Medicare Set-Asides are required in some cases, but not all
A Medicare Set-Aside (MSA) is mandatory only when your settlement or court award includes money meant to cover medical care that Medicare would normally pay for. If your case involves a workers' compensation settlement, liability claim, or no-fault auto insurance settlement, and that money is supposed to pay for future medical treatment, Medicare requires you to set aside a portion of it in a separate account before Medicare will cover anything else.
The key word is "supposed to." If your settlement is purely for lost wages, pain and suffering, or other non-medical damages, no set-aside is required. But if any part of the money is designated—or could reasonably be interpreted—as payment for medical care, you must follow Medicare's rules or lose your coverage.
The requirement exists because Medicare is the secondary payer in these situations. That means the settlement money must be used first for medical expenses before Medicare steps in. Setting aside the money protects both you and Medicare by making clear how much of your settlement goes toward healthcare costs.
Key Takeaways
- A Medicare Set-Aside is required only when your settlement includes money meant to pay for future medical treatment.
- Workers' compensation, liability, and no-fault auto insurance settlements are the most common cases requiring an MSA.
- You must obtain a Medicare Set-Aside Arrangement (MSAA) calculation before your settlement closes, or Medicare may deny all future claims related to the injury.
- The amount set aside depends on your age, the type of injury, and how long you are expected to need treatment.
- If you fail to set aside the required amount, you may have to repay Medicare from your own funds if the agency later covers costs the settlement should have paid.
Who must have a Medicare Set-Aside
You need an MSA if you are receiving Medicare benefits and your settlement or judgment includes compensation for future medical expenses. This applies to workers' compensation cases, third-party liability claims (such as car accidents or slip-and-fall injuries), and no-fault insurance settlements.
The requirement applies regardless of your age, though it is most common among working-age people on Medicare due to disability. If you are 65 or older and on Medicare, you may still need an MSA if your settlement covers medical care related to the injury or illness that prompted the claim.
Not every settlement triggers an MSA requirement. If your case settles for lost wages only, or for pain and suffering with no medical component, you do not need one. The determining factor is whether any portion of the money is earmarked for healthcare costs.
How the amount is calculated
The amount you must set aside is based on a Medicare Set-Aside Arrangement (MSAA) calculation, which estimates how much money you will need to cover medical expenses related to your injury for the rest of your life (or a set period, depending on the case type).
The calculation takes into account your age, the nature of your injury or illness, the types of treatment you will likely need, and the cost of that treatment in your region. A professional MSA calculator—usually a nurse case manager or medical cost analyst—reviews your medical records and treatment history to project future costs.
For example, if you are 45 years old and settling a workers' compensation case for a back injury, the calculator might estimate you will need physical therapy, imaging, and occasional pain management for the next 20 years. The total cost of that care becomes your set-aside amount. If your settlement is larger than the set-aside amount, you keep the difference. If it is smaller, you may have a problem—the settlement may not be large enough to cover the required set-aside.
What happens if you do not set aside the money
If you do not establish a Medicare Set-Aside before your settlement closes, Medicare will deny claims related to your injury. The agency will consider the settlement money as payment for those claims, even if you spent it on something else. You then become responsible for paying the full cost of any medical care related to the injury.
In some cases, Medicare may demand repayment. If Medicare has already paid for treatment that the settlement was supposed to cover, the agency can pursue you for reimbursement. This is called a Medicare lien, and it can follow you for years.
The consequences are serious enough that most attorneys and settlement administrators will not close a case without an MSA in place when one is required. If you are settling a case on your own, ask your attorney or the other party's insurance company whether an MSA is needed before you accept the money.
How to obtain a Medicare Set-Aside calculation
Your attorney or the settlement administrator usually arranges the MSAA calculation as part of the settlement process. You will need to provide medical records, a list of current treatments, and information about your ongoing medical needs. A may have access to professional—often a registered nurse or medical cost analyst—will review this information and produce a written calculation.
Once the calculation is complete, you submit it to Medicare for review. Medicare does not always approve the calculation as written; the agency may request additional information or adjust the amount. This review process can take several weeks.
After Medicare approves the amount, you open a dedicated account—usually a special needs trust, an annuity, or a custodial account—and deposit the set-aside funds. You then use this account to pay for medical expenses related to your injury. Once the account is depleted, Medicare coverage resumes for those expenses.
The difference between workers' compensation and other settlements
Workers' compensation cases have slightly different MSA rules than liability or no-fault auto insurance cases. In workers' compensation, the set-aside requirement applies to ongoing wage-loss benefits as well as medical benefits, though the calculation focuses on medical costs.
Liability and auto insurance settlements typically require an MSA only if the settlement agreement explicitly states that a portion is for future medical care. If the settlement is a lump sum with no breakdown, you and your attorney should clarify with the other party whether medical expenses are included before accepting the money.
In all cases, the core principle is the same: if Medicare is going to cover your medical care, any settlement money meant for that care must be set aside first.
What to ask your doctor or attorney
Before your settlement closes, ask your attorney these questions: Is an MSA required in my case? Who will arrange the calculation? How long will the review process take? What medical records do I need to provide? Once the set-aside is established, ask your doctor which expenses can be paid from the account and which will be covered by Medicare once the account runs out.
If you do not have an attorney, contact your state's workers' compensation board or the insurance company handling the claim and ask directly whether an MSA is required. Do not accept settlement money without this answer.
Frequently Asked Questions
Can I use my Medicare Set-Aside money for anything other than medical expenses?
No. The money must be used only for medical care, prescription drugs, medical equipment, and related healthcare costs tied to your injury or illness. Using it for other purposes can trigger Medicare to demand repayment and may result in loss of coverage. Keep receipts and documentation of all withdrawals.
What if my set-aside money runs out before I need it anymore?
Once the account is empty, Medicare resumes paying for medical expenses related to your injury, just as it would for any other condition. You do not need to do anything; Medicare will process claims normally. If you think you will need more money, discuss this with your attorney before the settlement closes.
Do I need a Medicare Set-Aside if I am on Medicaid instead of Medicare?
Medicaid rules vary by state, but most states do require a set-aside for Medicaid beneficiaries in settlement cases. Contact your state Medicaid office to confirm. The process is similar to Medicare but the amounts and rules may differ.
Can I move my set-aside money to a different account or invest it?
The account type and investment options depend on how your set-aside is structured—whether it is a trust, annuity, or custodial account. Your attorney or the settlement administrator will explain what is allowed. Some accounts offer limited investment options; others do not. Ask before the account is opened.
What if I disagree with the Medicare Set-Aside calculation?
You can request that Medicare reconsider the calculation if you believe it is inaccurate. Provide additional medical evidence, updated treatment plans, or informed opinions about your future care needs. Your attorney can help you submit this information. The review process takes time, so raise concerns early in the settlement process.