Hegadorn v. Dept. of Human Services (Opinion - Leave Granted)Annotate this Case
Three plaintiffs' cases were consolidated for review; the plaintiffs were elderly women receiving long-term care in nursing homes. In each case, the “institutionalized spouse,” began receiving long-term care at a nursing home at her own expense. One to two months later, each plaintiff’s husband, a “community spouse,” created an irrevocable trust that was solely for his own benefit (a “solely for the benefit of,” or “SBO,” trust). The couples then transferred a majority of their individual and marital property to each SBO trust or its trustee, giving up any claim of title to that property. Distributions or payments from each SBO trust were to be made on an actuarially sound basis and solely to or for the benefit of the community spouse. The distribution schedule required that each trustee distribute the income and resources held by the trust to each community spouse at a rate that would deplete the trust within the community spouse’s expected lifetime. A short time after each SBO trust was formed, each institutionalized spouse applied for Medicaid benefits. The Department of Health and Human Services and its director (collectively, the Department) determined that each institutionalized spouse did not show the requisite financial need because the value of the trust assets put their countable resources above the monetary threshold, and it denied each application. In each case, the plaintiff unsuccessfully contested the Department’s decision in an administrative appeal, but each decision was then reversed on appeal at the circuit court. On appeal in the Court of Appeals, all three cases were consolidated, and the Department’s denial decisions were reinstated. The Michigan Supreme Court concluded that the Court of Appeals erred in its interpretation of the controlling federal statutes, which caused the Court of Appeals to improperly reinstate the Department’s denial decisions. Because the administrative hearing decision in each case suffered from "the same faulty reasoning" used by the Court of Appeals, the Court surmised that legal error may have caused the administrative law judges (ALJs) to forgo a more thorough review of the Medicaid applications at issue or to disregard other avenues of legal analysis. Therefore, rather than order that the Medicaid applications be approved at this time, the Court vacated the hearing decision of the ALJ in each case and remanded these cases to the appropriate administrative tribunal for any additional proceedings necessary to determine the validity of the Department’s decision to deny plaintiffs’ Medicaid applications.