A Medicare Set-Aside (MSA) is a financial arrangement created as part of a legal settlement, typically in workers’ compensation or personal injury cases. This arrangement is designed to ensure that a portion of the settlement funds is reserved specifically to pay for the injured person’s future medical care related to the injury. The establishment of an MSA protects the financial interests of the Medicare program, which provides federal health insurance for people aged 65 or older and certain younger people with disabilities. An MSA confirms that the settlement is the primary payer for future injury-related expenses before Medicare contributes.
Defining the Medicare Set-Aside (MSA)
An MSA is an allocation of money from a settlement or judgment that is projected to cover the cost of all future Medicare-covered medical expenses resulting from the injury. The amount of the MSA is determined by calculating the anticipated lifetime cost of injury-related care that Medicare would normally pay for, such as doctor visits, prescription drugs, and medical equipment. This calculated amount is then “set aside” in a segregated, interest-bearing account.
The central concept is that these funds must be completely exhausted by the beneficiary before Medicare will begin paying for any injury-related treatment. Spending from the MSA is restricted strictly to medical services and items that are covered by Medicare and are directly related to the injury that led to the settlement. If the funds are not properly spent, the beneficiary risks having their future Medicare benefits for the injury suspended. Once the MSA funds are spent correctly and accounted for, Medicare will step in as the primary payer for any subsequent injury-related, Medicare-covered care.
The Legal Requirement for MSAs
The foundation for the MSA requirement stems from federal law, specifically the Medicare Secondary Payer (MSP) Act, enacted by Congress in 1980. The MSP Act established that Medicare is not the primary payer for medical costs when another entity, such as a workers’ compensation insurer or a liability settlement, is responsible for those expenses. This legislation ensures that the Medicare Trust Fund is protected from paying for medical services that should be covered by other sources.
The Centers for Medicare & Medicaid Services (CMS), the agency that administers the Medicare program, interprets the MSP Act to mean that settlements involving future medical care must consider Medicare’s interests. The MSA process is the mechanism recommended by CMS to demonstrate compliance with this legal obligation. Failure to address Medicare’s interests can result in Medicare denying payment for future injury-related care.
Types of MSAs and Submission Thresholds
There are two primary categories of MSAs: Workers’ Compensation Medicare Set-Asides (WCMSA) and Liability Medicare Set-Asides (LMSA). The rules for each, particularly regarding submission to CMS for review, differ significantly.
Workers’ Compensation Medicare Set-Asides (WCMSA)
A WCMSA is used in the settlement of a workers’ compensation claim, which is a type of no-fault insurance for workplace injuries. CMS provides a formal, voluntary review process for WCMSAs, where the agency officially approves the calculated set-aside amount. CMS will only review a WCMSA proposal if it meets specific workload review thresholds.
Submission is required if the claimant is a Medicare beneficiary and the total settlement is greater than $25,000. Alternatively, submission is requested if the claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the total settlement amount exceeds $250,000. All workers’ compensation settlements meeting a $750 threshold must report the MSA funding amount to CMS, regardless of whether a WCMSA was submitted for approval.
Liability Medicare Set-Asides (LMSA)
LMSAs arise from liability settlements, such as car accidents or slip-and-fall cases. They do not have the same formal, voluntary review process as WCMSAs. Despite the lack of direct CMS review, the underlying legal obligation to protect Medicare’s interests under the MSP Act still applies to liability settlements. Parties in an LMSA case must still allocate a portion of the settlement for future injury-related medical expenses to satisfy the MSP Act.
Administering and Reporting MSA Funds
Once the settlement is finalized and the MSA amount is calculated, the funds must be placed into a separate, interest-bearing account. The beneficiary has two options for managing the funds: self-administration or professional administration.
Self-administration means the injured party manages the account, pays the bills, and is responsible for all compliance and reporting. Professional administration involves hiring a third-party service to manage the funds, handle payments, and maintain records. CMS highly recommends professional administration due to the complexity of the rules, though it is not mandatory.
Account holders must keep meticulous records, including all receipts and documentation, to prove that the funds were spent correctly. The funds must be used only for services that Medicare would cover and only at the Medicare-approved rate for the injury. A mandatory annual accounting, or attestation, must be submitted to CMS detailing how the money was spent. Failure to adhere to these strict spending and reporting rules can result in Medicare denying payment for future injury-related care until the improperly spent funds are reimbursed to the MSA account.