Medicare Set-Asides are mandatory only in specific settlement situations, not for everyone

A Medicare Set-Aside (MSA) is mandatory when you receive a settlement or judgment that pays for medical care, and Medicare has already paid some of your bills related to that injury or illness. Medicare requires you to set aside a portion of the settlement money in a separate account to reimburse Medicare for those past payments and to cover your future medical costs. You do not have a choice in this requirement — it is built into how Medicare protects its trust funds.

The key word is "medical care" in the settlement. If you receive money for lost wages, pain and suffering, or other non-medical damages, those portions do not trigger an MSA requirement. But if any part of the settlement is meant to cover medical treatment — whether for the injury itself or related conditions — Medicare will require you to account for it.

The threshold that triggers the requirement varies. In most cases, if your total settlement (including medical and non-medical portions) is $250,000 or more, Medicare will require an MSA. Some settlements below that amount may also require one if Medicare's interest is substantial. The Centers for Medicare & Medicaid Services (CMS) makes the final information based on the facts of your case.

Key Takeaways

  • An MSA is mandatory when a settlement includes money for medical care and Medicare has paid bills related to your injury or illness.
  • Settlements of $250,000 or more almost always require an MSA; smaller settlements may require one depending on how much Medicare paid.
  • You must get CMS approval of your MSA amount before you can cash the settlement check in most cases.
  • Failure to set aside the required amount can result in Medicare placing a lien on your settlement or refusing to pay future claims.
  • An attorney or settlement administrator can help you determine whether your specific settlement requires an MSA and what amount is required.

When CMS requires an MSA versus when it does not

CMS requires an MSA when three conditions are all true: (1) you have received or will receive a settlement, judgment, or other payment; (2) Medicare has paid or will pay for treatment related to the injury or illness that is the subject of the settlement; and (3) the settlement includes compensation for medical expenses, either explicitly or as part of a lump sum.

CMS does not require an MSA if the settlement is purely for non-medical damages — for example, a settlement for lost wages only, or for pain and suffering only, with no component meant to cover medical bills. However, in practice, most personal injury settlements include some medical component, even if it is not itemized separately.

Workers' compensation settlements have different rules. If you are settling a workers' comp claim, an MSA may be required under state law or CMS rules, depending on your state and the amount involved. You should check with your state's workers' compensation board or an attorney familiar with your state's rules.

The $250,000 threshold and how it works

The $250,000 figure is a bright-line rule: if your total settlement is $250,000 or more, CMS will almost certainly require an MSA. This applies to the full settlement amount, not just the medical portion. A settlement of $250,000 for a car accident, even if only $50,000 is explicitly for medical bills, triggers the requirement.

Below $250,000, CMS uses a different test. The agency looks at whether Medicare's interest — meaning the amount Medicare paid for treatment related to your injury — is "substantial." There is no fixed dollar amount for "substantial," but CMS guidance suggests that if Medicare paid more than a few thousand dollars, an MSA may be required even on a smaller settlement. The safest approach is to contact CMS or have your attorney contact them if your settlement is between $100,000 and $250,000.

The threshold applies to the gross settlement amount before attorney fees and costs are deducted. Some settlements are structured so that attorney fees are paid separately, but CMS counts the full amount owed to you, not the net amount you receive.

How to get CMS approval for your MSA amount

If your settlement requires an MSA, you cannot cash the settlement check until CMS has reviewed and approved the amount you plan to set aside. The process begins with a request to CMS, usually submitted by your attorney or the settlement administrator, not by you directly.

The request includes a detailed accounting of what Medicare paid for your medical treatment, what your future medical needs are likely to be, and how much money should be set aside to cover both. CMS reviews this information and either approves the amount, asks for more information, or proposes a different amount. This review can take several weeks to several months.

Once CMS approves the MSA amount, you must deposit that money into a dedicated account — usually a special needs trust or a may have access to settlement fund — before the settlement is finalized. You cannot straightforward hold the money in your personal bank account. The account must be set up according to CMS rules, and you will need to provide CMS with proof that the money has been deposited.

What happens if you do not set aside the required amount

If you receive a settlement that requires an MSA and you do not set aside the required amount, Medicare can place a lien against you for the amount it paid toward your medical care. This means Medicare can recover that money from you directly, or it can refuse to pay for any future medical claims related to your injury until you reimburse it.

In some cases, the settlement administrator or your attorney may be held responsible for ensuring the MSA is set up correctly. If they fail to do so, they may face liability to Medicare. This is one reason why working with an experienced attorney or settlement professional is important — they know the rules and can protect you from this risk.

Additionally, if you fail to set aside the money and later need medical care related to your injury, Medicare may deny the claim outright, leaving you to pay out of pocket. This can be very expensive, especially for ongoing or long-term care.

Who determines the MSA amount and how it is calculated

CMS determines the MSA amount based on a calculation that includes two parts: (1) the amount Medicare paid for your past medical treatment related to the injury, and (2) an estimate of what your future medical care will cost over your lifetime or a set period.

The past medical amount is straightforward — CMS looks at its records and tells you what it paid. The future medical amount is more complex. It is based on your age, the nature of your injury, your life expectancy, and the typical cost of medical care for someone in your situation. CMS may use actuarial tables, medical literature, or informed opinions to estimate this amount.

You have the right to dispute CMS's proposed MSA amount if you believe it is too high or if you have evidence that your future medical needs will be different from what CMS estimated. This dispute process can involve submitting additional medical evidence, informed reports, or other documentation. An attorney or a professional MSA consultant can help you prepare this argument.

MSA requirements for workers' compensation and liability cases

Workers' compensation settlements have their own MSA rules that vary by state. Some states require an MSA for any workers' comp settlement involving Medicare; others have different thresholds or do not require one at all. You must check your state's specific rules, usually through your state's workers' compensation board or an attorney licensed in your state.

Liability cases — such as personal injury lawsuits from car accidents, slip-and-fall injuries, or medical malpractice — follow the federal CMS rules described above. The same $250,000 threshold and approval process explore.

Structured settlements, where you receive payments over time rather than a lump sum, may have different MSA requirements. Some structured settlements can be arranged to avoid or reduce the MSA requirement, but this requires careful planning with your attorney and the insurance company. If you are considering a structured settlement, discuss the MSA implications with your attorney before you agree to the terms.

Frequently Asked Questions

Do I need an MSA if Medicare has not paid anything yet?

No. An MSA is required only if Medicare has already paid for treatment related to your injury. If you are settling before Medicare has paid anything, you do not need an MSA. However, if Medicare later pays for related treatment, you may owe Medicare money from your settlement retroactively, so it is important to notify Medicare of your settlement.

Can I use the MSA money to pay for anything other than medical care?

No. The MSA money must be used only for medical expenses related to your injury or illness. You cannot withdraw it for living expenses, debt repayment, or other purposes. If you do, you may be required to repay Medicare or face other penalties. The account is held in trust specifically for medical care.

What if I settle my case but do not know if Medicare paid anything?

Contact Medicare directly at 1-800-MEDICARE or through your online Medicare account to request a record of all payments related to your injury. You can also ask your attorney to request this information from CMS. Do this before you finalize your settlement so you know whether an MSA is required.

Who manages the MSA money after it is set aside?

The MSA is usually managed by a trustee — either a professional fiduciary, a bank, or an attorney — depending on how the account is structured. You can request reimbursement from the account when you incur medical expenses, but you cannot straightforward withdraw the money. The trustee will verify that the expense is medical-related before releasing funds.

Does an MSA affect my Medicare benefits or coverage?

Yes. Once an MSA is in place, Medicare becomes the secondary payer for medical expenses related to your injury. This means the MSA must pay first, and Medicare pays only after the MSA is exhausted. Once the MSA money runs out, Medicare resumes primary coverage. This is called the "Medicare Secondary Payer" rule.