Whether a Medicare Set-Aside is required or only recommended is the wrong framing for a right instinct: no federal statute or regulation forces you to create an MSA, and CMS itself states that submitting a proposed MSA for review is “never required.”1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4 What the law does require is that you reasonably consider Medicare’s interests when a settlement includes future injury-related medical costs.2Centers for Medicare & Medicaid Services. Medicare Secondary Payer An MSA is the most widely accepted way to prove you did that, which is why it functions as a practical necessity in cases where technically it is only recommended.
What the Law Actually Requires
The obligation comes from the Medicare Secondary Payer statute. Congress set up this framework in 1980 to keep Medicare from paying costs that a workers’ compensation carrier, liability insurer, or other primary payer is responsible for.2Centers for Medicare & Medicaid Services. Medicare Secondary Payer When a settlement pays you for future medical care, those dollars are supposed to cover injury-related treatment before Medicare picks anything up.3Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer
A Medicare Set-Aside is a dedicated account funded from the settlement to pay for future treatment Medicare would otherwise cover. Money in the account can only go toward Medicare-eligible services related to your specific injury.4Centers for Medicare & Medicaid Services. Workers’ Compensation Medicare Set Aside Arrangements Once the funds are properly spent down, Medicare begins covering that care like any other condition, subject to normal deductibles and copays.
Nothing in this scheme says you must use an MSA. It says Medicare’s interests must be reasonably considered. The MSA is a tool. The obligation is the law.
Where the $25,000 and $250,000 Numbers Fit
The dollar figures that get described online as “mandatory MSA thresholds” are not mandates. They are workload review thresholds that determine when CMS will agree to look at an MSA proposal you voluntarily submit for approval in a workers’ compensation case.4Centers for Medicare & Medicaid Services. Workers’ Compensation Medicare Set Aside Arrangements Falling above one of them does not create a legal duty to prepare an MSA. Falling below one does not excuse you from the underlying duty to consider Medicare’s interests.
CMS will review a proposed MSA amount if your workers’ compensation case fits one of two categories:4Centers for Medicare & Medicaid Services. Workers’ Compensation Medicare Set Aside Arrangements
- You are a current Medicare beneficiary and the total settlement is greater than $25,000.
- You have a reasonable expectation of Medicare enrollment within 30 months of the settlement date, and the total anticipated settlement is greater than $250,000.
“Reasonable expectation of Medicare enrollment” is defined broadly. You meet the standard if any of the following is true:1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4
- You have applied for Social Security Disability benefits.
- You have been denied SSDI but plan to appeal.
- You are in the process of appealing or refiling for SSDI.
- You are at least 62 years and 6 months old.
- You have end-stage renal disease but do not yet qualify for Medicare based on it.
CMS has reserved the right to change or remove either threshold based on Medicare’s interests, so checking the current figures before finalizing a settlement is worth the small effort.1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4
One quiet trap: if your settlement falls below these thresholds, CMS will not send you a letter confirming an MSA is unnecessary.1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4 You just do not hear from them. That silence is not clearance. Your duty to consider Medicare’s interests continues, and an MSA that never gets submitted for review can still serve as evidence you took that duty seriously.
When an MSA Effectively Becomes Necessary
The gap between “not legally required” and “practically necessary” is where most cases actually live. CMS recommends MSAs. Settlement attorneys recommend them. Workers’ compensation carriers frequently insist on them as a condition of settlement, because the carrier has its own exposure under the Secondary Payer statute and does not want to close a file that could reopen as a federal recovery action.
So the question is rarely “does the law force me to create an MSA.” It is closer to “can I settle this case without one, and can I afford the risk if I do.” For a Medicare beneficiary with meaningful future injury-related care, the answer to both usually points to setting one up.
Liability and No-Fault Settlements
The rules above apply to workers’ compensation. For liability and no-fault settlements — car accidents, slip-and-falls, medical malpractice — CMS has no formal MSA review program. CMS opened a rulemaking on liability MSAs in 2012, paused it in 2014, and no final rule has issued.
The absence of a review program does not eliminate the underlying obligation. The Medicare Secondary Payer statute reaches all settlements where Medicare’s interests are at stake, not just workers’ comp.3Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer Without CMS thresholds or a review track, practitioners rely on informal benchmarks and professional judgment to decide whether a liability MSA belongs in a given settlement. Reasonable attorneys disagree, and this is one place where experienced settlement counsel earns the fee.
What Skipping an MSA Can Cost You
The reason MSAs feel mandatory is what CMS can do if it decides Medicare’s interests were not reasonably considered. Medicare will refuse to pay for any injury-related services until you have spent the entire settlement amount on those services out of pocket.1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4 Not just the portion that should have gone into an MSA. The whole settlement. A $200,000 workers’ compensation payout where $40,000 should have been set aside can leave you personally responsible for $200,000 in injury-related medical bills before Medicare will cover a dollar.
The federal government can also recover any conditional payments Medicare already made for injury-related treatment. Under the Secondary Payer statute, the United States may sue anyone who received settlement proceeds and can collect double the amount owed, with the action available for three years after the government receives notice of the settlement.3Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer CMS holds a subrogation right on top of that, allowing it to step into the injured party’s shoes and recover directly from the responsible payer.1Centers for Medicare & Medicaid Services. WCMSA Reference Guide Version 4.4
These consequences fall hardest on you. The carrier has closed its file. The attorney has moved to the next case. You are the one who cannot get injury-related care covered.
The Practical Answer
Required by statute? No. Required in practice for most Medicare beneficiaries settling a workers’ compensation claim with meaningful future medical costs? Effectively yes. The safe way to read the rules is this: the law requires you to protect Medicare’s interests, an MSA is how you prove you did, and the penalty for guessing wrong is losing Medicare coverage for the very injury the settlement was supposed to compensate. Treat the MSA as a strong recommendation with real teeth behind it, and make the decision with an attorney who works in this area before the settlement is signed.