The Michigan Court of Appeals held that the Michigan Department of Health and Human Services’ (DHHS) policy that imposed an irrebuttable presumption of divestment in the absence of a notarized written personal services contract violated federal law requiring the consideration of evidence that assets were transferred exclusively for a purpose other than to qualify for medical assistance. Estate of Brown v. Dep’t of Health & Hum. Serv., No. 368825 (Mich. Ct. App. Mar. 26, 2026).
After surgery and two months in the hospital, Charla Brown was admitted to a nursing home. She returned home in July 2019. Charla received in-home care from her husband, daughter, and a family friend for two years. During those two years, Charla’s caregivers helped her move in and out of a wheelchair, helped with personal care and bathing, gave her medication, cooked her meals, and fed her. Pursuant to oral agreements, Charla and her husband, Harold, paid their daughter, Lynette, a total of $45,758.64, and their friend, Loreen, a total of $10,668.75 for those services.
In July 2021, Charla was again admitted to a nursing home. Harold met with an elder law attorney and learned that the DHHS required a written and notarized personal care contract and a doctor’s recommendation before the provision of services under its Bridges Eligibility Manual 405, BPB 2021-013 (April 1, 2021) (BEM 405) to avoid a Medicaid transfer of assets penalty. In August 2021, Charla’s doctor provided a letter stating that she had needed assistance with activities of daily living since June 2019. In September 2021, Charla and Lynette entered into a written personal care contract specifying Lynette’s duties and rate of compensation. The contract stated that it was binding on the parties for services beginning in June 2019.
Charla then applied for long-term care Medicaid benefits. The DHHS issued a determination notice stating that, based on BEM 405, Charla was eligible after a penalty period from September 1, 2021, to February 20, 2022, the month the written contract was formalized but not before, because she had transferred assets for less than fair market value in the amount of $54,427.39.
Carla requested a hearing before an administrative law judge (ALJ), but died before the hearing occurred. Her estate continued as the petitioner. The ALJ affirmed the DHHS’s decision imposing a divestment penalty period based on BEM 405’s requirement of a written personal care contract despite noting that there was a compelling argument that Charla had paid for personal care to avoid a residential placement rather than in an attempt to qualify for Medicaid benefits. Charla’s estate appealed to the circuit court, which reversed the ALJ’s decision. The DHHS appealed.
The Michigan Court of Appeals noted that the federal Medicaid statute, 42 U.S.C. § 1396a(A)(17), authorized the DHHS to include reasonable standards for determining eligibility in its state Medicaid plan. Under 42 U.S.C. § 1396p(c)(1)(A), participating states are required to impose divestment penalties for the disposition of assets for less than fair market value during a five-year look-back period. However, states are prohibited under 42 U.S.C. § 1396p(c)(2)(C)(ii) from imposing a transfer of asset penalty without considering evidence that the assets were transferred exclusively for a purpose other than to qualify for medical assistance.
The court further noted that BEM 405 states that personal care contracts shall be considered a transfer for less than fair market value unless they meet the following requirements: Before the commencement of services, (1) a notarized written personal care contract must be executed, and (2) the Medicaid applicant’s physician must provide a written recommendation stating that the services are necessary.
The court held that BEM 405 was inconsistent with 42 U.S.C. § 1396p(c)(2)(C)(ii) because it created an irrebuttable presumption of divestment in the absence of a personal care contract that met its requirements and that BEM 405 must not be applied in a manner that creates such a presumption. It vacated the circuit court’s reversal of the ALJ’s decision and remanded for the ALJ to reevaluate divestment under the proper legal framework.
Subscribe to the Knowledge Bank.
