A resident moves into a continuing care retirement community and writes a check for $350,000. It's called an "entrance fee," and depending on the contract, some or all of it is supposed to come back to the resident's estate when they move out or pass away. Sounds simple enough — until the community can't pay it.
Since 2020, at least 16 CCRCs have filed for bankruptcy, and residents and their families have lost an estimated $190 million in refunds that were promised but never delivered. In some of the largest recent cases, residents recovered only a quarter to a third of what they were owed. The reason isn't fraud or mismanagement in the traditional sense — it's that the accounting model behind entrance fees is built on assumptions that don't always hold, and most people signing these contracts (and more than a few bookkeepers hired to keep the community's books) don't fully understand how the liability actually works.
If you operate, invest in, or advise a CCRC — or you're simply trying to understand what's really going on behind the glossy brochure — this is the accounting mechanic you need to know.
Entrance Fees Aren't a Simple Deposit
Most people assume an entrance fee works like a security deposit on an apartment: you pay it, you get some or all of it back when you leave. In practice, CCRCs sell three broad contract types, and each treats the fee completely differently:
- Type A (Life Care): The highest entrance fee and monthly fee, but it locks in assisted living and skilled nursing care at little to no additional cost for life. The community is, in effect, insuring the resident against the cost of future long-term care.
- Type B (Modified): A mid-range entrance fee that includes a limited amount of discounted healthcare services, after which the resident pays market rates.
- Type C (Fee-for-Service): The lowest entrance fee, but residents pay full market rates for any health care they eventually need.
Layered on top of the contract type is the refund structure, which typically falls into one of two buckets:
- Fixed-percentage (return-of-capital) contracts promise a set refund percentage — say, 90% — no matter how long the resident stays. This costs more upfront but gives residents (and their heirs) certainty.
- Declining-balance (amortized) contracts shrink the refundable portion by 1–2% a month, typically reaching zero within 50 to 100 months of residency. These carry lower entrance fees, but a resident who stays past that window forfeits the entire refund.
Whichever structure a community uses, the fee is never simply "money on account" the way a security deposit is. Part of it compensates the community for future services it hasn't delivered yet, and part of it is a genuine liability to repay principal. Untangling those two pieces is exactly what CCRC accounting exists to do.
The Liability Nobody Sees on a Simple Balance Sheet: Future Service Obligation
Under AICPA guidance (the Audit and Accounting Guide, Health Care Entities), a CCRC records the non-refundable portion of an entrance fee as deferred revenue and amortizes it into income over the resident's remaining life expectancy — a fairly conventional deferred-revenue treatment.
The complication is the Future Service Obligation (FSO). Because Type A and Type B contracts commit the community to providing care (assisted living, skilled nursing, meals, activities) at reduced or no additional cost for the rest of a resident's life, the community has to estimate:
- The present value of the net cost of providing those future services and facility use to current residents over their actuarially expected remaining lifespans, minus
- The present value of the future revenue the community expects to collect from those same residents (ongoing monthly fees, any remaining unamortized entrance-fee balance, and so on).
If the projected future costs exceed the projected future revenue plus what's already sitting in deferred revenue, the community has to book an additional liability for the shortfall — money it doesn't have but has effectively promised. If costs are lower than revenue, no extra liability is required (though the community still can't recognize that surplus as current income).
This is where actuaries earn their fee. The FSO calculation depends on mortality assumptions, morbidity assumptions (how much and how soon residents will need higher levels of care), discount rates, and healthcare cost trend rates — all of which can shift the number by tens of millions of dollars for a single large community. Get the assumptions wrong — too optimistic about resident longevity in independent living, too conservative about nursing-level care utilization — and a community can look solvent on paper for years before the obligation catches up with it.
Why a CCRC Can Look Financially Healthy and Still Go Bankrupt
Here's the part that catches investors, board members, and even some auditors off guard: a large share of the revenue on a CCRC's income statement in any given year is non-cash — it's simply the amortization of entrance fees collected in prior years, not new cash coming in the door. Meanwhile, refund obligations to departing or deceased residents are very much a cash liability, and most contracts explicitly tie the refund payout to re-occupancy: the community doesn't have to pay out until a new resident moves in and pays their own entrance fee.
That re-occupancy dependency is the single biggest solvency risk in the model. It works fine when occupancy is high and turnover is steady. It breaks down fast when:
- Occupancy softens (fewer incoming residents to fund outgoing refunds)
- A large cohort of long-tenured residents departs around the same time, creating a wave of refund obligations
- The community has been using incoming entrance fees to cover current operating shortfalls instead of setting them aside
When that happens, refundable entrance fees function less like a bank account and more like an unsecured loan the resident made to the community — and in bankruptcy, entrance-fee claimants are typically unsecured creditors, recovering a fraction of what they're owed (in some recent, well-documented cases, 25–33%).
The Regulatory Response Catching Up in 2026
The scale of recent losses is pushing state legislatures to act. Several states already require CCRCs to hold a portion of entrance fees in escrow or maintain dedicated reserve funds — a real financial backstop rather than a promise on paper. Florida convened a work group specifically to draft 2026 legislation aimed at strengthening reserve and disclosure requirements after a string of high-profile failures, and similar oversight conversations are underway in other states with large CCRC populations. Expect more states to move toward mandatory actuarial reserve studies and escrow requirements over the next few years — a direct response to the $190 million (and counting) in losses since 2020.
What This Means If You're Bookkeeping for (or Investing in) a CCRC
A few practical takeaways if entrance-fee accounting touches your books:
- Deferred revenue and FSO are two separate liabilities that require two separate calculations. Don't assume the deferred-revenue balance already captures the future-service commitment — it usually doesn't, and an actuary (not just an accountant) is typically needed to compute the FSO properly.
- Track occupancy and turnover as a leading indicator, not just a marketing metric. A CCRC's ability to meet refund obligations is directly tied to how reliably new entrance fees are coming in to fund outgoing ones.
- Distinguish the refundable and non-refundable portions of every entrance fee at the contract level, not just in aggregate — this affects amortization schedules, tax treatment (only the non-refundable portion is potentially deductible as a medical expense), and how much cash actually needs to be reserved against each individual contract.
- Reserve and escrow requirements vary enormously by state, so if you're evaluating a CCRC as a resident, employer, or investor, the state's regulatory regime matters as much as the community's own financials.
Keep Your Financial Records as Clear as Your Contracts
Entrance-fee accounting is a reminder that complex, long-duration liabilities need transparent, auditable records — not just a spreadsheet that looks fine until the assumptions change. Beancount.io offers plain-text accounting that gives you complete transparency and control over your financial data, with a full history of every entry and no black-box calculations hiding what you actually owe. Get started for free and see why finance teams handling complex, long-term obligations are switching to plain-text accounting.