When you settle a workers’ compensation case, it might feel like you’re finally closing a stressful chapter of your life. But if you’re on Medicare—or will be soon—there’s one big thing you can’t overlook: a Medicare Set Aside (MSA) account. Let's dive in.
A Medicare Set Aside (MSA) is all about protecting Medicare’s bottom line. And trust me, they take that seriously. If you’re settling a workers’ compensation case, Medicare wants to make absolutely sure they’re not stuck paying for medical bills that should be covered by your settlement.
That’s where an MSA comes in—it serves two big purposes:
1. Looking Back: Did Medicare Pay for Anything It Shouldn’t Have?
Before you finalize your case, Medicare goes back through your medical history to check if they’ve already paid for treatments that your workers’ comp insurance should have covered. If they find anything, they’ll expect to be reimbursed.
This isn’t just about making sure the right party foots the bill—it’s also about keeping taxpayer dollars from covering costs that were supposed to come out of your settlement.
2. Looking Ahead: Making Sure Future Medical Costs Are Covered
Medicare doesn’t just look at the past—they’re also thinking about the future. If you got a lump sum settlement, a portion of that money is meant to cover any medical care you’ll need down the road for your work injury. Medicare wants to make sure those funds are properly set aside before they ever step in to pay a dime.
It’s really that simple: Medicare wants to get paid back if necessary and make sure they aren’t left covering future medical bills that should come out of your settlement. That’s why setting up an MSA the right way is so important—it protects both you and your access to Medicare coverage down the line.
Not every workers’ comp case requires an MSA, but when it does, there’s no way around it. Medicare has some pretty strict rules about when an MSA has to be part of a settlement, and skipping it can lead to a mess of problems down the road.
So, how do you know if you need one? Here’s the deal:
1. You’re Already on Medicare, and Your Settlement is Over $25,000
If you’re currently getting Medicare benefits and your workers’ comp settlement is $25,000 or more, you must have an MSA. No exceptions. Medicare wants to make sure some of that money is set aside for your future medical care before they agree to cover anything down the line.
2. You’ll Be on Medicare Soon, and Your Settlement is Over $250,000
Even if you’re not on Medicare yet, you might still need an MSA if you’ll be eligible within the next 30 months (about 2.5 years). This usually applies if you’re approaching age 65 or receiving Social Security Disability benefits. If your settlement is $250,000 or more, Medicare expects you to plan ahead and set aside funds for future medical expenses.
If you fall into either of these categories, an MSA isn’t optional—it’s required. Making sure it’s set up correctly now can save you from major headaches (and unexpected medical bills) later on.
If you need a Medicare Set Aside (MSA), setting it up the right way is a must.
Step 1: Figure Out What Type of MSA You Need
There are two types of MSA:
Formal MSA (When Medicare Calls the Shots)
If your case meets Medicare’s criteria, you have to set up a formal MSA—no exceptions. This means your MSA must be submitted to the Centers for Medicare & Medicaid Services (CMS) for approval before your settlement is finalized. And here’s the kicker: CMS decides how much needs to go in the account based on your medical history, past treatments, and expected future care.
Informal MSA (A Smart Move, Even If It’s Not Required)
Just because Medicare doesn’t require an MSA doesn’t mean you shouldn’t have one. Medicare still expects you to use your settlement money for injury-related medical expenses before they step in to cover anything. Keeping a separate account for those funds makes it easy to prove you’re using the money correctly and helps you avoid Medicare issues later on.
Step 2: Set Up a Separate MSA Account
Once you know how much money needs to be set aside, you can’t just stash it in your regular checking account. Medicare requires that MSA funds go into a separate, interest-bearing account that is used only for medical expenses related to your injury. Keeping the funds separate ensures you don’t accidentally spend them on something else.
Step 3: Keep Track of Every Dollar
Once your MSA account is set up, you need to track everything—what goes in, what comes out, and what it’s spent on. Medicare wants detailed records to make sure the money is being used properly.
Here’s how to stay on top of it:
Think of it like a medical expense journal—the better your records, the fewer problems you’ll have.
Step 4: Decide How Your MSA is Funded (Lump Sum vs. Annuity)
Not all MSAs are funded the same way. Some are set up with one big lump sum, while others use an annuity—which spreads the money out over time in scheduled payments.
Why Choose an Annuity?
Step 5: Decide if You Want a Third-Party Administrator
Managing an MSA can be a lot of work. That’s why some people hire a third-party company to take care of it for them. These administrators:
The biggest benefit of hiring a third-party administrator? You don’t have to stress about managing the money yourself. The downside? You won’t have direct control over the funds, which some people prefer to keep. It all comes down to what works best for you.
For more information on administering your MSA, here is a link to the handbook.
Your MSA funds are strictly for medical expenses related to your injury—nothing else. Medicare expects you to use this money for treatments that they would normally cover before they step in to pay for anything. That includes things like doctor visits, surgeries, prescription medications, and physical therapy.
If a treatment is directly tied to your work injury and Medicare would cover it, you’re good to go. But if it falls outside those guidelines, you cannot use MSA funds for it.
What You Can Use Your MSA Funds For
What You Can’t Use MSA Funds For
If you misuse the funds, you could run into serious consequences. Medicare may refuse to cover your injury-related medical costs in the future if your MSA runs out.
Can You Cash Out Your MSA?
No. MSA money is not extra cash you can withdraw—it’s strictly for medical expenses related to your injury. If you spend it on anything else, you risk Medicare refusing to cover future treatments once your funds are gone.
The best way to think of your MSA is like a medical trust fund. It’s there to make sure you have coverage when you need it, so managing it wisely is in your best interest.
Trying to avoid setting up an MSA when it’s required? Bad idea. It can lead to a mess of legal and financial problems that you definitely don’t want to deal with.
For starters, a judge might not approve your settlement if an MSA is supposed to be included. Even if your case does go through, Medicare could refuse to cover your future medical bills for your injury—meaning you’d be stuck paying out of pocket.
And if Medicare later realizes they paid for treatments they shouldn’t have? They can come after you (or even the insurance company) for reimbursement.
Dealing with a Medicare Set Aside (MSA) can feel overwhelming, but you don’t have to figure it all out on your own. Whether you’re in the middle of settling your case or just trying to understand what all of this means for your future, I’m here to help. You can reach me, Rex Zachofsky, at 212-406-8989. I’d be happy to talk through your options and make sure you’re set up for success.
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