Michigan Caregiver Agreement for Medicaid: How to Pay a Family Member Without Triggering Penalties

The Problem This Solves

Here is a scenario that plays out constantly in Michigan families: an adult daughter reduces her work hours to care for her aging father. Dad has savings. The family agrees that daughter should be compensated for the caregiving — it is real work, it displaces paid employment, and they want to keep dad at home as long as possible.

So dad writes checks to his daughter. $500 a week, $800 a week, whatever the family agrees on. This goes on for two or three years.

Then dad's health declines further, he enters a nursing home, and the family applies for Medicaid to cover the $11,000+ monthly cost. The MDHHS caseworker pulls five years of bank statements, sees tens of thousands of dollars in checks written to a family member, and classifies every dollar as a divestment — an uncompensated transfer that triggers a penalty period of Medicaid ineligibility.

The family protests: "But she was providing care! It was not a gift!" Without a written agreement executed before the care began, MDHHS does not care. The payments are treated as gifts, the penalty divisor ($12,216.30 for 2026) is applied to the total, and the family faces months of ineligibility during which they must pay for nursing home care out of pocket with resources they no longer have.

A properly structured caregiver agreement can help prevent this outcome.

What the Agreement Must Include

A caregiver agreement that survives an MDHHS divestment audit needs these elements:

1. Written and signed before care begins. The agreement must be executed before the first payment is made. A retroactive agreement — one drafted after the payments have already occurred — will not satisfy MDHHS reviewers. If payments have already started without a written agreement, stop and get one in place immediately. Future payments under the agreement can be supported as compensation; past payments may not be.

2. Specific services described. The agreement must list the actual caregiving tasks being performed: bathing assistance, medication management, meal preparation, transportation to medical appointments, laundry, housekeeping, companionship, overnight supervision, and so on. Vague language like "general help" or "assistance as needed" is insufficient.

3. A schedule of hours. Document the expected hours per day or week. If the caregiver is providing 30 hours per week of care, the agreement should say so. A timesheet or log documenting actual hours worked, maintained concurrently with the care, strengthens the agreement significantly.

4. Fair market value compensation. The hourly rate must be comparable to what a licensed home care agency charges for the same services in the same geographic area. In Michigan, private-duty home care rates typically range from $25 to $35 per hour. If the family is paying the caregiver $50 per hour — substantially above the market rate — MDHHS may treat the excess as a divestment.

Research comparable rates in your area. Michigan's Home Help program can serve as a reference point for basic personal care rates, and local home care agencies will quote their hourly rates on request.

5. Payment records. Pay by check or bank transfer — never cash. The paper trail must match the agreement. Lump-sum payments ("here is $10,000 for the next few months of care") look like gifts; regular payments matching the agreed schedule and hourly rate look like employment.

6. Signatures of both parties. The care recipient (or their agent under a valid Durable Power of Attorney) and the caregiver must both sign. Having the signatures notarized adds a layer of verification, though Michigan does not strictly require notarization for caregiver agreements.

What the Agreement Cannot Do

A caregiver agreement has limits:

Spouses cannot be paid caregivers under Michigan's Home Help program. Michigan's Home Help program specifically excludes spouses from being compensated caregivers.

The rate cannot exceed fair market value. If the going rate for home care in Grand Rapids is $28 per hour and the agreement pays $45 per hour, the excess ($17 per hour) will be treated as a divestment. MDHHS caseworkers know the local rates.

The agreement does not exempt the payments from the look-back review. MDHHS will still examine the payments during the 60-month look-back. The difference is that documented, fair-market-value payments under a pre-existing written agreement are treated as legitimate compensation for services — not divestments. The agreement is your defense, not a shield against scrutiny.

Future care cannot be pre-paid. Paying a caregiver a lump sum for "the next year of care" before services are rendered looks like a divestment. Pay for care as it is provided, on a regular schedule that matches the documented hours.

Who the Agreement Covers

The agreement can be between the care recipient and:

• An adult child
• A grandchild
• A sibling
• An extended family member (niece, nephew, cousin)
• A non-family member providing informal care

The key requirement is that the caregiver is providing genuine, documented care — not living in the parent's home rent-free with an agreement as a cover story. MDHHS caseworkers are experienced at distinguishing between legitimate caregiving arrangements and arrangements designed solely to shelter assets.

The Home Help Program Alternative

For families where the care recipient is already Medicaid-eligible, Michigan's Home Help program offers a formalized path. Under Home Help, a Medicaid-eligible individual can hire a family member (except a spouse) as their paid caregiver through the state system. The caregiver must pass a criminal history check and enroll in the CHAMPS billing platform. The state pays the caregiver directly — the care recipient does not write checks, and there are no divestment concerns.

The Home Help program has income limits ($1,330/month individual for 2026, with a medically needy spend-down pathway for those above the limit), so it does not work for all families. But for those who qualify, it eliminates the need for a private caregiver agreement entirely.

When to Get Professional Help

If the caregiver has already been paid significant amounts without a written agreement, consult an elder law attorney before applying for Medicaid. An attorney may be able to structure a retroactive accounting, document the care that was provided with contemporaneous evidence (medical records, prescription fills showing someone was managing medications, testimony from physicians), and argue that the payments were fair-market-value compensation — not gifts.

This is not guaranteed to work, and it is significantly harder than having the agreement in place from the start. But it is better than accepting a penalty period without challenge.

The Michigan Care Transition Toolkit includes a caregiver agreement framework with the required elements and guidance on documenting hours and establishing fair market value — designed to be completed before engaging an attorney, so families arrive at the consultation organized rather than starting from scratch at $300+ per hour.

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