Can I Cash In My Medical Set Aside?

A Medicare Set-Aside (MSA) designates funds from a settlement, such as a workers’ compensation or liability claim, to cover an individual’s future medical expenses. MSAs protect Medicare’s interests by ensuring settlement funds are used for injury-related costs that Medicare would typically pay. The strict rules governing their use make “cashing in” these funds complex.

Understanding Medical Set-Aside Arrangements

A Medicare Set-Aside (MSA) is a financial arrangement protecting Medicare’s interests following a settlement. Its purpose is to ensure funds are available for future medical care related to a specific injury or illness, preventing Medicare from prematurely becoming the primary payer. This arrangement arises from Medicare Secondary Payer (MSP) laws, which mandate Medicare is a secondary payer when another entity, such as a workers’ compensation insurer or liability settlement, is responsible for medical costs.

MSAs are typically established in workers’ compensation or liability settlements where the injured party is a Medicare beneficiary or is expected to become one within 30 months. Funds allocated in an MSA are specifically for future medical expenses directly related to the injury or illness that led to the settlement. These funds are not a personal savings account and cannot be used for general living expenses.

The administration of these funds can be managed by the individual (self-administered) or by a professional administrator. An MSA designates a portion of the settlement to cover future medical costs Medicare would otherwise be responsible for.

Permitted Use of Set-Aside Funds

Medicare Set-Aside funds are strictly limited to covering Medicare-covered medical treatments, prescription medications, medical equipment, and healthcare services directly related to the injury or illness for which the set-aside was created. Funds cannot be used for services Medicare does not cover.

Permitted uses include doctor visits, hospital services, surgeries, and lab work specifically for the injury. Prescription medications, durable medical equipment, and physical therapy or rehabilitation services are also allowed. Travel expenses for medical care may also be covered.

MSA funds are not for general health or cosmetic purposes. They cannot be used for health insurance premiums, cosmetic procedures not medically necessary, or general health products like vitamins or non-prescription medications unless prescribed for the injury. Using the funds for non-medical expenses is prohibited.

Consequences of Improper Use

Using Medicare Set-Aside funds for unapproved or non-medical purposes carries significant repercussions. If funds are misspent or not properly accounted for, the Centers for Medicare & Medicaid Services (CMS) may deny future Medicare coverage for all injury-related medical expenses. This denial of coverage would continue until the misspent amount is reimbursed or otherwise properly accounted for in the MSA account.

Individuals would then be responsible for paying for those medical costs out of their own pocket. Strict adherence to CMS guidelines and meticulous record-keeping is necessary. Non-compliance can also result in financial penalties or jeopardize future Medicare benefits.

CMS maintains the right to deny payment for services it believes the settlement funds should cover if the MSA is not managed correctly. This means Medicare may refuse payment for injury-related treatments until the individual demonstrates that the set-aside funds have been properly and fully exhausted on Medicare-covered expenses related to the injury. Improper use directly impacts an individual’s ability to receive Medicare coverage for their injury.

Managing Funds and Fund Depletion

Once a Medicare Set-Aside is established, the funds are typically placed into a separate, interest-bearing bank account. This account must be distinct from other personal funds to prevent commingling and simplify accounting. The interest earned on these funds must remain in the account and be used for eligible medical expenses.

Individuals managing their own MSA funds are responsible for keeping detailed records of all disbursements, including bills and receipts. This documentation is necessary for annual reporting to CMS, where the beneficiary must attest to how the funds were spent. This annual reporting ensures compliance with CMS guidelines and verifies that the funds are used appropriately.

When legitimate, approved medical expenses exhaust the set-aside funds, and spending has been properly accounted for, Medicare typically becomes the primary payer again for injury-related medical expenses. This transition occurs provided the individual is a Medicare beneficiary and has adhered to all MSA management rules. The concept of “cashing out” remaining funds for personal, non-medical use is generally not an option, as funds are dedicated to future medical care for the injury. Any unused funds at the end of a year are carried over to the next year for continued use on eligible medical expenses.