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Senior Living Residents (and Others) Are Going Nuts Over This

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By Jack Cumming

Just a month or two ago, the excitement was all about “repeal and replace,” the Republican catchphrase for healthcare reform. How healthcare is organized, regulated, delivered, and paid-for is a frequent topic in senior housing circles, and the Republican initiatives were no exception. After much smoke, but little fire, “repeal and replace” has become yesterday’s news.

Now tax reform is front and center. Senior housing residents are militant about the potential loss of the medical deduction. Many CCRC operators, especially those who offer Type A, full care inclusive contracts, market as an advantage the medical tax deduction related to entrance fees. Still, as important as that deduction may seem to marketers, the residents’ concern is more prevalent with less inclusive contracts that transfer to the residents the financial risks of aging.

Tax Benefit for Those Stricken by Age

Consider the plight of the wife, for this example, of a retired Navy Captain to whom she has been married for 60 years. One night at dinner in their CCRC, he suffers cardiac arrest and is transported to the nearest hospital.  

After two days in the hospital, our Navy Captain . . . let’s call him Sam in this hypothetical, which is based on a real-life occurrence . . . feels fine. He grows impatient with hospitalization. He’s a rough, tough Navy officer, an Annapolis grad, so he pulls the intravenous line from his arm, puts on his clothes and heads for home.

All is well for the better part of 24 hours, but then he is felled by a permanently disabling stroke. He can no longer feed himself. He can no longer toilet. He understands everything but can’t speak to express himself. He is angry. He is frustrated.  

As it turns out, he will spend the next five years “living” in the skilled nursing unit. Now think of his wife. She not only has to continue to pay the monthly fee for her residential unit, but she also has the financial burden of the nursing care that her husband requires. The only thing that helps her is the medical deduction.

It’s that high risk, big dollar financial exposure that has senior housing residents alarmed at the prospective loss of the medical deduction. Not only do many not have the protective umbrella of a full care inclusive contract, they now face a dramatic increase in their annual taxes just at a time of life when they see their finances eroded by relentless bills and charges.  

The only safety net is Medicaid, which requires that they become wards of the state, a slight to dignity that many find degrading. It’s as if their government is insensitively adding the final assault of increased taxes to what little money they have remaining, as they face the mounting challenges of age. This is alarming to a segment of the senior housing population who may already feel that age has stacked the deck against them.

Perennial Political Issues

Like healthcare reform, tax reform is one of those perennials that surface regularly in Congress. Everyone knows that something must be done – healthcare is far too expensive; taxes are much too complex and unfair – but any solutions would have to be bipartisan and that is not the mindset of Congress. We can speculate on the forces that have given us today’s dysfunction at the federal level, but that doesn’t change the outlook or the reality.

Like “repeal and replace” before it, the current tax proposals are the work of one party. Even if one party is able to ram a partisan agenda through the political process, the absence of consensus acceptance by the American people continues polarization and divisiveness.  

Still, we’ve seen in the case of the healthcare initiatives, that the party now preponderant faces grave difficulties without a clear and comprehensive vision of the whole. The same difficulties as shackled healthcare reform now face tax reform policies that retain some privileged deductions – charitable contributions and mortgage interest – while abolishing all others.

There may be a valid overall purpose. Simplification is generally better for a program that impacts most everyone and that requires widespread understanding for its acceptance. Moreover, if we can persuade large, multi-national corporations to move away from complex tax avoidance schemes, and to pay an acceptable U. S. tax rate, that could be positive for everyone. The disclosures by the Süddeutsche Zeitung of the Paradise Papers from the Bermuda-based Appleby law firm have revealed the extent to which corporations will go to avoid taxes.

Impact on Senior Housing

Senior housing is but one part of this larger political landscape. It is an industry that will be heavily impacted by what seems like the eventual inevitability of effective healthcare reform. As the example of Sam, the Navy Captain, shows, senior housing residents are also caught up in these political gyrations.

Moreover, much of senior housing claims tax exemption under Internal Revenue Service Revenue Ruling 72-124. With tax simplification on the national radar, that may change. The tax-exempt sector of the industry also relies on tax exempt debt as its principal source of capital. That, too, may be under the microscope.

Still, from the perspective of those jockeying in Congress for political ascendancy, senior housing is but a small part of a much larger picture. The campaign financing that senior housing provides to election campaigns is dwarfed by much larger political interest groups. The hope, for now, is that it seems unlikely that today’s partisanship will succeed in changing a structure that is as dependent on bipartisan consensus as is tax reform.

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