What Is a Medicare Set-Aside and When Is It Required?

A Medicare Set-Aside (MSA) is a financial arrangement to cover future injury-related medical expenses when a settlement is received. It ensures funds are available for care Medicare would typically cover, protecting a claimant’s future Medicare eligibility.

Understanding a Medicare Set-Aside

A Medicare Set-Aside allocates a portion of a workers’ compensation or personal injury settlement for future medical costs Medicare would otherwise pay. It protects Medicare’s interests by ensuring settlement funds cover injury-related treatment before Medicare assumes responsibility, preventing the Medicare Trust Fund from paying for services the settlement should cover.

MSAs stem from the Medicare Secondary Payer (MSP) Act, a federal law (42 U.S.C. § 1395y) enacted to reduce federal healthcare costs. This Act establishes Medicare as a secondary payer when another party can pay for medical services. Thus, if a claimant receives an injury settlement, those funds are the primary payer for future injury-related medical care.

The MSP Act ensures Medicare only pays for injury-related treatment after a primary payer, like a settlement, has exhausted its responsibility. This prevents Medicare from prematurely covering services that settlement funds should address. Proper MSA consideration helps claimants avoid potential denial of Medicare benefits for future injury-related care.

When a Medicare Set-Aside is Required

MSAs are considered or required primarily in workers’ compensation and liability settlements, including personal injury cases. While no federal statute mandates an MSA for all settlements, the Centers for Medicare & Medicaid Services (CMS) has established guidelines to protect Medicare’s future interests, especially for workers’ compensation cases.

For workers’ compensation settlements, CMS reviews proposed MSAs if the claimant is a Medicare beneficiary and the total settlement amount exceeds $25,000. An MSA is also reviewed if the claimant has a reasonable expectation of becoming Medicare-eligible within 30 months of the settlement date, and the total settlement amount for future medical expenses and lost wages is greater than $250,000. A “reasonable expectation” often applies to individuals who have applied for Social Security Disability benefits.

In liability settlements, such as those from personal injury, medical malpractice, or product liability claims, there are no specific CMS review thresholds or formal regulations that mandate an MSA. However, parties involved in such settlements are still expected to consider Medicare’s future interests. Failing to account for future injury-related medical expenses can lead to Medicare denying payment for those services later.

An MSA may still be advisable to protect future Medicare eligibility, even if a settlement doesn’t meet CMS review thresholds. Medical documentation is important for determining the need for an MSA and projecting future injury-related medical costs. This projection forms the basis for the amount set aside, ensuring adequate funds for anticipated care.

Managing a Medicare Set-Aside Account

Once established, managing an MSA is a significant responsibility for the claimant. MSA funds must be used exclusively for Medicare-covered medical expenses directly related to the injury that led to the settlement. This includes items like prescription medications, doctor visits, hospital stays, and durable medical equipment.

Claimants have two main options for managing their MSA account: self-administration or professional administration. Self-administration involves the claimant taking direct responsibility for managing the funds, including tracking all expenditures and maintaining meticulous records. Professional administration, on the other hand, involves hiring a third-party company to manage the account on the claimant’s behalf, ensuring compliance with CMS guidelines. This option is often recommended for those who prefer not to handle the complexities of financial tracking and reporting.

Regardless of the administration method, strict adherence to CMS rules is important. All MSA funds must be held in a separate, interest-bearing account, with any interest earned remaining within the account for medical expenses. The administrator, whether the claimant or a professional service, must maintain accurate records and retain all receipts for every expense paid from the account.

Claimants are generally required to report their annual expenditures to CMS, often through an annual attestation form, detailing how the funds were spent and the remaining balance. If the MSA funds are fully depleted, and all expenditures have been properly documented and accounted for, Medicare will then begin paying for subsequent injury-related, Medicare-covered expenses. Conversely, if funds are mismanaged or used for non-approved expenses, Medicare may deny future coverage for injury-related care.