This is a published opinion of the California Court of Appeal, that concerns Medi-Cal estate recovery, the program families and elder law attorneys often call the Medi-Cal “clawback,” under which the state files a claim against a deceased member’s estate to recover what Medi-Cal paid for the member’s care. The case addresses one slice of that clawback: for members in managed care, the Department had been claiming the full monthly payments it sent to the health plan, even when the plan spent far less on the member’s actual care. The dispute that was litigated as a class action.

Medi-Cal clawback is an issue for workers’ compensation and personal injury attorneys who settle large cases for clients who concurrently receive means tested social benefits such as Medi-Cal. One strategy is the use of a Special Needs Trust funded by an annuity purchased by the settlement proceeds. The following case adds to the legal precedent that may have some relevance to strategies to protect a litigant’s estate from inappropriate clawbacks by social services consistent with law applicable to such cases.

Medi-Cal is California’s Medicaid program, administered by the Department of Health Care Services. When certain Medi-Cal members die, state law requires the Department to seek reimbursement from their estates. Welfare and Institutions Code § 14009.5 sets the recovery amount as the payments for the health care services the member received. Under managed care, however, the Department does not pay for each service. It pays the member’s health plan a fixed monthly “capitation” amount, whether or not the member uses any services.

Theodosia Phillip received Medi-Cal benefits while living in a nursing facility from 2010 until her death in 2015. The Department paid her managed care plan, CenCal Health, $261,957.40 in capitation over that period. The plan, in turn, paid about $106,672.71 for the services she actually received. After her death, the Department sought $407,774.41 from her estate: the full capitation amount, plus $5,852.30 in Medicare Part B premiums and $139,964.71 in interest.

The estate’s trustee disputed the claim, and the Department sued. Theodosia’s beneficiaries, Hardie and Jennifer Phillip, cross-complained on behalf of a certified class of Medi-Cal members’ estates from which the Department had sought to recover capitation in excess of the services received. The class included members who died both before and after January 1, 2017. They asserted quasi-contract and declaratory relief claims and petitioned for a writ of mandate.

The trial court ruled that recovering this “excess capitation” violated both state and federal law, and that its ruling applied retroactively. It entered judgment for the Department only for the capitation reflecting what the plan actually paid for Theodosia’s care, plus prejudgment interest. It also issued a declaratory judgment for the class and a writ of mandate directing the Department to reform its estate recovery practices, stop collecting excess capitation, and reprocess certain class members’ claims. The Department appealed.

In the published case of Phillip v. Baass, No. B341853 (October 2026) the Court of Appeal affirmed the judgment and awarded the Phillips their costs on appeal. Michelle Baass is named as the Department’s Director. The court held that the Department may recover only the portion of capitation that corresponds to services the member actually received.

The court began with the plain language of Welfare and Institutions Code § 14009.5, considering both its pre-2017 version and the version that applies to members who died on or after January 1, 2017. “Health care services” are defined by reference to specific enumerated benefits, and capitation is not among them. Applying the last antecedent rule, the court read the word “received” as modifying “services,” not “payments.” Recovery is therefore tied to services actually received, not to everything the Department paid out. The 2016 amendments, effective for deaths on or after January 1, 2017, narrowed recovery further, to services that federal law requires states to recover.

The court found support in Pottgieser v. Kizer (9th Cir. 1990) 906 F.2d 1319. There, the Ninth Circuit held that California could not collect from a decedent’s estate the Medicare Part B premiums the state had paid on her behalf, because the “medical assistance” subject to recovery covers the cost of services, not premiums. The court rejected the Department’s reliance on In re Estate of Ecklund (Minn. 2025) 20 N.W.3d 351, in which the Minnesota Supreme Court allowed recovery of capitation. In that case, Minnesota sought only the portion of capitation tied to long-term care services, not the whole payment, and the decision did not address California law.

Even if the statute were ambiguous, the court said, the legislative history does not mention excess capitation, and the amendments over time narrowed recovery rather than expanding it.

The court then invalidated the Department’s regulation. California Code of Regulations, title 22, § 50961 provides that the Department’s estate claim includes “payments to managed care plans.” Because that language enlarges the scope of the statute, the regulation is void under Government Code § 11342.2, which bars regulations that conflict with or expand the statutes they implement.

Federal law did not change the result. The federal estate recovery statute, 42 U.S.C. § 1396p(b), requires recovery only for specified categories, chiefly nursing facility services, home and community-based services, and related hospital and prescription drug services. Excess capitation is not among them, and federal law does not require states to recover it. The court gave no weight to the federal State Medicaid Manual, describing it as informal guidance without the force of law that cannot override the statute. The Department also could not rely on the Manual or its regulation to sidestep California’s Administrative Procedure Act.

Finally, the court rejected the Department’s policy arguments, including its warning of serious consequences if excess capitation could not be recovered. If the Legislature wanted that money recovered, the court said, it would have said so; the Department’s concerns belong with the Legislature, not the courts.