3.2.1 Condition 1: Adequate Resources for Current Contractual Residents or Members
The resources available to current contractual residents or members include any existing net assets plus the actuarial present value of future revenues, such as periodic fees, additional fees, and third-party payments (for example, Medicare, Medicaid, and long-term care insurance).Condition 1 would be met if the resources are greater than or equal to any existing liabilities for the current contractual residents or members plus the actuarial present value of the expected costs associated with the contractual obligations to current contractual residents or members. The actuary should determine if this condition is satisfied using the actuarial balance sheet (see section 3.3).
3.2.2 Condition 2: Adequate Fee Structure for a Cohort of New Contractual Residents or New Members
For a cohort of new contractual residents or new members, the expected fees are the sum of the advance fees paid plus the actuarial present value of the new contractual residents’ or new members’ expected future revenues, such as periodic fees, additional fees, and third-party payments (for example, Medicare, Medicaid, and long-term care insurance).Condition 2 would be met if the expected fees are greater than or equal to the actuarial present value of the costs associated with the contractual obligations determined at an appropriate occupancy or membership date for the cohort. The actuary should determine if this condition is satisfied using the cohort pricing analysis (see section 3.4).
3.2.3 Condition 3: Positive Projected Cash and Investment Balances
The projection of cash and investment balances over the projection period should include revenue and expenses from all known sources, including current contractual residents or members, new contractual residents or members, and any non-contractual residents. The actuary should choose a projection period that extends to a point at which, in the actuary’s professional judgment, the use of a longer period would not materially affect the results and conclusions.Condition 3 would be met if the cash and investment balances are positive in each projection year. The actuary should determine whether this condition is satisfied using the cash flow projection (see section 3.5).
In the event the CCRC or At Home Program fails to meet any of the three conditions as specified above, the actuary should consult with the organization to address possible corrective actions to achieve satisfactory actuarial balance.
For a proposed or start-up CCRC or At Home Program, the actuary should evaluate conditions 1 and 2 using a future valuation date and should begin evaluating condition 3 as of a future date. The actuary should select such future dates that are consistent with the end of the start-up period. For example, the actuary may evaluate these conditions using the earlier of a short-term period (such as three to five years) after opening or when the CCRC or At Home Program reaches the targeted number of contractual residents or members.
