A Medicare Set Aside (MSA) is a financial arrangement that allocates a specific portion of a personal injury or workers’ compensation settlement. This dedicated fund is reserved exclusively to pay for future medical and prescription expenses related to the injury that Medicare would otherwise cover. The MSA ensures settlement proceeds are used for their intended purpose before the federal Medicare program is required to pay, protecting the integrity of the Medicare Trust Fund.
The Primary Purpose and Legal Mandate
The existence of a Medicare Set Aside is rooted in federal law, specifically the Medicare Secondary Payer (MSP) Act (42 U.S.C. § 1395y(b)). This law establishes Medicare as a secondary payer, meaning it will not pay for medical services when another party, such as an insurer or liability defendant, is responsible for the costs. The MSP Act prevents shifting medical costs to the federal government when an alternative funding source, like a settlement, exists.
The MSA demonstrates that Medicare’s interests have been protected during the settlement process. Settling parties confirm that funds allocated for future injury-related medical care will be exhausted before Medicare assumes payment responsibility. Failure to properly account for Medicare’s future interests can result in the Centers for Medicare and Medicaid Services (CMS) refusing to pay for any injury-related treatment, even after the settlement funds are depleted.
Determining When an MSA is Necessary
CMS has established specific thresholds that require formal MSA submission for review. The first scenario involves claimants who are already Medicare beneficiaries at the time of settlement. In this case, CMS review is generally necessary if the total settlement amount exceeds $25,000.
The second scenario applies to individuals not yet enrolled in Medicare but reasonably expected to be within 30 months of the settlement date. If the total settlement value exceeds $250,000, CMS review of an MSA proposal is triggered. This expectation includes claimants who have applied for Social Security Disability benefits or are nearing full retirement age. Parties may still create an MSA for settlements below these dollar amounts to ensure Medicare’s interests are protected, even if formal review is not required.
Establishing and Approving the MSA
Establishing the MSA amount begins with a professional medical cost projection. This involves a detailed review of the claimant’s medical records, including past treatment history, physician opinions on future care, and required medications. The resulting report provides an actuarial estimate of the lifetime cost of injury-related medical care that Medicare would cover.
The proposed MSA amount is based on this projection, and the treating physician must sign off on the projected medical needs. For cases meeting CMS review thresholds, the MSA is formally submitted to CMS for approval. Receiving CMS approval assures all parties that Medicare will pay for future care once the MSA funds are depleted, confirming the allocation adequately covers estimated future medical expenses.
Managing the Funds
Once the MSA is established, the funds must be placed into a separate, interest-bearing bank account, distinct from all other personal finances. The beneficiary must administer these funds, using them only for injury-related medical treatment and prescription drugs covered by Medicare. Every expense paid from the fund must be carefully documented with receipts and billing statements.
Administration can be handled in two ways: self-administration or professional administration by a third-party service. Self-administration requires the beneficiary to track all expenditures meticulously, pay providers at Medicare-approved rates, and submit an annual accounting report to CMS. Due to the complexity, CMS highly recommends a professional administrator, who handles bill payments, record-keeping, and annual reporting. Mismanaging the funds, such as spending them on non-injury-related items, can result in Medicare denying payment for all future injury-related services until the misused funds are replenished.