THE CHANGING CONSUMER: SPENDING PATTERNS & FINANCIAL ASSETS

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1 2016 NATIONAL SENIOR LIVING CFO WORKSHOP Ι THE SHERATON NEW ORLEANS HOTEL, NEW ORLEANS, LA Ι APRIL 6-8, 2016 THE CHANGING CONSUMER: SPENDING PATTERNS & FINANCIAL ASSETS PRESENTED BY: RUSSELL GARDNER Chief Financial Officer Westminster Canterbury Richmond AV POWELL, MAAA, ASA Consulting Actuary A.V. Powell & Associates, LLC MODERATED BY: LISA MCCRACKEN Senior Vice President, Senior Living Research & Development Ziegler April 7, 2016 Ι 11:00 am 12:00 pm B.C. Ziegler and Company Member of SIPC & FINRA

2 OUTLINE Section 1 - The consumer of the past, present & tomorrow Section 2 - The Westminster Canterbury Richmond Story Section 3 - Managing Financial Aid Risks Questions & Answers 2

3 Section 1 THE CONSUMER OF THE PAST, PRESENT & TOMORROW LISA MCCRACKEN Senior Vice President, Senior Living Research & Development Ziegler

4 THE CHANGING CONSUMER- COMMON QUESTIONS What is the impact of residents living longer on their ability to pay for their healthcare needs? What is the financial profile of today s resident compared to previous generations? Have the Boomers saved enough? Will they be able to afford their own retirements? 4

5 FEBRUARY 2016 ZIEGLER CFO HOTLINE POLL Survey of 187 CFOs and finance professionals Are organizations re-assessing the financial status of current IL residents? What documentation is required to show proof of income/assets? Are providers observing a decline in IL resident financial assets compared to previous years? How many incoming residents have pensions? How often are providers evaluating their PMA for age and income-qualified individuals? Source: Ziegler National CFO Hotline, Feb

6 RESIDENT FINANCIAL ASSESSMENTS How often do you assess the financial status of your Independent Living residents? We do not have a policy to reassess financial status beyond initial Annually Every other year Every 3-5 years Every 6-10 years Other (please elaborate) 0.8% 3.2% 1.6% 3.3% 1.6% 2.7% 4.2% 11.3% 6.4% 1.7% 0.0% 1.1% 12.5% 24.2% 18.7% 59.7% 69.5% 77.5% 0.0% 20.0% 40.0% 60.0% 80.0% Single-sites Multi-sites All Source: Ziegler National CFO Hotline, Feb

7 DOCUMENTATION OF FINANCIAL STATUS What documentation do you require for determining current income/financial status? No documentation required; it is a self-report assessment 49.7% Investment Statements 40.2% Bank Statements 39.6% Insurance Documents 25.4% Tax returns 25.4% Other (please specify) 17.8% 0.0% 20.0% 40.0% 60.0% Source: Ziegler National CFO Hotline, Feb

8 TODAY S RESIDENT VS. PREVIOUS GENERATIONS Compared to 10 years ago: -43% feel IL resident financial assets are less -46% feel IL resident financial assets are the same -11% feel IL resident financial assets are greater If observing a decline in IL resident financial assets compared to previous years, why do you think that is the case? Residents are living longer Residents are coming in with fewer financial assets Today s residents are spending more on supporting/gifting to their children, grandchildren, etc. 40.2% 39.6% 49.7% Today s residents are more likely to try to spend-down Residents are paying more for out of pocket home care, home health and concierge services 25.4% 35.4% Other 17.8% 0.0% 20.0% 40.0% 60.0% Source: Ziegler National CFO Hotline, Feb

9 WHAT IS THE STATUS OF PENSIONS? (% IL Residents coming in with Pensions) How does this compare to 10 years ago? Less than 10 years ago 57% Greater than 10 years ago 4% Only 10% of Boomerage workers can expect income from defined-benefit programs About the same 39% Less than two decades ago, more than half retired with a pension income Sources: AARP The Magazine, February/March 2014 Ziegler National CFO Hotline, Feb

10 BOOMER INCOME For Richer For Poorer The number of seniors living in poverty declined from 15% to 9% (1970 to 2012) Proportion of older adults enjoying a high income increased from 18% to 31% disposable income for 50+ was more than $3 trillion (Boomers holding 77% of all personal assets and ½ of all discretionary spending) Half of households have no money in retirement accounts 42% of Boomers say the age they expected to retire has increased 36% of Boomer s children still live with their parents 42% of Boomers are paying medical costs for their parents or other elderly relatives Source: Sabi, The Boomer Report

11 SUMMARY THOUGHTS There are a number of unknowns about the future consumer generation, particularly related to financial status What is known: Individuals are living longer Pensions have declined Spending and savings patterns of the Boomers are different than previous resident generations Providers need to stay on top of changes in resident financial status, payor mix, etc. Source: Ziegler Investment Banking 11

12 Section 3 MANAGING FINANICIAL AID RISKS THE HIDDEN FSO LIABILITY FOR CCRCS AV POWELL, MAAA, ASA Consulting Actuary A.V. Powell & Associates, LLC

13 SHOULD YOU BE CONCERNED WITH THIS RISK? Will you ask residents to leave? Have you changed your admission standards? Do you use a rule-of-thumb or make a scientific estimate? How will you fund any shortfalls? Charge residents who can pay more Raise charitable contributions to cover liabilities 22

14 BENEVOLENCE RISK IS INVERSELY RELATED TO HEALTH CARE GUARANTEE R e l a t i v e Benevolence Risk R i s k Type A: Lifecare Type B: Limited Type C: Fee-for- Service Type D: Rental Benevolence Risk 23

15 CAN MEASURE THIS RISK YES IT S A FUNCTION OF: Longevity by level age and gender Fees charged per contract Personal expenses and use of disposable income Long-term care insurance Assets joint plus individual Income inflation adjusted and constant 24

16 REQUESTED DATA CAN BE DAUNTING 25

17 CAN YOU STREAMLINE PROCESS? More data means better estimates, but time consuming Rolling assessment by spreading calculation over several years or categorizing groups by likelihood 5 Years in, is original financial data useful? Can/should some residents opt out? 26

18 EXEMPTIONS FOR NET WORTH > $1 MILLION Monthly fees = $4,487 + $1,707 for 2nd Single Couple Age range 60 to 69 $1,359,000 $1,560,000 Age range 70 to 79 $1,021,000 $1,170,000 Age range 80 to , ,000 Age range 90 to 89?? 27

19 SOME ANECDOTAL OBSERVATIONS High resident participation generates best results Need to educate as to why you are requesting Confidentiality and who will collect the data If not part of your culture, possible resistance Level of financial detail is correlated to reliability Benevolence liability varies significantly due to Management and organizational culture Economic downturns Prevalent contract 28

20 BENCHMARKING BENEVOLENCE IS CHALLENGING Total Liability Per Capita Liability Millions % 38% 42% 42% 47% 87% 62% Thousands % 38% 42% 42% 47% 87% 62% % needing aid % needing aid 29

21 SUMMARY Financial assessment fits into a management culture of informed decisions and planning, sic Life Plan Community Longevity by level needed for reliable projections Does it matter if boomer demographics change Yes? If you change your minimum financial standards for admission If you change policies in regard to willful spend-down If you plan to offer more Type B, C, or D contracts Type A is still the best LTCi and asset protection product Prudent Boards will develop a periodic monitoring strategy 30