State Laws, Financial Expertise, Resident Engagement: Possible Lessons to be Learned from a North Carolina CCRC’s Financial History

North Carolina has a relatively robust history of public interest in and regulation of Continuing Care Retirement Communities (CCRCs).  Therefore, indications as early as 2019 that a long-established CCRC in North Carolina was in financial trouble caught my attention.  State regulators eventually initiated formal supervision of the recovery efforts. This month, it appears there is some good news for residents at Aldersgate, as a new potential “owner” of the nonprofit operation has been identified, one with:

    (a) experience in operating nonprofit CCRCs in the same state,

    (b) a similar philosophical or social “mission” in providing long-term living older residents, and

    (c) its own established history of sound financial operations.

Charlotte (N.C.) Ledger’s Managing Editor, Cristina Bolling, has stayed on top of the Aldersgate CCRC developments, including its most recent indications of rescue.   See “High Hopes,” reported here.   At one point, both Ms. Bolling and I spoke about financial options for CCRCs in crisis for an NPR affiliate. See WFAE’s Charlotte Talks Program on “A Closer Look at Continuing Care Retirement Communities” from February 2024. 

When regulated, Continuing Care Retirement Communities, also called Life Plan Communities, are subject to individual state laws, not federal regulations. North Carolina’s Department of Insurance has an active online presence, listing the 50+ CCRCs operating in North Carolina.   Here’s a bit of the North Carolina legislative history to consider in thinking about the events involving Aldersgate:

North Carolina adopted threshold legislation in 1989 requiring any business “offering or providing continuing care” in the state to obtain a license from the Commissioner of Insurance, with requirements for disclosure of finances and facility development information.  That is the starting place.

Looking to the long-term, the legislation granted authority to the Insurance Commissioner to require the CCRC to provide actuarial reports that estimated the “capacity of provider to meet its contractual obligation” to residents, including reports on expected refunds or capital expenditures in accordance with standards set by the American Academy of Actuaries.

What are actuarial reports? These reports apply mathematical and statistical methods to analyze and assess financial risks to assist in making informed decisions in the future.  North Carolina grants the Insurance Commissioner the power to require both actuarial reports and accountants’ reports.  The North Carolina laws require written reporting to both the state and residents.  North Carolina’s CCRC laws are set forth at N.C. Gen. Stat., Article 64, Sections 58-64-1 through 58-64-85.  

The statutory authority for CCRCs in North Carolina also includes creation of a Continuing Care Advisory Committee Appointed by the Commission, with its nine members to include “at least two residents of facilities, two representatives of LeadingAge North Carolina and a licensed CPA.”  In other words, more than one viewpoint to provide perspective.  

In the event of financial insecurity, the Commissioner has specific authority to initiate “supervision” of the facility, whether or not bankruptcy proceedings have begun.  The purpose of such supervision would be to rehabilitate or, if necessary, liquidate, a provider. With Aldersgate, the indications of serious financial problems included slow — or no — payments being made on refundable fees due for residents and bills submitted by service vendors.  See Cristina Bollings‘ Charlotte Ledger news article in February 2024.  

North Carolina’s statute has been amended on at least three occasions, thus suggesting ongoing legislative attention to the viability of CCRCs within the state, with additional measures also under consideration.  

In North Carolina, residents are granted a statutory “right of self-organization, the right to be represented by an individual of the resident’s own choosing, and the right to engage in concerted activities”  in order to informed about the operations of the facilities.  By comparison, in Pennsylvania, I’ve been hearing disturbing accounts about attempts to restrict residents to communications by and through “only” the Residents’ Council “created” by the CCRC management, even though Pennsylvania CCRC laws support residents’ rights to organize.  

Significantly, the statutory authority for oversight of CCRCs in North Carolina was preceded by the organizational efforts of residents throughout the state, who in 1988 founded a statewide residents’ association, now known as the North Carolina Residents Association (NorCCRA).  Also significant is the role played by a CCRC resident, Dr. Harry Grove, a former law school dean, who was actively involved both in the formation of NorCCRA and North Carolina’s emerging rules.  For more on the state residents’ association, see https://www.norccra.org/

Why did Aldersgate’s problems expand to the point of institutional insolvency? CCRCs often generate significant incoming “cash” in the form of high entrances fees, while also charging residents monthly service fees intended to cover regular operating expenses.  CCRCs now usually offer options of either refundable and nonrefundable entrance fees. New residents in any CCRC need to consider the terms for refundable fees carefully.  Legal or financial advice from experienced professionals can assist future residents. It is important to understand that “refundability” may be promised.  But promises, which are not guarantees, involve carefully drafted terms; the terms reflect the reality that these funds are important financial resources for CCRCs.

With refundable fees, management can face unique challenges in establishing appropriate reserves and operating ratios. Actuarial reports combined with accounting statements can guide an enterprise to make responsible decisions on use of cash and help to track the use of such cash. But reports alone cannot prevent misspending or unrealistic expansion plans.  Residents and states have learned, sometimes the hard way, that it is “pennywise” to keep a close eye on how CCRCs are managing that “cash,” especially if the enterprise has promised “refundability” of such fees in whole or in part when the resident moves or passes away.  

Looking at the longer arc of history for CCRCs and Life Plan Communities in the U.S., the Aldersgate history is a reminder that laws alone cannot prevent financial insolvency.  But, it seems that North Carolina has been attentive to the reasons for financial issues at Aldersgate and has taken a number of appropriate steps to help a well-situated community get back on a track of solvency, but with new “ownership.”