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Who Does the IRS Ruling 72-124 Protect: CCRC Residents
or the CCRC Industry?

By Lillian L. Hyatt, M.S.W. and a Resident of a CCRC

Excerpted from the Spring 2012 The CANHR Advocate newsletter

Recently I read the wording of the IRS Ruling–72-124 on the subject in my headline. The ruling states that in order for a CCRC to qualify for tax exempt status, it must operate in a manner designed to satisfy the three primary needs of aged persons. These are the need for housing, the need for health care, and the need for financial security. The need for financial security, i.e., the aged person’s need for protection against the financial risks associated with later years of life, will generally be satisfied if two conditions exist. 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. Secondly, the organization must operate so as to provide its services to the aged at the lowest feasible cost, taking into consideration such expenses as the payment of indebtedness, maintenance of adequate reserves sufficient to insure the life care of each resident, etc.

The reason I looked up the ruling is because I have reached the upper limit of my ability to pay my monthly care fee of $4,401 and meet my other obligations i.e. taxes, fees for services needed by a legally blind, disabled resident. The upkeep of the expensive technology for the blind and for the technicians required to install and maintain this equipment is costly but essential to do my columns. The CCRC is supposed to keep a resident functioning at the highest level possible. My working as a journalist helps me to be mentally alert at 87 years of age. These specialized expenses are not covered by the CCRC. I also have other living expenses, such as dental, medical and prescription costs, Medigap insurance premiums and personal care expenses. I am certainly not alone in this; I hear similar worries from fellow residents too timid to speak up in protest and reveal, as did the old fairy tale that the emperor has no clothes!

I am convinced that if I continue to pay all the monthly care fee increases demanded yearly by the management of the CCRC where I live, I would be unable to survive financially and pay all of my other financial obligations. If I live even another few years, I cannot accept the fantasy that CCRC marketers sell which is, “If you run out of money we will support you for your lifetime.”

I wrote the following paragraph in the January 2007 issue of the California News, but I did not know there was going to be such a severe meltdown of the housing market, which today profoundly affects the ability of seniors to buy into a CCRC. Mortgages are impossible to get, so homeowners cannot sell their homes and are coming into CCRCs with loans. It is impossible to run a CCRC with its huge staff, large debt load and the lack of the entrance fees that financed the CCRC operations in the past. The column began:

“Seniors considering buying into a CCRC should heed the ancient warning, ‘Buyer Beware,’ or face the consequences of their failure to investigate the financial underpinnings of the chosen CCRC. Since each contract involves hundred of thousands of dollars, seniors should consult an accountant as well as an attorney and social worker. For example, one facility’s corporate management claimed to have a cash reserve of millions, but failed to disclose a huge debt borrowed to do capital improvements. If a major disaster occurred–an earthquake or fire–new residents could not be admitted and the CCRC would lose millions in entrance fees, which it needs to maintain its reserves. Borrowing to repair the damage then becomes most difficult if not impossible.”

The business model for the not-for-profit CCRC industry sells long term care insurance to its resident like an insurance company. It sells annuities and bonds like a brokerage house. How can this be called a not-for-profit business model? If it quacks like a duck and waddles like a duck–it’s a duck, and in my opinion, it is a for-profit business with the advantages of a not-for-profit business.

A corporate Vice President for Finance in one CCRC told me that a CCRC contract protects the resident but not the resident’s heirs. In other words, the whole family suffers financial loss if the CCRC strips a resident of nearly all the resident’s assets. Many times the resident suffers humiliation because they are no longer able to provide for themselves because they have spent all of their money and feel they have become a charity case as well.

(Ms. Hyatt is a resident of a CCRC and AARP Policy Specialist on CCRCs)