We began our discussion earlier this week around the advantages a nonprofit may or may not have over a for-profit Continuing Care Retirement Community (CCRC). We promised to look into this subject in more detail and to keep an open mind for other opinions and comments (include your comments in the comment section below). Here are links to our original For-Profit vs Nonprofit Introduction, Parts One, Two and Three.
Today we’ll continue and then conclude our discussion with Parts Four and Five:
Part 4 — For-profit vs Nonprofit: Follow the Money
Do nonprofit CCRC residents benefit from nonprofit tax exemption?
So far the score is at best even with no clear benefits for residents from a CCRC’s nonprofit status.
Remember, nonprofit is not a financial objective, it is a tax status. All nonprofit recognition does is relieve the entity from the obligation to pay corporate income tax in recognition of a charitable mission.
A cash flow positive nonprofit enjoys clear savings by avoiding income tax payments that a similarly situated for-profit CCRC would pay.
But there’s no necessary linkage that requires tax savings end up in lower prices, savings or greater reserves to secure promises to residents. They could just as easily flow out of the nonprofit to management or developers who look more like the financially interested shareholders of big, bad for-profits than the residents who are supposed to be the beneficial mission of a nonprofit CCRC.
I’m convinced that looking at the label nonprofit isn’t enough. Regardless of the CCRC’s tax status, we have to examine the details of an individual community’s financial statements. There’s simply no shortcut to Deep Throat’s famous prescription, “Follow the money.” Financial security isn’t in the label, it’s in the financial performance and management practices of the CCRC, regardless of for-profit or nonprofit tax status.
In Part 5, we touch on the fact that nonprofits may offer nonfinancial benefits.
Part 5 — For-profit vs Nonprofit: Religious Affiliation and Mission
So far in Parts 1-4, we concluded the devil was in the details when it comes to financial benefits from a CCRC’s tax status, for-profit vs nonprofit. There’s no financial protection for residents in a label. That doesn’t mean nonprofit is necessarily meaningless. There are nonfinancial benefits that can matter very much to individual residents.
It may matter to you for instance whether there is a religious affiliation. A dedicated Catholic may prefer a religiously inspired nonprofit that offers engagement with the Church for spiritual support. Several of the strong nonprofit networks have religious foundations. Religious lines include: Quaker, Presbyterian, Bethany (Congregationalist), Baptist, Methodist, Jewish, Masons and more.
But this religiously inspired benefit does not necessarily go to financial strength unless the parent is willing to stand financially behind the individual communities. In most circumstance, individual CCRC communities are organized as separate legal entities in which the managing parent or affiliate is not required to invest more in a failing entity. They may do so voluntarily to avoid the marketing black-eye of a failure, but I’ve also seen well-known systems practice window dressing by selling off their losers. They can continue to say, we’ve never had a bankruptcy, not because they’ve never had a troubled community, but because it didn’t fail on their watch. They dumped it before the bad news hit the headlines.
For-profit vs Nonprofit Conclusion — Financial Results not the Label
Nonprofit status does not mean more money benefitting CCRC residents
In this multi-part discussion we’ve explored whether nonprofit CCRCs yield any clear financial benefit for residents over for-profit competitors. Our conclusion? No.
Because this is a common point of market differentiation and because it’s a common question by prospective residents, we intend to continue to explore the actual performance differences between nonprofits and for-profits and see if we can document any clear advantage in financial security or value for the CCRC resident, in one or the other.
The answer is in the individual financial performance of a community and not in the label.
We’d like to hear your thoughts on the question. Does this square with your experience? Are there questions we should explore that we didn’t discuss? Let us know. Love a discussion on an important topic.
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