Assisted Living Communities: How an Aging Population, Health Care Reform, and Changes in State Regulations Will Continue to Drive Growth

Article excerpt

ASSISTED LIVING COMMUNITIES are an important component of the long-term care system. The industry provides services to more than 1 million Americans living in an estimated 36,000 facilities across the country, according to the Assisted Living Federation of America. The $38 billion industry comprises a wide spectrum of services and programs, most of which center on elderly individuals.

While the aging U.S. population virtually guarantees industry growth, the business of developing and operating assisted living communities is complex. As a highly regulated industry dependent on personal wealth--and, to a lesser degree, government assistance--the industry is facing growing service demands along with increasingly uncertain payment conditions.

This article provides an overview of the current conditions affecting assisted living communities and the key variables that will likely affect industry growth in the years ahead.

How Assisted Living Communities Differ from Nursing Homes

Assisted living communities are often compared to nursing homes, but there are significant differences between the two. Assisted living facilities provide residents with supervision and assistance related to daily activities, such as bathing, meals, transportation, and medications management. Some providers offer around-the-clock skilled nursing services, but most of the operations focus on providing residents with personal care and other assistance as needed.

In contrast, nursing homes provide skilled care for senior citizens who need 24-hour medical attention. Generally, these facilities are used by elderly individuals who have chronic medical conditions that require around-the-clock skilled care and long-term attention. Residents of nursing homes also include recovering patients who have been discharged from the hospital after a major surgery, an illness, or some other medical event.

Additionally, nursing homes receive a larger portion of income from government funding than do assisted living communities. According to the Centers for Medicare and Medicaid Services (CMS), Medicaid and Medicare support approximately 62.3% of nursing home care expenditures. In contrast, about 20.5% of assisted living expenditures are covered by government programs (or long-term-care insurance), and 79.5% of residents pay for services with personal finances, according to the U.S. Census.

Industry Demand and the Importance of Individual Wealth

As with other needs-based industries, the demand for assisted living traditionally remains constant despite economic cycles. However, revenue can fluctuate with changes in personal wealth, since the industry relies on private financing and long-term-care insurance. As a result, assistance is often delayed during economic downturns, as seniors and family members try to maintain wealth or rebuild financial assets.

During the recent downturn, the industry has been able to continue its expansion, but revenue growth slowed to a modest 1.1% and 0.9% in 2008 and 2009, respectively, because of the broad-based decline in the financial assets and wealth of seniors and their family members.

Making matters worse, the recent downturn has been driven by the collapse of the housing sector, which is the single largest asset class on most Americans' balance sheets. The decline in home prices hit seniors hard. According to the U.S. Census, approximately 80.6% of Americans 65 years and older are homeowners (versus 67.1% for the total population). With the U.S. House Price Index dropping at an annual rate of 5.4% during the two years to 2009, lower real estate values and reduced transaction volumes posed a significant obstacle to changing living accommodations.

The financial stability of other demographic segments besides seniors is also vital to the industry because many elderly individuals rely on their children for their health and financial well-being. …