In workers’ compensation, the best file is often a closed file. But settling a case is not always straightforward. One issue that arises when settling out future medical care, is whether the parties should address Medicare’s future interests through a Medicare Set-Aside Arrangement (MSA).
1. What Is an MSA?
An MSA is a financial arrangement that allocates part of a workers’ compensation settlement to pay for future medical treatment related to the industrial injury that would otherwise be covered by Medicare. These expenses may include physician visits, hospital care, surgery, diagnostic testing, physical therapy, durable medical equipment, and prescription medications that are Medicare-covered.
Workers’ compensation is the primary payor for work-related injuries. Medicare is secondary. As a result, Medicare generally will not pay for injury-related treatment until the funds properly allocated to the MSA have been exhausted on Medicare-covered, injury-related care.
In short, an MSA is intended to protect Medicare’s interests while also helping the settling parties document how future Medicare-covered treatment will be funded.
2. How Is the MSA Amount Calculated?
In most cases, an MSA vendor or administrator evaluates the following:
- the treating physicians’ recommendations for future care
- the current medical records
- the prescription drug history
- applicable Medicare coverage rules
- state fee schedules or other accepted pricing data, and
- anticipated utilization of future treatment
The result is a detailed allocation report estimating the amount that should be set aside for future Medicare-covered, injury-related treatment. Depending on the case, the proposal may then be submitted to the Centers for Medicare & Medicaid Services (CMS) for review.
3. CMS Review Is Voluntary, but Important
CMS review of a proposed MSA is not required by statute or regulation. Even so, submission is a recommended process in cases that meet CMS’s review thresholds. When CMS approves a proposed amount, that approval gives the parties useful certainty regarding the amount CMS will recognize for future Medicare-covered care.
By contrast, when the parties settle without CMS review, CMS is not bound by the parties’ allocation. That can create future risk if Medicare later determines that the amount set aside was inadequate.
4. When Will CMS Review a Proposed MSA?
CMS will review a proposed MSA only if one of the following thresholds is met:
- The claimant is a Medicare beneficiary, and the total settlement amount is greater than $25,000, OR
- The claimant has a reasonable expectation of Medicare enrollment within 30 months of settlement, and the anticipated total settlement amount is greater than $250,000.
A claimant may have a reasonable expectation of Medicare enrollment within 30 months if, for example, the claimant:
- has applied for Social Security Disability benefits
- has been denied Social Security Disability benefits but expects to appeal
- is in the process of appealing or refiling for Social Security Disability benefits
- is 62 years and 6 months old, or
- has end-stage renal disease but does not yet qualify for Medicare based on that condition
Importantly, these are CMS review thresholds, not safe harbors. Even if a case falls below the thresholds, the parties should still consider Medicare’s interests when settling out future medical care.
5. What Is Included in the “Total Settlement Amount”?
The total settlement amount is broader than just the proposed MSA figure. It may include indemnity, future medical allocations, attorney’s fees, prior settlements involving the same injury, lien payments, settlement advances, amounts forgiven by the carrier, and, when an annuity is used, the total payout over the life of the annuity rather than its purchase price or present value.
6. Administration Matters Too
After approval, the applicant may self-administer an MSA, or a professional administrator may be used. In either case, the applicant must keep records, use the funds only for Medicare-covered, injury-related treatment, and comply with annual reporting or attestation requirements.
7. Practical Takeaways
- An MSA issue can arise when settling out future medical care via C&R
- CMS review is voluntary, and only occurs if certain thresholds are met
- CMS approval provides important clarity regarding the approved amount, and protects Medicare’s Interests by ensuring funds are available for injury -related medical care, before Medicare pays
- CMS review thresholds do not eliminate the obligation to consider Medicare’s interests in smaller cases. In these cases, specific language noting Medicare’s interests are considered, should be added to the settlement documents.
- Effective July 17, 2025, CMS no longer will accept or review MSA proposals with a zero-dollar ($0) allocation.
Conclusion
Medicare’s interests should be considered whenever a workers’ compensation settlement resolves future medical care via Compromise and Release agreement. A properly prepared MSA can reduce uncertainty, protect the applicant’s future access to Medicare-covered treatment, and help the parties avoid disputes after settlement.
The key point is this: CMS review is voluntary, but consideration of Medicare’s interests is not something the parties should ignore simply because a case falls below the CMS review thresholds. Keeping that distinction in mind can help avoid unnecessary delay while still protecting the settlement.
References
- CMS Workers’ Compensation Medicare Set-Aside Arrangement Reference Guide:
- https://www.cms.gov/files/document/wcmsa-reference-guide-version-44.pdf
Kelly A. Curtius is a partner at Bradford and Barthel’s Los Angeles office. If you have questions about liens or other workers’ compensation defense issues, please feel free to contact her at kcurtius@bradfordbarthel.com or by calling 310.981.5004.
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