Key Points

  • Under both the pre-2017 and current versions of Welfare and Institutions Code section 14009.5, the Department of Health Care Services may recover from a deceased Medi-Cal member's estate only an amount equal to the payments for health care services the member received.
  • Capitation payments to managed-care plans that exceed what the plan paid for the member's care are not recoverable, because capitation is not among the 'health care services' the statutes define.
  • California Code of Regulations, title 22, section 50961, subdivision (c), which includes all payments to managed care plans in estate claims, enlarges the statute and is void.
  • Federal law does not require recovery of excess capitation, and the CMS State Medicaid Manual is nonbinding informal guidance that cannot override the statute.
  • The court affirmed the class-wide declaratory judgment and writ of mandate and declined the department's unsupported request to vacate class certification.

A California appeals court on Oct. 9 barred the state's Medi-Cal program from charging the estates of deceased members for the full monthly fees it paid their managed-care plans. The court held that the state may recover only an amount equal to what was paid for the care those members actually received.

A three-justice panel of the Second Appellate District, Division Six, unanimously affirmed a class-wide judgment against the Department of Health Care Services, the agency that administers Medi-Cal, California's version of the federal Medicaid program. Justice Baltodano wrote the opinion, joined by Presiding Justice Cody and Justice Yegan. The court also declared void a department regulation that counted all payments to managed-care plans in estate claims.

The ruling reaches most of the program. More than 10 million Medi-Cal members in all 58 counties, about 95 percent of the total, received care through a capitated managed-care model as of 2025, the opinion said. Under that model, the department pays each plan a fixed monthly amount per member, called a capitation payment, "regardless of costs and whether or not the member receives health care services." The decision leaves in place a writ ordering the department to stop collecting capitation beyond what plans spent on care and to reprocess certain class members' claims.

Federal law requires states in Medicaid to recover all or part of the benefits paid during a member's lifetime from the member's estate at death. California's estate-recovery statute, Welfare and Institutions Code section 14009.5, directs the department to claim "an amount equal to the payments for the health care services received." The appeal turned on whether that phrase covers the capitation the department paid plans or only the cost of the care delivered.

The test case involved Theodosia Phillip, a Medi-Cal recipient who lived in a nursing care facility from October 2010 until her death in 2015. The department paid her plan, CenCal Health, $261,957.40 in capitation. CenCal paid her health care providers $106,672.71. After her death, the department sought $407,774.41 from her estate, made up of the full capitation, $5,852.30 in Medicare Part B premiums and $139,964.71 in interest.

After her trustee challenged the claim, the department sued. Hardie Phillip and Jennifer Phillip, two of her beneficiaries, cross-complained on behalf of a class and petitioned for a writ of mandate, an order compelling the department to recalculate the claims. San Luis Obispo County Superior Court Judge Tana L. Coates certified a class of Medi-Cal recipients and estates from which the department sought excess capitation. The trial court ruled that the practice violated state and federal law, held its ruling retroactive, and awarded the department only what the plan paid for Theodosia Phillip's care, plus prejudgment interest.

Justice Baltodano looked to the statutes that define "health care services" as specific benefits, including inpatient hospital care, nursing facility services, dialysis and hearing aids. Those provisions omit capitation payments. "To draw a contrary conclusion would require us to rewrite the statute to add more than it currently contains. We cannot do so," Justice Baltodano wrote.

The department argued that "the most natural reading of the statute" treats "payments" as those made by the department itself. The panel rejected that reading under the last-antecedent rule, a canon holding that qualifying words attach to the words immediately before them. "The word 'received' modifies 'services,' not 'payments,'" the court wrote. The 2016 amendments, which govern deaths on or after Jan. 1, 2017, produced the same result because they limit recovery to services federal law requires states to recover.

The court relied on Pottgieser v. Kizer, a 1990 Ninth Circuit decision that rejected the department's effort to recoup insurance premiums from a member's estate. The panel distinguished In re Estate of Ecklund, a 2025 Minnesota Supreme Court decision the department cited, because Minnesota sought "only the actuarily-limited portion that relates exclusively to the cost of [Ecklund's] long-term care services."

The regulation fell for the same reason. Title 22, section 50961, subdivision (c) of the California Code of Regulations provides that an estate claim "shall include all payments made by the Medi-Cal program on behalf of the decedent, including . . . payments to managed care plans." The panel held that "this enlarges the scope of section 14009.5, which does not authorize the Department to recoup excess capitation," and declared the regulation void.

The court also rejected the department's argument that federal law, including the State Medicaid Manual issued by the Centers for Medicare & Medicaid Services, required the recovery. "The Manual is informal agency guidance, however, and the Department may not rely on the Manual to implement a rule inconsistent with the unambiguous language in section 14009.5," the court wrote.

The department warned that affirmance would bring "catastrophic and unintended consequences," including bills to heirs whose relatives' care cost more than the capitation. The panel pointed to the department's stipulation in the trial court that plans must provide covered care "regardless of whether the cost of furnishing these services to the Medi-Cal member is less than or exceeds the amount of the capitation payments under the contract."

"If our conclusion portends chaotic results in the realm of managed care, the Department is free to consult with the Legislature," the court wrote, noting the department's concession that the statute "was written before managed care existed in its current form." The opinion continued, "But we are not in the business of making policy."

Lawyers for the Phillips and the class included Don A. Ernst of Ernst Law Group. The department was represented by the office of Attorney General Rob Bonta.

The panel declined the department's request to vacate class certification, a ruling its notice of appeal did not cover, because the department offered no argument in support. The court affirmed the judgment, leaving the declaratory judgment and writ in place, and awarded the Phillips their costs on appeal.