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How Do Medicare Set-Asides Work in Workers' Comp Settlements?
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By Eman Yazdchi, Esq. · Certified Specialist in Workers' Compensation Law, State Bar of California Board of Legal Specialization · Cal Bar #285231
A Medicare Set-Aside is a federally required allocation in a workers' comp settlement that closes future medical care for a Medicare-eligible worker. Federal law requires the set-aside to protect Medicare's secondary-payer interests; CMS review is recommended above certain thresholds. Structured correctly it maximizes the settlement. Certified Specialist Eman Yazdchi (California Board of Legal Specialization, State Bar of California) structures MSAs correctly.
When a workers' comp Compromise & Release closes future medical care, the settlement must include a projection of future Medicare-covered treatment costs (the MSA amount), funded and administered separately from the rest of the settlement. Whether CMS formal review is necessary, versus self-administered compliance, turns on Medicare beneficiary status and threshold dollar amounts that change annually.
Below: when an MSA is required, how the CMS review process works, the difference between professionally administered and self-administered MSAs, and how the MSA projection amount affects the C&R total value.
When is an MSA required?
CMS recommends an MSA when the worker is a current Medicare beneficiary or has a reasonable expectation of becoming one within thirty months and the settlement exceeds set thresholds.
CMS guidelines (the 2001 Patel Memorandum and subsequent updates) recommend MSA submission for: (1) workers who are current Medicare beneficiaries with settlements over $25,000, and (2) workers with reasonable expectation of Medicare enrollment within 30 months and settlements over $250,000. "Reasonable expectation" includes active SSDI applications, end-stage renal disease, or age 62+. MSAs are recommended below the thresholds when Medicare exposure is foreseeable.
How is the MSA amount calculated?
A specialized MSA vendor (typically a nurse-led firm) projects future medical costs by reviewing treatment records, surgical projections, medication schedules, and life expectancy tables. The projection uses workers' comp fee schedule pricing and is tailored to the specific diagnosis. Common cost drivers: future surgeries, long-term medications, durable medical equipment, and pain management injections.
What does CMS review do?
If the MSA is submitted to CMS for approval, CMS reviews and either approves or counter-offers a higher amount. Approval takes 60-120 days. Approved MSAs receive a CMS Approval Letter, which provides certainty about Medicare's expectations. Submission is optional, many settlements proceed with non-CMS-reviewed MSAs, accepting some residual risk in exchange for faster closure.
How is the MSA administered?
The MSA funds are deposited into a dedicated account and can only be spent on Medicare-covered treatment related to the work injury; annual accounting is required.
The MSA can be self-administered by the worker or professionally administered by a third-party vendor. Self-administration requires the worker to track all Medicare-related spending, file annual reports with CMS, and use MSA funds only for Medicare-covered treatment related to the workers' comp injury. Professional administration costs $4,000-$6,000 setup plus annual fees and removes the compliance burden. The California DWC 2024 Annual Report indicates MSA exposure is one of the most common settlement-structuring issues in catastrophic cases.
What happens if MSA funds run out?
When properly administered MSA funds are exhausted before the worker's death, Medicare resumes as primary coverage for the work-related conditions in the settlement.
If the MSA is properly funded based on a reasonable projection and the funds are exhausted on appropriate Medicare-covered treatment, Medicare resumes coverage. If the funds were misused for non-Medicare-covered items, Medicare may decline coverage until the worker demonstrates compliance. Self-administration carries higher compliance risk; professional administration shifts the risk to the administrator.
Related on yazdchilaw.com: California workers' compensation lawyer pillar · what to do if you can't go back to work after a workers' comp injury · what happens if the workers' comp judge mishears your testimony · can you keep workers' comp if you move out of state · California Labor Code §3600 explained.
Injured at work? Call (661) 273-1780
Tap to call →How Yazdchi Law Structures MSAs
Structured MSAs that match the projected future medical needs, neither over-funded nor under-funded, protect both the settlement amount and Medicare compliance.
Yazdchi Law, led by Certified Specialist Eman Yazdchi, evaluates MSA exposure at every C&R intake (California Board of Legal Specialization, State Bar of California). We engage qualified MSA vendors, negotiate the projection inputs (treatment frequency, medication formularies, pricing tier), and decide with the worker whether CMS review or non-review is the right path. The MSA amount can shift the C&R bottom line by tens of thousands of dollars.
From Bakersfield to Los Angeles to San Bernardino, we structure MSAs for catastrophic and complex cases regularly. Call (661) 273-1780 before signing any C&R involving Medicare exposure.
Frequently Asked Questions
Do I have to submit the MSA to CMS?
Submission is voluntary but recommended at the CMS thresholds ($25,000 current Medicare beneficiaries; $250,000 with reasonable expectation of enrollment within 30 months). Non-submission carries residual risk if Medicare later asserts a recovery claim. Many practitioners submit anyway to obtain CMS approval and certainty, especially when the MSA is funded into a structured annuity.
Can the MSA reduce my settlement?
Yes. The MSA is funded from the C&R amount; it reduces the worker's net cash recovery dollar-for-dollar. A $200,000 settlement with a $60,000 MSA leaves $140,000 plus the MSA funds available for medical care. This is why MSA projection quality matters, over-projection wastes recovery; under-projection invites CMS counter-offers and delay.
What is structured MSA funding?
Some MSAs are funded with a seed amount plus structured annuity payments over the worker's life expectancy. Structured funding reduces the upfront cash deduction from the settlement but commits the worker to an annuity stream. Settlement counsel evaluates whether structured funding makes sense given age, life expectancy, and cash flow needs.
Who can administer my MSA?
Self-administration is allowed but requires the worker to track spending, file annual attestations with CMS, and use funds only for Medicare-covered injury-related treatment. Professional administration via a specialized vendor (Ametros, CareGuard, etc.) costs $4,000-$6,000 setup plus annual fees and handles compliance. Many workers find professional administration worth the cost.
What if I am not on Medicare yet but might be soon?
CMS reviews "reasonable expectation" of Medicare enrollment within 30 months. Active SSDI applications, age 62+, and end-stage renal disease all trigger reasonable expectation. Settlements over $250,000 in these cases warrant MSA submission. Below the thresholds, MSA structuring is still recommended to protect future Medicare access.
Can I use MSA funds for any medical care?
Only for treatment related to the workers' comp injury that Medicare would otherwise cover. Using MSA funds for unrelated treatment, non-Medicare-covered items, or non-injury care can disqualify the MSA from Medicare's perspective. Self-administration requires careful spending discipline and good record-keeping. Professional administration enforces compliance automatically.
Last reviewed by Eman Yazdchi, Esq., June 2026.
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