Healthcare Reform and Its Impact on Seniors Housing

Encino, Calif.–What will the impact of the Community Living Assistance Services and Supports (CLASS) Act be on the seniors housing market? Somewhat neutral, according to a new report issued by Marcus & Millichap Real Estate Investment Services. The act is a part of the federal government’s sweeping healthcare reform legislation.

“I think it certainly has beneficial aspects; for example people will be reimbursed no matter how small the numbers are, they are better than what we had before,” Gary R. Lucas, managing director and senior vice president of the firm’s National Seniors Housing Group (NSHG), tells MHN. “But in general I don’t think people will carry the insurance long enough to have the benefits. Right now the way the act is, all of us will have certain insurance with long-term care for which you have to pay extra for. While it is mandatory for a certain amount of time, people will drop it as soon as they can.

“New healthcare reform may cause some pricing instability for seniors housing facilities but assisted living facilities will likely experience the most long-term benefits from the legislation. In general, prices will remain flat, and the instability is the fact that there isn’t that much activity going on. There aren’t any traditional sales going on. Most of the activity is owing to the fact there been issues and problems.” Lucas goes on to say that occupancy has remained reasonably stable; has got slightly worse but is nothing to talk or write about. “This doesn’t help any income producing property. Whether its shopping centers, apartments or seniors housing, you want occupancy to go up and be able to charge more rent and that’s been a problem.”

Another problem that the seniors housing sector has been facing is that their demand comes from aged people, who haven’t been able to sell their homes for four years, and so they can’t leave go and live on any of these facilities,”

The CLASS portion of the healthcare reform bill will set up government-sponsored, long-term care insurance, which could revalue skilled nursing facilities nationwide, explains Lucas. Users of government-sponsored healthcare will be automatically enrolled in the program, though the high cost will likely drive many to opt out shortly after implementation. Consequently, premiums will fall short of benefits paid out after the five-year vesting period, leading to further stress on Medicaid and reduced payouts under the current system. Since most of the value in skilled nursing facilities relates to the profitability of the business and not its physical site, any decrease in Medicaid payouts will lower the value of the business. “This trend will wedge a divide between new, state-of-the-art facilities that cater to Medicare and private-pay users and older communities that depend on Medicaid supplements,” says Lucas.

However, many of these changes will take another two quarters before they start to show.

The new report ranks 31 major U.S. markets based on occupancies through the first quarter of 2010. Seniors housing assets in Minneapolis, Baltimore and San Jose, Calif., have the highest occupancy rates, while occupancy rates in Kansas City, Denver and Las Vegas are the lowest.