Compromising Claims

Matthew Pinos
Post Date
Interest Area
Public Benefits


The Michigan Department of Health and Human Services (“MDHHS”) must attempt to recoup the overissuance of food assistance benefits whenever a recipient receives more benefits than she is entitled to receive. This is true in all cases, including cases of agency error, household error, or intentional program violations (IPVs). However, MDHHS also has the discretion to compromise claims—that is, to reduce or write-off the debt entirely—if it is determined that a household’s economic circumstances are such that the overissuance cannot be paid within three years. Section 725 of the Bridges Administrative Manual (“BAM”) also provides the manager of MDHHS Overpayment, Research and Verification Section with “final authorization” on requests to compromise claims. However, BAM 725 is silent on criteria that must be met for recoupment claims to be compromised. Administrative law judges (ALJs) read BAM 725 as precluding jurisdiction over requests that claims be compromised. This has caused and continues to cause economic hardship for many public benefits claimants.

This blog post provides basic information on FAP and discusses the various factors informing MDHHS determinations on compromising claims. Additionally, this post elaborates on some of the challenges facing claimants at the administrative level; namely, that ALJs assert that they have no jurisdiction to make decisions on requests to compromise claims, and that MDHHS has not publicized its internal policy for compromising claims. Tips for advocates and recouped FAP clients are provided at the end of this blog post.

Background Information on the Food Assistance Program

What is it?

Food assistance epitomizes “cooperative federalism”: The Supplemental Nutrition Assistance Program (“SNAP”), the “largest program in the domestic hunger safety net,” is run by the Food and Nutrition Service, which is part of the United States Department of Agriculture, but State agencies are charged with ensuring the fair administration of the program, verifying applicant eligibility for benefits, and protecting the integrity of the program.

Through its Food Assistance Program (“FAP”), the state of Michigan provides eligible low-income families and individuals with temporary food assistance benefits from the U.S. Department of Agriculture. Monthly benefits are placed on a Bridge Card, which works like a debit card that can be used only for food and drink.

Who is eligible?

FAP Eligibility is based on household size, immigration status, monthly income, and total assets.

Only citizens or qualified legal immigrants can apply for and receive FAP, although families with mixed statuses may be eligible to receive prorated benefits. Legal permanent residents may be eligible after five years of residency or with 40 social security credits.

There is an asset limit of $5,000 for FAP benefits. Cash, investments, and real and personal property count as “assets” for the purpose of FAP eligibility. Various items are exempt from the asset limit calculation (i.e., the home, one household automobile, retirement accounts, tax refunds, etc.).

All members of the household who buy and prepare food together are considered part of the household receiving benefits, with individuals younger than 22 who live at home presumed to be part of the parents’ FAP household. The income limit is up to 200% of the poverty guideline, with the maximum monthly benefit amount increasing as the family size increases. However, certain expenses, including shelter costs (rent, mortgages, and utilities), child support payments, dependent care expenses, and various medical expenses are exempt from the income limit calculation.


What is an “overissuance”?

A FAP overissuance occurs when MDHHS provides an individual or client program group with more FAP benefits than she is entitled. There are three types of FAP overissuances:

  1. Agency error—this occurs when MDHHS error caused the recipient to receive excessive benefits.
  2. Client error—this occurs when an unintentional mistake on the part of the recipient caused the overissuance.
  3. Intentional Program Violation (IPV)—this occurs when a recipient is found to have intentionally misled MDHHS in order to obtain benefits.

Who is responsible for repaying FAP overissuances?

BAM 725 provides that repayment of an overissuance is the responsibility of “anyone who was an eligible, disqualified, or other adult in the program group at the time the overissuance occurred,” and MDHHS has a mandate to collect from all adults who were a member of the client group.

Importantly, unless it has a court order or a signed repayment agreement, MDHHS may not initiate recoupment if the overpaid FAP group did not did not contain an eligible or disqualified adult during the overissuance period. Adult for recoupment purposes is an individual of 18 years or older. FAP recipients suspected of overpayment should not sign any repayment or disqualification agreements without first consulting an attorney.

How are FAP overissuances recouped?

Inactive FAP programs (i.e., where the claimant no longer receives FAP benefits) are recouped through cash repayment processes. Collection notices are sent to overpaid households on inactive FAP status.

Active FAP programs (i.e., where the overpaid claimant continues to receive FAP benefits) are recouped through various means, such as lump-sum cash payments, monthly case payments (only when and as ordered by a court or processed by the Attorney General), and administrative recoupment (benefit reduction).

FAP benefits are reduced for recoupment by a percentage of the monthly FAP entitlement. Unless a court has ordered a different administrative recoupment percentage or a specific dollar amount, a standard administrative recoupment percentage will dictate the monthly recoupment payments.

Per BAM 725, the standard administrative recoupment percentage for people receiving FAP is:

  • 10 percent (or $10, whichever is greater) for agency error.
  • 10 percent (or $10, whichever is greater) for client error.
  • 20 percent (or $20, whichever is greater) for intentional program violation.

Compromising Claims

What does it mean to “compromise a claim,” and when can a claim be compromised?

Compromising a FAP claim means to reduce or eliminate a FAP recipient’s overissuance.

MDHHS can compromise a FAP overissuance if it is determined that a household’s economic circumstances are such that the overissuance cannot be paid within three years. According to the BAM 725, the manager of the MDHHS Overpayment, Research and Verification Section has “final authorization” on the determination for all compromised claims.

How can one get a compromised claim?

Proving economic hardship is essential. Unfortunately, BAM 725 does not elaborate on how you can prove economic hardship. In 2013, MDHHS circulated a memo (attached with this blog post) explaining the policy for requesting and obtaining a compromised claim. The memo explains that clients must request a compromised claim from the Recoupment Specialist (RS), who must then submit a request for policy exception to the MDHHS Overpayment, Research and Verification Office for evaluation. The letter from the RS must provide specific details about the client’s situation and reasons for finding financial hardship.

The following are listed as “Hardships/Compromised claim reasons” in the memo:

  • High out-of-pocket medical expenses (not including living expenses)
  • Client is in a nursing or group home
  • “Extreme emergencies” (no specific examples are provided in the memo)

Additionally, at the client’s request, agency errors that are over $1,800 can be reduced down to a balance of $1,800 if the client has a verified hardship that is not as severe as the reasons bulleted above. According to MDHHS, “this encompasses the reason that they are not able to pay off the debt within three years.” In all other cases where the claim balance is under $1,800 and hardship is not proven, MDHHS policy is not to compromise the claim.

Who reviews the requests for compromised claims?

According to BAM 725, the manager of the MDHHS Overpayment, Research and Verification Office has final authorization on requests to compromise claims. The current manager (as of June 26, 2018) is Martin Blasius. In practice, however, the manager designates the compromise claim process to a Recoupment Department Specialist.

Problems for Advocates

The vague policy for compromising claims has caused several problems for advocates with clients requesting compromised claims.

ALJ Jurisdiction

Administrative law judges routinely deny themselves jurisdiction to review MDHHS decisions on compromising claims. Because the BAM 725 says that “final authorization” on compromising claims rests with an agency employee, ALJs are reluctant to overturn those decisions and cite lack of jurisdiction as a basis for letting the Department decision stand. This has been an obstacle for many clients presenting strong cases of economic hardship

Inadequate Notice

Notice of overpayment forms sent to clients do not inform them of the Department’s authority to compromise or terminate claims. These forms also do not elaborate on the criteria for requesting compromised claims.

The Supreme Court has held that adequate notice—that is, notice that is “reasonably calculated, under all the circumstances,” to inform affected parties of the action and afford them an opportunity to present objections—is a requirement of due process and of fair hearings. For notice to be adequate, the affected party must be informed that it has the chance to protest the decision. This is not the case where MDHHS fails to inform clients that the Department itself can compromise the claim under various circumstances.

Risk of error and abuse of discretion due to unchecked, unpublished procedures

BAM 725 says that claims may be compromised when it is determined that a household’s economic circumstances are such that the overissuance cannot be repaid in three years. However, the BAM 725 provides no criteria or factors considered by MDHHS in evaluating requests for compromised claims. As discussed earlier in this blog post, MDHHS has circulated an internal memo clarifying the policy for compromising claims. This information was not previously available to FAP clients, their attorneys, or administrative law judges.

This is problematic because BAM 600 provides that “the department provides an administrative hearing to review the decision and determine its appropriateness in accordance to policy.” Because ALJs deny jurisdiction to hear cases about denied requests to compromise, MDHHS decisions are not reviewed for compliance with its own internal policy.

This results in various problems for recouped FAP clients. Because claimants are not informed of MDHHS policy, the only way that erroneous decisions can be identified and corrected is through the fair hearing, where the Department can explain its policy and demonstrate that it was correctly followed. Hearings cannot be fair if ALJs lack authority to reverse MDHHS decisions or even confirm compliance with department policy. FAP clients deserving a compromised claim are unlikely to get fair treatment from MDHHS, since ALJs assert a lack of jurisdiction over these decisions.

Tips for Advocates

There are several convincing arguments in support of ALJ jurisdiction to review Department decisions to not compromise FAP claims. Two redacted sample briefs arguing in support of ALJ jurisdiction to hear these cases are attached to this post. (Redacted-Brief-1.pdf) (Redacted-Brief-2.pdf). What follows is a brief discussion of the arguments that may be helpful.

Argue that federal statutes and regulations provide for fair administrative hearings

Michigan’s statute governing agency recoupment actions mandates that “[p]rocedures for the recovery of overpayments made under federally assisted shall be consistent with federal law and regulations.” See MCL 400.43a. Of course, the Supremacy Clause of the Constitution also prohibits state laws and regulations that conflict with federal laws and regulations. Reference to the federal law and regulations governing SNAP strongly suggests that fair hearings are required in compromise claim cases. For instance, states are required to provide fair hearings “to any household aggrieved by any action of the State agency which affects the participation of the household in the Program.” See 7 CFR 273.15(a); 7 U.S.C. 2020(e)(10). Furthermore, federal regulations provide that a State agency “must not deny or dismiss a request for hearing,” unless the request is untimely, the claimant fails to appear, or the claimant withdraws her request. See 7 CFR 273.15(j)(1).

Where the agency is pursuing administrative recoupment, one can convincingly argue that denying a request to compromise a FAP overissuance constitutes a State agency action “which affects the participation of the household in the Program.” This is because administrative recoupment entails a pre-determined monthly reduction in the benefits available to a participating household. Additionally, so long as the request for hearing is timely and the claimant appears, the federal regulations prohibit outright dismissal of a request for a hearing. Michigan law and regulations on this issue cannot contravene or conflict with the federal law and regulations; indeed, this much is clearly stated in the relevant Michigan statute. Therefore, DHHS is required to provide participating FAP households with a fair hearing on denied requests for compromised claims.

Emphasize how other sections of BAM provide for a fair hearing

Section 600 of the Bridges Administrative Manual (BAM 600) states that:

Clients have the right to contest a department decision affecting eligibility or benefit levels whenever they believe the decision is incorrect. The department provides an administrative hearing to review the decision and determine its appropriateness in accordance to policy. This item includes procedures to meet the minimum requirements for a fair hearing.”

Where the recouped claimant continues to receive FAP, one can argue that decisions to deny compromise claim requests affect benefit levels, triggering the right to a fair administrative hearing to contest the correctness of the decision.

Even where the recouped FAP group is inactive, BAM 600 still provides for a fair administrative hearing to review MDHHS decisions and determine its appropriateness in accordance to policy. It should be within the province of the ALJ to review MDHHS determinations and determine whether they fairly comply with MDHHS policy for compromising claims.

The Delegation of Authority

The Michigan Administrative Hearing System (MAHS) has been delegated authority to make decisions in administrative law hearings. Section 120 of the MAHS Administrative Hearing Pamphlet, the “Delegation of Authority,” empowers ALJs to issue final decisions and proposals for recommended decisions. The Delegation of Authority states the following:

The DHHS Director has appointed the ALJs of MAHS for DHHS the authority to hear and issue final decisions in contested cases requested by individual residents, patients, consumers, or beneficiaries. The delegation of final decision authority applies to, contested cases held under MCL 330.1236, 330.1238, 330.1407, 330.1536 MCL 400.9, MCL 400.112g MCL 500.287, MCL 333.12613, MCL 400.112g, 7 CFR 246.1 et seq., 42 CFR 431.200 et seq., and Michigan Administrative Code 330.2052. The delegation to issue proposals for final decisions applies to, but is not limited to, contested case held under MCL 400.111c (1) (b).” Administrative Hearing Pamphlet

The bolded text confers upon ALJs unlimited authority to issue proposals for final decisions; it doesn’t matter under which statute or legal theory a claimant requests a fair hearing before MAHS. Where ALJs are not empowered to make final decisions, they can always at least issue proposals for recommended final decisions.

Case law supports due process rights to a fair hearing and adequate notice

The Due Process Clause of the Fourteenth Amendment requires that no state “deprive any person of life, liberty, or property, without due process of law.” A string of Supreme Court cases mandates that the State meet due process requirements when it plans to terminate benefits. The Court first held that welfare recipients whose benefits were terminated were entitled to a pre-termination hearing under the Due Process Clause in Goldberg v. Kelly (1970). Subsequently, in Atkins v. Parker (1985), the Court extended the property interest in welfare benefits to food assistance benefits. The Due Process Clause of the 14th Amendment therefore guarantees food assistance recipients fair hearings when benefit levels are reduced.

Furthermore, in Mullane v. Central Hanover Baftipnk & Trust Co. (1950), the Supreme Court held that due process also requires notice, which must be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Supreme Court precedent also mandates that notice must give the interested party information about their “opportunity to protest” a decision by a state agency. See Memphis Light, Gas & Water Div. v. Craft (1978).

In cases where no notice of the right to a fair hearing or the State’s settlement authority is provided to a FAP client, reference to Mullane and Craft may be effective before an ALJ. This line of Supreme Court precedent is particularly relevant where the recouped party has signed a Repayment Agreement, since these agreements do not disclose clients’ right to a fair hearing or MDHHS authority to compromise claims.

Additional and/or substitute process is warranted under the Mathews test

In Mathews v. Eldridge (1976), the court articulated a three-part test for determining whether additional or substitute process is appropriate in a particular context. Courts balance three factors:

  1. The “private interest that will be affected by the official action”;
  2. The “risk of erroneous deprivation of such interest through the procedures used,” and the “probative value, if any, of additional or substitute procedural safeguards”;
  3. Administrative burdens, fiscal and otherwise, of additional or substitute procedural safeguards

If an ALJ finds that ordinary due process does not require a fair hearing to review compromise claim denials, then there are good reasons to invoke Mathews as justification for additional or substitute process. Firstly, courts have held food benefits as a “vital interest” because claimants’ “subsistence” is at stake. Bliek v. Palmer, 102 F.3d 1472 (8th Cir.1997) is good authority because the court reflected on the predicament of recouped claimants, observing that “the potential deprivation and the hardship [food benefit recipients] may incur in their attempt to repay the overissuances is substantial, even if by most standards the amount of money may be quite small.” Bliek, 102 F.3d at 1477. The private interest affected by MDHHS action is therefore quite significant.

Furthermore, because MDHHS has not publicized its policy for compromising claims, the risk of erroneous deprivation of legitimate private interests is unacceptably high if ALJs cannot reverse MDHHS denials of compromise claim requests. ALJ authority to review and reverse these determinations is critical in order to prevent the mistaken application of policy and inconsistent procedure. One should also argue that the administrative burdens would be minimal and are otherwise justified.

Proving economic hardship

After resolving issues of jurisdiction and ALJ authority, it will still be necessary to prove that recoupment presents severe economic hardship to the claimant such that the debt cannot be collected within three years. MDHHS’s criteria for evaluating hardship are discussed in Section IV, B of this blog post.

The MDHHS memo provides little detail as concerns the criteria for proving hardship. It seems that high out-of-pocket medical expenses may warrant a compromised claim; “emergency situations,” which are undefined in the memo, may also warrant claim settlement. FAP claimants residing in a nursing or group home may also be successful in having their claims compromised.

MDHHS requirements for compromising claims are different depending on the nature of the overissuance. For instance, in all cases involving agency error and overpayments in excess of $1,800, clients presenting some evidence of economic hardship are entitled to have their claims reduced to $1,800. However, this has been countered by MDHHS’s policy of never compromising claims of active recipients subject to administrative recoupment, i.e. – reduction of current benefits to pay back the Department, regardless of how long it may take.

The MDHHS memo indicates that in all other cases, FAP claims will not be compromised. This suggests that the Department’s policy does not allow for compromising claims due to intentional program violations, such as fraud. Advocates may find it helpful to remind ALJs of the aims of the Administrative Procedure Act and similar state enactments: To protect due process rights, promote uniformity in procedure, application of policy, and adjudication, check for erroneous deprivations of protected interests, and to ensure a complete administrative record in case of appeal to a higher court.


Overissuance recoupment is a serious problem for public benefit claimants. There is little oversight over the Manager of the MDHHS Overpayment, Verification and Research Office and his final decisions to deny requests for compromised claims. This is so because ALJs deny themselves jurisdiction to review these determinations. Proving economic hardship is also difficult given MDHHS’s vague, inflexible policy for finding hardship and compromising a claim. Convincing the ALJ that she has jurisdiction is therefore critical to achieving a favorable outcome. Arguments based on due process requirements may be convincing, especially where department policy is internal and unpublished, as the risk of erroneous deprivation of benefits is at its highest where department personnel can act pursuant to internal policy without external review. That the BAM 600 gives clients the right to contest department decisions affecting eligibility or benefit levels may also be persuasive, especially where the recouped client is a current FAP recipient. Moreover, the Delegation of Authority states in unambiguous terms that ALJs have unlimited authority to issue proposals for recommended decisions. Reference to this may convince an ALJ that she at least has the authority to recommend a decision, if not make one herself.