Michigan Medicaid Rules Changed: Paying a Family Caregiver May No Longer Trigger Penalties

We see this situation all the time. A parent needs help. The family steps in and hires a trusted relative or a recommended private caregiver. Money is paid to make it work. No one is thinking about legal documents or Medicaid options. They are just trying to do the right thing and keep mom or dad at home.

Then the caregiving becomes too much, or the cost is no longer sustainable, and the conversation turns to Medicaid. That is when families learn something they never saw coming: paying a caregiver without a notarized written contract and a physician's letter supporting the arrangement is treated as a gift under Michigan Medicaid rules. Medicaid looks back five years from the date of application, and for years, those payments triggered an automatic penalty. Roughly speaking, for every $12,000 paid out, there was about one month of ineligibility — regardless of whether real care was actually provided.

That has been the reality in Michigan. Until now.

What the Court Just Decided

In Estate of Charla Brown v. Department of Health and Human Services, decided March 26, 2026, the Michigan Court of Appeals ruled that Michigan's automatic penalty policy is not legally permitted. The State cannot presume that payments to a caregiver were improper simply because the paperwork was not done correctly. Federal Medicaid law requires the State to consider the full picture before imposing a penalty.

That means DHHS must now evaluate the following under the Michigan Medicaid rules:

• Whether real care was actually provided
• Whether the amount paid was reasonable for the services rendered
• Whether the purpose of the payments was genuine caregiving, not Medicaid planning

That may sound simple. But it is a meaningful shift from what families have faced for years regarding Medicaid options.

What The Decision Means for the Michigan Medicaid Rules

Families do not make decisions in a crisis based on the Michigan Medicaid rules. They do what needs to be done in the moment. For years, that reality was largely irrelevant. If the paperwork was wrong, the penalty was automatic. This decision says that is no longer acceptable. The State has to look at what actually happened.

What The Ruling Does Not Mean for the Michigan Medicaid Rules

This is not a free pass. The State can still review the arrangement and conclude that payments were excessive, that the services were not legitimate, or that Medicaid qualification was the real motivation.

It is also important to understand that the Charla Brown case itself was sent back to the administrative law judge for a fresh review under the correct legal standard — the family has not yet received a final ruling in their favor. What changed is the framework. DHHS can no longer ignore the facts just because certain boxes were not checked.

The Bottom Line When it Comes to Your Medicaid Options

Good Medicaid planning still matters. The best approach is always to set things up correctly from the beginning. Planning should include a proper written agreement, appropriate compensation, and documentation of the care being provided. But if that did not happen (and in many cases it does not), this decision creates Medicaid options that simply did not exist before.

If This Sounds Like Your Situation, Contact Us Today

If your family paid a caregiver, such as a child, a relative, or a family friend, without a formal agreement in place, and you have been told a Medicaid penalty is coming, do not assume the outcome is already decided. In many cases, it is not.

We are already applying this decision in active matters. If you want to understand how it affects your situation or learn more about the Michigan Medicaid rules, an experienced elder law attorney can help. At Barron, Rosenberg, Mayoras & Mayoras, we are committed to helping individuals and their families understand their Medicaid options. Schedule a consultation today by calling (248) 641-7070 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.