Medicare Set Aside: The Basics

After a catastrophic injury, your client will face many daunting questions—and one of the most complex is how to allocate the funds they receive from their workers’ compensation or personal injury settlement. If the injured party already receives or will soon be eligible for Medicare, planning for their future medical treatment is not only wise—it’s required by law. Here’s how to know when a Medicare Set Aside account is needed, and what the requirements are for using an MSA.

First, what is Medicare Set Aside? Under federal law, Medicare is not to pay for any expenses related to an injury or illness for which someone receives a settlement, whether through workers’ compensation or an insurance carrier—and this includes related expenses even after the injured party becomes eligible for Medicare. This law exists so that the burden of expensive ongoing medical care is not shifted onto the Medicare system. Instead, part of the settlement should be allocated (or “set aside”) to an MSA account.

How Does Medicare Set Aside Work?

A Medicare Set Aside account is not necessary every time someone receives a settlement, but only in these specific situations:

  • The claimant already receives Medicare, and is receiving a settlement of more than $25,000
  • The claimant is not yet eligible for Medicare, but has applied for Social Security Disability Insurance (SSDI) AND is receiving a settlement of more than $250,000
  • The claimant is not yet eligible for Medicare, but is at least age 62.5 AND is receiving a settlement of more than $250,000

Knowing whether an MSA is required is simple—but knowing how much should be put into the MSA is quite another story. In most cases, the assistance of a specialized consultant or company is necessary. After researching your current and past medical expenditures related to the claim as well as your projected future medical needs, they can recommend an amount to set aside. The government will then need to approve this amount.

Whether the settlement is paid out in a lump sum or a structured settlement, funds must then be placed into an MSA account. This money (rather than Medicare funds) is earmarked specifically for the individual’s future medical needs related to their injury or illness. Only after these funds are completely depleted will Medicare pay for medical expenses related to the claim.

Medicare Set Aside Requirements

The requirements for using a Medicare Set Aside account are stringent. Most importantly, the account administrator must ensure that the MSA funds are used only to pay for expenses related to the injury or illness for which the settlement was received. Even if the individual returns to the same job, at the same company, and experiences a second, similar injury, the MSA funds could not be used for treatment related to the subsequent injury.

Furthermore, funds in a Medicare Set Aside account cannot be used for treatments, services, or medical items which are not covered by Medicare—such as vision and dental care—even if these are related to the injury which resulted in the settlement.

MSA account holders should maintain clear, accurate, and detailed records of everything the funds are used for, along with copies of receipts and bills. When the account is completely depleted, and no additional funds will be received, Medicare will audit these records before taking over payment of injury-related expenses.

Medicare Set Aside & Workers Compensation

For injuries or illnesses that result in a workers’ compensation claim, there are extensive federal rules beyond those that govern personal injury cases. Most notably, Medicare will pay for injury-related expenses while the claim is still being settled. However, once a settlement is received, Medicare must be reimbursed for those payments.

The workers’ compensation settlement will be divided into categories dictating how the money can be used. Funds in a category for past medical expenses related to the injury would be used to pay back Medicare. Out of the remainder of the settlement, a Medicare-approved amount would be allotted for future related medical needs and placed into a Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA).

As in personal injury and third-party liability cases, WCMSA money must be placed into an interest-earning account (separate from the individual’s other accounts), used strictly for related medical expenses, and kept track of carefully. Only when these funds have been used—and are proven to be used appropriately—can the burden for future related expenses be shifted to Medicare.

The Bottom Line

Medicare Set-Aside law is complicated, and only becoming more complex. To avoid facing penalties and fines, claims adjusters must consider a wide variety of factors and scenarios and ensure that their cost projections are as accurate as possible.

With a Medicare-certified consultant on your side, you can feel confident in your MSA cost projections. We’ll assist you throughout the entire procedure to create an appropriate arrangement that considers your client’s current and future medical expenditures. Don’t wait to get started—request a call from Palmetto Case Management today.