About Medicare Set-asides

In 1980, The Medicare Secondary Payer Act (MSP) was enacted by Congress to reduce spending and preserve the fiscal integrity of the Medicare program. The MSP provides that Medicare may not make payment where, “payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan….or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance”.  

The statute made Medicare a “secondary” payer when the beneficiary has other insurance coverage under a “primary” plan, including: liability insurance, no fault insurance, automobile insurance, self insurance and workers’ compensation.

There are currently two kinds of Medicare Set-aside Allocations, one for Worker’s Compensation matters and a lesser-known requirement for Liability Medicare Set-aside Allocations. Here is a brief history and overview of each:

Workers’ Compensation Medicare Set-aside Allocations (WCMSA)

The Centers for Medicare and Medicaid Services (CMS) is the government agency authorized to enforce Medicare’s Secondary Payor status. On July 23, 2001, the CMS Central Office issued its first directive memorandum to the CMS Regional Offices. The “Patel” Memo as it became known, stated that Medicare’s interests must be considered in all workers’ compensation settlements involving Medicare beneficiaries. The Memo also implied that Medicare’s interests must be considered in cases where the claimant has a reasonable expectation of being on Medicare in the future. The Memo further stated that Medicare’s interests could be protected by establishing a “Medicare Set-aside”. CMS has since issued a series of Directive Memos that govern Workers’ Compensation MSA projections and submissions.

A WCMSA is a projection of the injured worker’s future medical costs, including but not limited to: doctor’s visits, hospital stays, surgical procedures, diagnostic tests, laboratory studies, physical therapy, prescriptions and some durable medical equipment. A WCMSA is based solely on anticipated medical treatment for the work-related injury. In addition, only services, supplies and prescriptions that would otherwise be covered by Medicare are included.

The WCMSA amount is then deposited into an interest-bearing account. Once the WCMSA Account is established, the injured worker pays bills for the work injury that would otherwise be paid by Medicare from the WCMSA Account. If the account is depleted and medical treatment is still needed, Medicare will begin paying bills for the work injury as long as the funds were properly spent and correctly reported to Medicare.

WCMSAs are only used in commutation cases where the settlement award is intended to compensate the injured worker for future medical expenses for the work injury. Compromise cases where the settlement award is only compensating the injured worker for past medical expenses do not require a WCMSA.

The Current CMS Review Threshold:

a. The claimant is currently a Medicare beneficiary and the total settlement is more than $25,000.00
OR
b. The settlement amount exceeds $250,000 and the claimant has a reasonable expectation of becoming a Medicare beneficiary within thirty (30) months of the settlement date.



A “reasonable expectation” exists if:
Claimant has applied for Social Security Disability Benefits, or;
Claimant has been denied Social Security Disability Benefits but anticipates filing an appeal, or;
Claimant is in the process of appealing and/or refilling for Social Security Disability Benefits, or;
Claimant is (or will be) at least 62 years and 6 months old, 120 days from today, or;
Claimant has End Stage Renal Disease (ESRD) but does not qualify for Medicare based on ESRD.

In determining the total amount of the settlement, the amount of any prior settlements for the same date of injury are added to the current settlement. For structured settlements, the amount the annuity is expected to payout over the life of the settlement is used to determine the settlement amount. The present day value or the cost of the annuity may not be used. For cases where the CMS review threshold is not met, Medicare’s interests must still be considered.

WCMSA Administration Requirements:
WCMSA funds must be placed in an interest bearing account. Interest earned on the funds must be allowed to accrue in the account and may only be used for WCMSA allowable expenses. CMS must be provided with documentation that the WCMSA Account has been funded or CMS may deny payment for services related to the work injury up to the full amount of the settlement.
WCMSA Allowable expenses include:

  • photocopying charges
  • mailing fees/postage
  • banking fees directly related to the account
  • incremental tax paid on the interest income earned by the WCMSA Account

Legal fees and professional administration fees are not WCMSA allowable expenses.

If payments from the WCMSA are used to pay for non-allowable expenses, Medicare will not pay bills for the work injury until the funds are restored to the WCMSA Account and then properly exhausted.

If the Claimant is self administering the WCMSA Account, he/she should submit a “self attestation” form stating that payments from the WCMSA Account were made appropriately for work related injuries that would otherwise be reimbursed by Medicare. “Self attestation” forms should be submitted annually beginning one year from the establishment of the WCMSA. Claimant should keep a copy of all medical bills paid from the WCMSA Account. Detailed records of each transaction should be maintained for a period of seven years. If the WCMSA is professionally administered, a detailed accounting must be submitted on an annual basis.

In addition to the Worker’s Compensation Medicare Set-aside Allocations , there is also a less well-known requirement for liability settlements.

Liability Medicare Set-aside Allocations (LMSA):

On July 23, 2001, the CMS Central Office issued its first directive memorandum to the CMS Regional Offices. The “Patel” Memo as it became known stated that Medicare’s interests must be considered in all workers’ compensation settlements involving Medicare beneficiaries. CMS has since issued a series of Directive Memos that govern Workers’ Compensation MSA projections and submissions. However, no guidance was given regarding how Medicare’s interests should be protected in liability settlements until very recently.

On September 30, 2011, CMS issued its first guidance on how Medicare’s interests’ should be protected in a liability case. The memorandum provides that if the beneficiary’s treating physician certifies in writing that the treatment for the injury related to the liability insurance settlement has been completed as of the date of the settlement and that future medical treatment will not be required, then Medicare will consider its interests satisfied. In effect, CMS established a safe harbor for liability cases where the treating physician certifies that no further treatment is needed. CMS has not yet issued any guidance on how liability cases that do not fall within the safe harbor should protect Medicare’s interests.

We anticipate that guidelines for liability Medicare Set-asides will be forthcoming. In the meantime, our MSA Resource Center provides access to the current statutory regulations and CMS memos that have been issued to date.

If you have questions about Liability Set-asides, please feel free to call our office at 855-MSA-MEDS (855-672-6337) and our in-house attorney can update you on any current activity or policy directives in this arena, or you can bookmark this site and check back periodically for updates.