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Aging market fuels assisted living boom
By KRIS HUNDLEY © St. Petersburg Times, published August 24, 1998 America is aging, with the older-than-85 segment doubling within the next 10 years. Advances in health care mean Americans live healthier longer and, when they do need care, new technology means they can often get it outside of a hospital. The cost of assisted living is 30 percent to 40 percent less than nursing home care. Assisted living facilities, which are often small, homelike residences, are a much more appealing alternative for the elderly and their family members than nursing homes. There are about 30,000 assisted living residences nationwide and that number is growing fast. About 460 new facilities are being built this year, up 56 percent from 1997. Florida has nearly 2,100 assisted living facilities and it will see the most growth: 43 new construction projects will open before year's end. Though two-thirds of Florida's assisted living facilities are locally owned with fewer than 20 beds, much of the recent development has been by a handful of new public companies. Among the companies active in the Tampa Bay area are Manor Care Inc., Alternative Living Services, CareMatrix Corp. and Arbor Health Care, a division of Extendicare Health Services Inc. These companies recognize the demand for upper-end properties that offer all the comforts of home, plus meals, housekeeping and limited assistance with daily activities. Some, like Manor Care and Alternative Living Services, have gone one step further and developed specialized facilities for people with Alzheimer's disease. The corporate interest isn't altruistic, and the target market is middle- and upper-class people. For the most part, assisted living facilities are not covered by Medicaid or Medicare. (A limited Medicaid program in Florida pays for just 900 assisted living beds for financially needy patients, just a small portion of the state's total of 68,000 beds.) Costs for assisted living facilities range from $1,800 to $3,200 per month, with more intensive Alzheimer care running as high as $4,200 a month. Profits on operating costs can be as high as 40 percent for an assisted living facility. That is about double the profit margin in nursing homes, which require higher-paid staff and equipment than assisted living. The combination of strong demand, private pay and high profit makes companies that specialize in assisted living an attractive investment, said John Ransom, a vice president and analyst with Raymond James & Associates Inc. "It's an easy growth story for investors to understand and believe in," said Ransom. "I don't see husband or wife jumping out of the work force to take care of Mom." Despite the hefty monthly fee for most facilities, Ransom believes these homes are affordable to an increasingly wealthy senior market that has seen its net worth buoyed by a strong stock and real estate market. "The average net worth of America's elderly is about $75,000," Ransom said. "Plus they have some Social Security, some pension money, then the proceeds from selling their home. That, plus help from their kids, makes assisted living affordable." More people also are preparing for the future by buying long-term care insurance that covers assisted living, nursing home and home health costs. The Health Insurance Association of America reports sales of long-term care policies are growing at 20 percent per year. Buyers tend to be in their mid-60s, when policy premiums average about $1,000 per year. Premiums, which are based on the type of coverage selected, skyrocket with age. A 79-year-old would pay a premium of nearly $4,000 for coverage costing a 50-year-old just $364 a year. Though stock prices of assisted living companies are now about 30 percent below peaks reached last February and March, Ransom expects share price and investor enthusiasm will rise on solid earnings reports. But he acknowledges that the potential for overbuilding could deflate the sector's performance. "Unfortunately, we probably won't know we've built too much until it's built," he said. "But it's a tremendous product and I think it will surprise people in terms of penetration. Assisted living will attract everyone from the guy who's just tired of cutting the grass to the person who needs help with daily living."
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ssisted living -- caring for the elderly who are too frail to live alone but do not need round-the-clock nursing care -- has become a $12-billion industry. And its rapid growth is being fueled by demographics, technology, economics and personal preference.
