Getting Grilled On What Really Matters Regarding Resident Contracts

In senior housing, the sense of well-being is to the customer experience what relaxation is to a restaurant patron.

By Jack Cumming

In restaurant marketing, the common wisdom is to sell the sizzle, not the steak. In other words, people are looking for an experience when they dine out. Food matters but relaxation rules. Of course, if the steak is tough and indigestible, the restaurant will soon be gone — a victim of its own failed reputation.

The same is true of senior housing. In senior housing, the sense of well-being is to the customer experience what relaxation is to a restaurant patron. Well-being begins with the appearance of the residence. Is this a place in which I can picture myself living? It continues with the connectivity among the residents. Have I met residents whom I would like as friends? Food matters, too, as any senior housing marketing executive knows full well.

But then we come to the steak.

The steak for senior housing is the promise of a safe passage through the ups and downs of aging. The generosity of the contract, and the client sensitivity of the provider in giving life to it, determine the experience of the steak.   

A recent true life experience tells the tale. A prospective resident of considerable lifetime accomplishment visited a CCRC to lecture and to size up the place for move in. The lecturer and his wife lingered on site for three days and gave two lectures. They were surprised to find how well they connected with the other residents. They loved the location. The apartments were just what they were looking for. Their encounter with marketing was positive. They were poised to commit to make the move.

That’s when they learned that they couldn’t afford it because of the contract. It took all their lifetime savings to meet the entry fee requirement and to have enough to be able to pay the ongoing monthly cost of independent living. But the contract is a pay-as-you-go contract with residents paying for all care services beyond a minimum with only a tiny discount. Their enthusiasm deflated when they learned that, if one of them were suddenly severely afflicted, they might end up having to pay $6,000 to $8,000 a month for Care Center services in addition to continuing to pay the ongoing independent living monthly fee. Marketing had told them that most residents hoped to remain healthy and so preferred the fee-for-service contract model. It was only when they focused on what that might mean in truth that they realized that, though they loved the CCRC, they could not afford it. The sale was lost and they left disillusioned.

Will it live up to the promoted sizzle?

It need not have been so. Annuity principles are well-established and can readily be applied to entry fee investments. The senior housing industry has persistently resisted all such constraints. The core belief is that it’s in the interests both of tax-exempt and tax-paying providers to have full freedom to use cash as they see fit. Of course, this departs from the integrity that a resident investor in an entry fee contract expects. The resident expects prudent, conservative use of funds consistent with the promised well-being . . . i.e., the residents expect that the steak will live up to the promoted sizzle.

That promise is not fulfilled when one party’s lifetime savings become another party’s free cash. Such a rationalization is not a responsible approach to stewardship for the well-being of trusting clients. It creates a temptation for excessive profit taking in the tax paying world and for sloppy, passive management practices among tax exempt providers.

The needs of all aging people for a continuum of care is the same regardless of socioeconomic situation. One would think that the entry fee senior housing industry that has the expertise to provide that continuum, should be thriving. But it’s not. Sure, individual providers are making money, but the industry’s market share for senior residence is miniscule. This is an opportunity that has been rationalized away. It’s one that calls for new thinking.  

The potential is there for disruptive entrepreneurship but not if greed governs. Those industries thrive that put their clients first. Since happy employees make happy clients, successful industries are sensitive, generous employers. That combination of thriving clients and committed employees brings about the growth that is the engine of profit for taxpaying enterprises and prosperity for tax exempts.

The proven mechanism is the entry fee contract. The entry fee contract allows a responsible senior to use accumulated retirement assets to assure carefree aging. Like a life annuity contract, it’s an investment of faith in the responsible stewardship of the provider. It may seem to be the industry’s interest to oppose regulated integrity, but the larger industry interest is to be seen as trustworthy. A constructive approach to integrity can make that dream of positive public perception a reality.