Considerations for 2022 Resident Rate Increases
As 2021 comes to an end most senior housing operators including Assisted Living, Memory Care, Independent Living are contemplating resident rate increases for their services.
If you are thinking 3% to 4% you are probably in trouble.
We see many Assisted Living, Memory Care and Independent Living clients who have gotten their top line gross revenue back close to pre-Covid levels, their bottom lines are lagging far behind due to their profit margins not keeping pace with their increased expenses.
When calculating your rate increases for this year consider the number of expenses that have disproportionately increased when compared to normal times.
Labor
is a good example. Many states have mandated an increase in minimum wage. Many smaller mom and pop assisted living, memory care and independent living operators do not believe that this has a significant impact on the overall expenses of running a business. It is critically important to realize that the increase in minimum wage bumps the entire stack of wages not just the entry-level people. As an example, if you hired a valued employee 2 years ago at $12/hr and have given them merit increases to $13/hr. and new hires are coming in at the same wage your valued employee probably won’t be happy.
Insurance
the rates that operators of assisted living, memory care and independent living facilities are paying for insurance have increased dramatically with no sign of improvement anywhere in the near future. We are seeing some of the craziest workers compensation cases in the history of our business. In some locations where wild fires are common, it is difficult if not impossible to get fire insurance. We have heard many people say that their insurance costs are up 20% to 40% and may go higher.
Energy/Utilities
the cost of natural gas, electricity and other forms of power have increased well beyond what was anticipated. The cost of natural gas has doubled in many cities. The cost of trash collection and disposal has gone up dramatically. Far more than normal inflation would account for.
Food
as the cost of all the above items increased, this will naturally impact the cost of raw food and its delivery. We have heard estimates that raw food may go up as much is 20% this year. Consider that the biggest factor in the cost of food is labor and transportation to market and it is easy to see why the food companies will pass along these increased expenses.
New or Higher Taxes
The new administration and state government have promised higher taxes on corporations. These taxes need to be added to the expense equation of your facility’s profitability. The final number has not come out yet but use your best guess.
Summary
Take the time to add up all your known increases in expenses including labor, food, all of your insurances and energy. Divide that dollar figure by your number of residents and it will give you what your rental rate increase needs to be to simply maintain your existing profit margin. To return to full profitability the increase will need to be added on top of that. Many assisted living, memory care and independent living operators are finding that a 7-10% increase in rates are not far off.
For a complimentary valuation on your assisted living, skilled nursing, independent living, or memory care facility, visit our Facility Valuation page.