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B. The Actuarial Method
According to respondent’s expert, Mr. Powell,20 the
actuarial method is a procedure based on actuarial projections of
longevity and health care utilization for estimating the
deductible portion of fees paid by a taxpayer to a CCRC. Like
the percentage method, the actuarial method initially requires
that expenses be allocated between medical care and nonmedical
care. The following is a simplified description of the actuarial
method used by Mr. Powell and relied on by respondent. On brief,
respondent acknowledges that this description does not detail
much of the complexity in actually applying the method.
The first step in applying the actuarial method is to
determine operating expenses and capital expenses for the use of
fixed assets. The second step is to estimate the length of time
a resident will spend in each level of care. Although this is
normally accomplished using actuarial tables, CCRCs present a
complicating factor because survivorship possibilities and the
corresponding life expectancies need to be refined by the level
of care (e.g., independent living versus assisted living versus
skilled nursing care). The third step is to combine the
20Mr. Powell is the chairman and CEO of A.V. Powell &
Associates, LLC, a firm of consulting actuaries and accountants.
Mr. Powell has an undergraduate degree in major statistics from
Harvard and a master’s degree in actuarial science from Georgia
State University. Mr. Powell was recognized by the Court as an
expert in actuarial science.
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