisted living projects;
  • The need for strong communication and coordination between the developers and other partners;
  • The failure of developers to appropriately fund start up funds ($400,000 needed);
  • The need to be financially prepared for slow lease-up due to the income qualification requirements.

On the same panel, Walter Ohanian, managing director of the Grantham Group of Marlborough, MA, chronicled the development of a $15.9 million project named Christopher Heights of Belchertown, an 83-unit assisted living community in which 43 of the units are affordable (a mix of 30 percent and 60 percent AMI) and 40 are market-rate. “We could only make this work because of the market-rate units,” Ohanian said.

Ohanian offered a list of differences between developing Affordable Assisted and other LIHTC housing:

  • Amount of debt
  • Amount of reserves
  • Decreased price for the LIHTC
  • Lease up losses
  • Lease up schedule (18 months, four to six per month)
  • High operational costs (Aid and attendants’ salaries and benefits)
  • The need for a Department of Health license
  • But potential for substantial cash flow.

Ohanian’s presentation showed annual revenues of $3.5 million coming from private pay funds, Medicaid programs and VA benefits and expenses of $3.2 million, including debt service producing annual cash flow of $300,000.

“Fifty percent of the revenue comes from Medicaid Waivers and VA benefits,” Ohanian said.

The role of Medicaid Waivers
President Lyndon Johnson signed the bill that established Medicaid in 1965 which provided funding to states to pay for low-income residents in need of nursing home care. By 1981, experience had shown that there was a need to also provide support for those with limited income and assets who chose to receive healthcare but remain in their homes. As a result, the Medicare Waiver program was implemented to give states options to test new ways to deliver and pay for healthcare services. Though paying for nursing home care for your state’s residents was a mandatory part of Medicaid, the state governments were given the freedom to determine their priorities and design their own health and pay programs with the waivers.

The result of this is a wide variety of local programs with focus divided among children, people with disabilities and the aged. “When it comes to aging, there are good states and there are bad states,” says Conchy Bretos. As an example, in Ohio, a good state where the average cost of market-rate assisted living is around $4,000, waivers reimburse those on Medicaid $70 per day. But in Georgia, where Bretos’ mother resides, waivers are directed towards planning for healthy babies.

Among the more popular waiver-supported programs nationwide is Home and Community-Based Services (HCBS), which funds and encourages services to people who would otherwise be isolated in nursing homes or hospitals to receive long-term care in their community. This is the program that reimburses those who reside in Affordable Assisted Living facilities. Despite the fact that paying for nursing home care for Medicaid registrants remains mandatory, nationally more of the Medicaid budget is now spent on HCBS than on nursing homes.

Moving forward
People in the health sector will tell you that the Affordable Care Act has inspired a health system transformation that has created, among other things, delivery and payment reforms. The Act has thus made Medicaid a more efficient healthcare purchaser. Nationally, an average of 20 percent of the population of each state utilizes Medicaid and in the states with more residents in poverty, such as West Virginia and California, Medicaid recipients are above 25 percent. The ACA has, in various ways including a penalty for return visits to hospitals, encouraged more health care at home. The Medicaid Waiver program has spurred new facilities, such as local urgent care and women’s care clinics, with much less overhead than hospital systems resulting in lower payments. It has initiated innovation, including a Medicaid Innovator Acceleration program, that disseminates new and better ideas among the states. And it includes national Medicaid expansion.

The healthcare reform bills that are struggling to find a route out of Congress include, in both houses, destructive cuts to Medicaid ($839 billion over ten years in the bill that passed the House.) The requirement for states to pay for nursing home stays remains in all proposals thus far. So all reports, including that from the Congressional Budget Office, are that the largest cuts will have to come from the HBCS program that supports and seems essential to the growth of Affordable Assisted Living development.

Less Affordable Assisted Living development will result in pushing more people into nursing homes, which will only cost Medicaid significantly more money. Cutting Medicaid Waivers is a short-term budget reduction that will cost us more in the long run.