(MONEY Magazine) – Time was, Americans grew old at home. When our health failed, we could rely on our family to prepare meals or pay a visit, dispensing equal measures of care and comfort. Most of us still cling to this ideal, but such plans are on a collision course with demographics. Americans 85 and older are the fastest-growing segment of the population, and with increased longevity come protracted illnesses that can tax any family's best intentions. The solution: finding a home away from home.

A dizzying variety of senior residences are vying to meet the growing demand for quality care in a homelike setting--chief among them continuing-care retirement communities (CCRCs) and assisted-living facilities.

For many, like Ted and Betsy Wolfe of Vero Beach, Fla. (pictured on page 101), the move into a CCRC has proved an unalloyed success. Others, like Fran Furth (page 102), have been dissatisfied with a parent's care. This hit-or-miss scenario seems endemic to the elder-care industry, which, plagued by low pay scales and a nationwide dearth of skilled health-care workers, is prone to high turnover and staff shortages. Overbuilding of assisted-living facilities in many markets has pushed down occupancy rates and revenues, setting off cost cutting--and cut corners. Scattered bankruptcies have left residents at the mercy of the courts or new owners.

In this troubled environment, government oversight is spotty. Assisted-living and continuing-care communities are covered by a patchwork of regulations. There are no federal guidelines for staffing, finances or resident care for either type of facility. And while 38 states regulate CCRCs and all 50 states have some type of assisted-living laws on the books, some of those regulations are cursory at best and enforcement is uneven.

All of these factors put the burden of finding the best assisted-living facility or CCRC--for you or your elderly parent or relative--squarely on your shoulders. It's a task that requires careful planning, time and dedication. But it can be done. Here's how.

Step 1: Learn the language

The first step is to master the terminology. The National Center for Assisted Living estimates that operators, regulators and residents use 29 terms to describe assisted living (including adult-care homes and residential-care facilities). Semantics aside, the pivotal differences between assisted living and continuing care boil down to the degree of care provided and the up-front costs. The assisted-living model is more limited--help with daily activities such as meals and dressing but rarely any skilled nursing care--and the industry is increasingly dominated by Wall Street-backed operations like Alterra Healthcare Corp. and hospitality giants Hyatt and Marriott. Because assisted-living facilities tend to limit aid to the basics, they are often a temporary middle ground between home and a nursing home. Many assisted-living facilities discharge frail seniors who require ongoing nursing care, and the typical resident stays only two years. The base cost of a one-bedroom assisted-living apartment averages $85 a day, according to the Assisted Living Federation of America (ALFA), but that's before extra fees for ancillary services like transportation. Entrance fees--which may be partially refundable--usually amount to no more than two months' rent, or about $5,000.

Continuing-care communities, on the other hand, offer a full range of housing, care and amenities--from golf courses to specially staffed Alzheimer's wards--usually on a single property. Typically, you must be healthy enough to live on your own to move in, but you can stay indefinitely. Getting guaranteed long-term care, however, requires a sizable initial investment--and entails more financial risk.

When you enter a CCRC, you often pay an entry fee of $75,000 to $250,000, which ensures assisted-living and nursing-home care when needed at an agreed-upon price. The payment can vary based on where you live, your age, the facility's amenities and the amount of care you lock in. (For an explanation of the various types of contracts, see the glossary below.) You'll also pay monthly fees, which start at an average of $1,346 for a one-bedroom apartment and rise to an average of $4,040 for full-time nursing care, according to the American Association of Homes and Services for the Aging (AAHSA).

Picking the best community is both a financial and a health-care decision--and one best made when you're not under duress. Six out of 10 seniors have been in a crisis when they moved to assisted living, according to a survey by the National Investment Center for the Seniors Housing and Care Industries (NIC), a research group. "You need to start looking long before there's any inkling of a health problem," says Chris Cooper, president of ElderCare Advocates, an Ohio geriatric-care firm that helps place seniors in assisted living and CCRCs.

Step 2: Ask tough questions

The basic question, of course, is what assistance you or your parent needs. Many of us have a natural tendency to underestimate the gravity of our own, or a loved one's, health problems. So it is essential to consult a doctor or geriatric health-care specialist to determine not only what you require today but also what you're likely to need decades from now.

When it comes to picking an assisted-living facility or CCRC that will meet those needs, the onus is on you to find out what care you'll get and what medical conditions the facility is equipped to handle. You certainly shouldn't rely on marketing materials, which, as the General Accounting Office concluded in a 1999 study, are "often incomplete and sometimes vague or misleading."

For example, the GAO found that assisted-living communities often fail to reveal the circumstances under which residents are asked to leave. One in four discharge those who need help getting in and out of a wheelchair; more than half will not keep wanderers; and others make people move out when they need intravenous medications or help dealing with incontinence. But nearly half don't divulge these policies in their brochures.

Moreover, some assisted-living marketing materials give the impression that residents can stay for life. At a Marriott assisted-living community in Edison, N.J., for instance, a recently distributed brochure states that "you won't have to deal with the hassles of moving again." But the facility has sent residents to a nearby nursing home not run by Marriott when its 30-bed nursing facility was full. Vice president of program development Tal Widdes says that the brochure has been replaced and that Marriott encourages its facilities to tell residents about discharge policies but can't guarantee that they do so. Marriott assisted-living facilities offer different levels of care so that residents can "age in place," Widdes adds--as long as staying is appropriate, safe and permitted by state law. "We tend to use phrases like 'age in place,' [but] we realize what we mean may not mean the same for other people."

That was certainly the case for Fran Furth and her five siblings when they chose an Alterra assisted-living facility in Eagan, Minn. in 1999 for their mother. Based on brochures and staff interviews, Furth believed that her mother, who has Alzheimer's, could be cared for "until the end," through nursing care and hospice. Less than a year later, after she complained about her 75-year-old mother's weight loss and physical condition, Furth says that the staff said the facility was not equipped to care for her. Her complaint became part of a consumer fraud lawsuit filed against Alterra by Minnesota attorney general Mike Hatch; in a settlement, the company agreed to improve services, provide truthful advertising and allow independent inspections. Today, Furth's mother lives in the Alzheimer's ward at a facility run by Sunrise Assisted Living.

If marketing claims aren't misleading, they're often too general. Skim brochures or websites and you'll find phrases like "personalized wellness programs" and "stimulating programs." A brochure for Sunrise--one of the nation's largest chains--says that residents get "regular wellness visits by a licensed nurse" without specifying what regular means. (It's a monthly medical and vision checkup, says Sunrise.)

Vague and incomplete marketing materials should come as little surprise when you consider how hands-off most regulators are. "Most states have limited regulations on what facilities have to spell out," says Catherine Hawes, a Texas A&M University health-policy professor. Only 11 states review assisted-living marketing, says Bob Mollica, deputy director of the National Academy for State Health Policy. Ten examine CCRC marketing materials for false advertising, says Sonya Barsness, a policy associate at the AAHSA.

Even guided tours may not fill in the gaps. "Marketing people are skilled at presenting facilities in the best available light, and consumers latch on to subjective things--do the rooms look nice?" says Oregon long-term-care ombudsman Meredith Cote. To get past superficial impressions, ask pointed questions and press for specific answers--in writing. If you're promised nutritious meals, request menus. If you see ramps, find out if residents can get help getting into wheelchairs. If a community accepts seniors who are incontinent, double-check to make sure they will retain those who can't change an adult diaper (many don't). Ask if the staff orders and dispenses medications. At CCRCs, find out who decides when residents move from one level of care to the next.

Finally, visit facilities often and at various hours of the day. Talk to several residents, sample the meals--and tour the places you hope never to use, such as the nursing home or hospice wings.

Step 3: Estimate the costs

Just as you must ask questions about the care, you must also ferret out a full picture of the costs. At an assisted-living facility, that can be daunting. On average, the yearly tab for room and board is $30,900, according to ALFA. But that doesn't include the blizzard of fees at many places, from $15 every time a nurse dispenses pills to $10 per van ride. An ALFA survey says help with medication, incontinence and physical therapy are among the services that most frequently cost extra. Four out of 10 charge extra for help with activities of daily living.

Not only do you need to get a list of all fees before you sign a contract, you may also have to deal with one of three pricing methods: by the minute, with minimum time increments; tiered rates, which rise with the amount of care needed; and a system that assigns each service a point value and bills residents for the total points. This last system can be the most difficult to dissect.

"People walk in and ask, 'What's my final cost going to be?' Then they leave not knowing," says Ron Tinsley, a health-care consulting partner at PricewaterhouseCoopers, which conducts ALFA's industry-trends survey. Here again, you will benefit if you have asked your doctor to be specific about the care that's required. "If you have an idea of your needs, you're going to be more likely to get a closer estimate of the charges," Tinsley says.

Step 4: Look at the books

Unanticipated fees are less of a threat at CCRCs because you generally pay to lock in housing, services and nursing costs. Instead, you face another risk--losing your assets if a CCRC goes bust or is sold. Overexpansion, high debt, rising liability insurance and labor costs, and sicker than expected residents have strained the finances of some assisted-living communities and CCRCs (which may have little room to raise rates if they sell life-care contracts). When a facility runs into trouble, fee hikes, diminished care or both can follow.

Consider what happened to Buntzie Ellis Churchill, whose mother, Etta, moved into Philadelphia's Logan Square East in 1992. This CCRC had a reputation for top-quality care, and Etta paid a $94,925 refundable entrance fee. But in 1998, Logan was unable to meet its debt payments and filed for bankruptcy. In the past year, the nursing ward was fined twice by the state--for a total of $24,600--for health and safety problems, the toughest sanctions it had ever received. (The home has since passed its state inspection.) Churchill didn't wait for conditions to improve. In March 2000, she moved Etta to a nursing home that charged three times as much. Etta died last fall. Logan's new owners promise to honor old contracts, but because they haven't yet been able to fill Etta's unit, the family is still waiting for a $85,432 refund.

Thirty-two states require CCRCs to file financial statements, but that's no guarantee. In Arizona, for example, CCRCs must file audited statements with the state if they sell life-care contracts that cover at least a year of health care. But one operator who was exempted from Arizona's rule because the contracts he sold didn't meet that one-year threshold was sentenced to six years in prison for defrauding 233 seniors out of $12 million.

Your best defense is to obtain the community's financial statements and hire an accountant to analyze the numbers. (For tips on what to look for, see the box on the facing page.) Another way to find a financially strong community is to stick with ones that get top financial ratings from Standard & Poor's or the Continuing Care Accreditation Commission. For information on those ratings, see the box below. A facility that's part of a national chain isn't necessarily stronger, says S&P analyst Susan Hill, but having a parent company that can help cover costs does add a layer of protection.

Before Ted and Betsy Wolfe, both 75, moved into their two-bedroom apartment in a Vero Beach, Fla. CCRC seven years ago, they spent over a year comparing facilities. After Ted, retired as an administrative comptroller at 3M, examined the books at the places they liked, the couple settled on Indian River Estates West and paid $125,000 for a life-care contract. Now they host visits from grandkids and travel--and remain confident that assisted-living apartments, around-the-clock nursing and a new Alzheimer's wing will be available on-site if and when they need them.

Step 5: Develop a budget

Figuring out how to foot the bill comes down to calculating your expenses and comparing them with your income--ideally with the help of a pro. Keep in mind that Medicare and Medigap cover skilled care only--and just for a short time. And long-term-care insurance policies written before 1995 rarely cover assisted living, though new policies often do, says Winthrop Cashdollar of the Health Insurance Association of America. If you have a pre-1995 policy, you may be able to upgrade it. More insurance may not be necessary for a CCRC if your contract covers nursing costs; conversely, some CCRCs require you to buy long-term coverage.

If you run out of money, you probably can't rely on Medicaid. Thirty-seven states allow Medicaid to be used at assisted-living facilities but only to pay for health care, not room and board. Medicaid can be used at the nursing-home component of a CCRC--if the facility agrees.

That leaves your assets and your children. Nine out of 10 seniors dig into their savings, and one in five families help pay the bills (contributing an average of $598 a month for assisted living, according to NIC). Geriatric-care manager Cooper cautions children against derailing their own retirement. "It would be ironic if you paid for your parents' care only to wind up having your kids pay for you in 20 years," he says. "You don't want to start a vicious cycle."