Denied applying for CHIP while enrolled in Marketplace coverage

I have been exactly at the income thresholds for CHIP for quite a while, so I frequently get on/off marketplace coverage for my children. The COVID expansions provided relief from this problem, but once that expired I returned to the marketplace.

Starting 2024, my entire family is on a HDHP. My income dropped in the first quarter of 2024, so I reapplied for CHIP directly in my state in April. (Michigan program is called MiChild). I am self employed in a partnership, and the state DHS did not understand that my P&L business statements reflect the income of both myself and my partner, and the amounts need to be divided in half. This resulted in a denial due to income being too high.

I navigated the appeal process for the past 4.5 months, and DHS has made mistake after mistake, until a judge finally heard the case in the middle of July, ruling on how to properly calculate the income. On 8/7, I received yet another denial letter with no explanation of why I was still denied.

This morning (8/15), DHS returned my call and said the denial is due to existing coverage through the Marketplace. CHIP eligibility requires that there be no other coverages.

I understand the "legalese" of this, but it makes no sense. I wouldn't want to terminate my Marketplace coverage until I know I have an approval from DHS for CHIP, but if I don't terminate the Marketplace plan I'm not eligilble for CHIP. It's a chicken and egg.

So now, I'm stuck with an $8000 medical bill for a child that had emergency surgery in May, and I lost my subsidies for 5 months. This is a bankrupting situation for me and it seems to me that something is not right here.