Last week, news broke about a senior living community attempting to evict a tenant with three days’ notice. This is Jack Cumming’s response to that story.
By Jack Cumming
The premise of senior living is peace of mind for life. This is particularly true for those residents who pay an entrance fee to move into a not-for-profit CCRC. The not-for-profit industry makes that trust the centerpiece of its market appeal.
What If?
What happens, though, if such a not-for-profit is sold to a for-profit company? Do the residents then lose the protection in IRS Revenue Ruling 72-124 which, as a condition for tax exemption, specifies: “First, the organization must be committed to the established policy, whether written or in actual practice, of maintaining in residence any persons who become unable to pay their regular charges”?
That IRS ruling is a requirement that a “home for the aged” must meet, unless it is in extremis, to keep its tax exempt, not-for-profit status. But sale to a for-profit voluntarily relinquishes that tax-exempt privilege.
That’s what happened in 2022 when California-Nevada Methodist Homes sold its Forest Hill Manor CCRC to Pacifica Senior Living. Since California-Nevada Methodist Homes was in extremis, perhaps that valuable guaranty to residents was already void. Forest Hill Manor was renamed Pacific Grove Senior Living.
Helpless Aging
Jean Jacques, 96, was a 22-year resident of the not-for-profit Forest Hill Manor, whose money had run out. Her entrance fee in 2002 was $249,000, a large sum at the time. The Monterey County Now newspaper reports that on Friday, August 16, 2024, with the weekend looming, the community manager, in person, gave her three days’ notice to pay up in full or move out. She is reported to have said, “I’d be on the street. I wouldn’t even have a tent.”
Imagine how it might appear to those who learn of the story to know that a person who paid $249,000 in 2002 ($435,290 today), and who lived in community for 22 years, was driven to the streets at age 96 by a heartless landlord. It makes me tremble to think of the harm this does to the reputation of an industry that would condone such a circumstance, and to that of a regulator that would allow such a monstrous provider organization to persist.
Market Impact
As a resident, it scares me. In my own case, we gave up home ownership 18 years ago to live in a not-for-profit community. The basis for that decision was complex, but prudence played a large role.
My wife and I then assumed that an industry that makes a business of caring for vulnerable people as they age — particularly that sector that is privileged with tax exemption — would be regulated and could be trusted. One hope was that my wife would be safe, sheltered, and successful after my demise. Based on family genetics, I expected to die young. That didn’t happen so I’m living now on borrowed time.
Oversight
My perception about regulation was based on the obvious circumstance that an industry that provides a lifetime safe harbor, despite the many morbidity challenges of aging, would be actuarially regulated as is the comparable insurance industry. Since my career was in the well-regulated life insurance industry, it was natural to assume the same for senior living. After all, discounted lifelong monthly fees in return for an entrance fee is no different from lifelong monthly payments in return for a lump sum payment as with an insured life annuity.
As it turns out, the industry, through its trade associations, has been able to stave off such trustworthy, proactive safeguards. That has now led to what any civilized human being would consider a travesty of corporate bad faith. Fortunately, Ms. Jacques has found competent legal advice, and she is likely to be shielded at the expense of her exploitative provider organization, but what of residents who aren’t so lucky?
A Cry for Mercy
To my friends in the industry, I declare that this is the canary in the coal mine signaling danger to an entire industry. The time for standing your ground in opposition to oversight — either from within the industry or by proactive regulation — is past. If this kind of disaster continues to proliferate — if it is joined by more breaches of good faith as in the case of Air Force Village West — it is unlikely that the industry as we now know it will persist.
If today’s senior living industry drifts toward failure by condoning heartless action within its midst, the future will be bleak. The good operators — and there are many who are well-intentioned — will be tarred along with their insensitive, heartless colleagues. The need will still be there, but others will rise to that opportunity to give the aging public what it needs and deserves: fair expectations, fairly administered, with justice and integrity for all.
