The bankruptcy filing of Illinois’ largest nonprofit life plan community has brought renewed attention to resident refunds, an issue already being targeted for reform by state lawmakers.
Friendship Village of Schaumburg, the largest nonprofit retirement community in Illinois, last month filed for bankruptcy, pinning much of its troubles on struggles to recruit new residents during the pandemic.
While the inability to fill empty units put unbearable stress on the organization, it’s the financial complaints of former residents and their survivors that is attracting new concern. Life plan communities typically require a refundable deposit from new residents in their independent and assisted living units; those deposits are meant to be returned when residents die or move out and their units are filled by new residents.
But with more life plan communities struggling financially, fewer people are getting those refunds in a timely manner.
Friendship Village of Schaumburg has been in business for 46 years and is the nation’s 16th largest continuing care retirement community, with up to 1,000 residents when fully occupied. Among its biggest creditors as it pursues a sale to bring it out of bankruptcy are dozens of families owed entrance fee or deposit refunds, a local news station reported this week. Most are owed between $100,000 and $500,000.
Now, Illinois state Rep. Michelle Mussman (D) has announced that she plans to reintroduce legislation that would dictate how communities like Schaumberg prioritize refunds.
Providers may currently hold a refund until a specific unit is filled by a new resident, a process that slowed dramatically during early COVID but has since rebounded in many places.
“The status quo is really not working well for many consumers,” Mussman told NBC 5. “They have all of your money and they have no legal obligation to pay you back on any particular timeline.”
Last session, she introduced a bill that mimicked a similar reform measure in New Jersey. It would have created a sequence by which residents or their families would be repaid, a system that LeadingAge Illinois has said could cause disruption and cash flow problems for communities that use entrance fees to help cover resident costs when they no longer have resources to pay.
“In exchange for the entrance fee model, you agree to keep someone beyond their means,” said LeadingAge President Angela Schnepf. “So once they’ve spent all their funds, the organization agrees to take the risk. If an organization immediately or within an arbitrary timeline returns a refund, they now no longer have the cash flow to maintain services for everyone else in the community, especially those that are now spent beyond their means.”
James W. McCracken, president & CEO of LeadingAge NJ & DE, told McKnight’s Long-Term Care News on Thursday that New Jersey’s 2018 law was the result of collaboration between his organization, the Organization of Residents Association of NJ (ORANJ) and other advocates.
“The system was changed from the refund being returned to the resident, or estate, when the unit was resold to a first-in/first-out model,” McCracken explained.
The compromise model “creates more work for the business office but essentially has been working well,” he added, noting that not all New Jersey CCRCs collect entrance fees. Still, he urged caution as other states take a closer look at regulating refunds.
“Requiring entrance fee refunds to be returned in a defined period of time would be detrimental to the market and residents,” he said.
In Illinois, Mussman withdrew her bill to work with stakeholders. She said she is resuming conversations about it this summer and plans to reintroduce the same or similar legislation in January.
