What Is the Medicare Set-Aside Rule?

A workers’ compensation Medicare set-aside (WCMSA) is money earmarked to cover treatment expenses before Medicare begins paying. These funds come from settlements and are dedicated solely to care related to the settlement injury or illness.

If you suffer an on-the-job injury or one caused by someone else, you might receive a settlement to cover lost wages and medical bills. A WCMSA designates a portion of that settlement to pay medical costs tied to the specific condition.

The funds for your Medicare set-aside are derived from settlinga worker’s compensation claim. In short, this is money awarded to treat a medical issue caused by your employer, a business, or another party.

If you are currently on Medicare or will become eligible soon, the settlement funds must be applied to treatment related to your condition before Medicare will cover those services. Below we explain how a WCMSA functions and what to anticipate.

When is a WCMSA required?

You must set up a WCMSA if you receive $25,000 or more, are already enrolled in Medicare, or expect to enroll within 30 months.

For instance, if you obtain a $300,000 workers’ compensation award at age 63, you are required to establish a WCMSA even though you are not yet on Medicare.

If you retained an attorney for your case, they should advise you on whether a Medicare set-aside arrangement is necessary.

Key rules governing WCMSAs

Medicare set-aside funds must remain separate from your other assets. The WCMSA should accrue interest, and any interest earned must be used for medical expenses related to the settlement.

How contributions are made to your WCMSA depends on the form of your settlement. Usually, settlements are disbursed in one of two formats:

• Lump sum: You receive the full amount at once. While overall proceeds might be lower after fees or taxes, the funds are available immediately.
• Structured payments: Payments are made periodically over several years or even for life. Distributions may be monthly, quarterly, or annually depending on the agreement.

If you receive a lump sum, you’ll fund the WCMSA immediately. With structured payments, contributions are added as each installment is paid.

A qualified professional can help you choose the best option for your healthcare needs and finances. Later sections explain how to locate such assistance.

WCMSA rule updates for 2025

Beginning in 2025, the Centers for Medicare & Medicaid Services (CMS) has updated WCMSA procedures as follows:

Effective April 2025, you can request a review of your WCMSA at any time after case approval.

Additionally, CMS will stop accepting WCMSA proposals with a zero-dollar allocation after July 17, 2025. Proposals must now include an intent to place funds in the account.

When does Medicare become liable with a WCMSA?

Medicare remains the secondary payer when other sources—like workers’ compensation or liability settlements—are available to cover treatment.

This approach preserves taxpayer resources by ensuring Medicare doesn’t pay for services others should cover.

Therefore, if you get a settlement for a workplace injury, those funds will be used for related care and Medicare will only cover unrelated services. After the WCMSA funds are exhausted, Medicare may then pay for care tied to that injury.

Managing your Medicare set-aside

To create a WCMSA, submit a proposal via the WCMSA portal including your settlement amount and details about the injury or illness. You may need to estimate expected medical costs.

Medicare will review the submission and send its determination by mail. You have the right to appeal if you disagree with the outcome.

Once your WCMSA is approved and established, follow these management guidelines:

• Funds must be used exclusively for treatments and services connected to your settlement; they cannot be spent for unrelated purposes.
• The account must earn interest.
• Keep receipts and invoices for all settlement-related medical care.
• Pay only the usual and customary charges for services.
• Report your WCMSA expenditures to Medicare annually.
• Notify Medicare when the WCMSA has been depleted.

These rules ensure settlement dollars are applied to appropriate treatments. Maintaining records of how WCMSA funds are used is crucial because Medicare will not cover care for the injury until those funds are exhausted.

If you prefer to administer the account yourself, Medicare provides a self-administration toolkit. Still, professional assistance can help ensure Medicare accepts claims after your WCMSA is spent.

Where to find help setting up a WCMSA

You can call the Medicare Benefits Coordination & Recovery Center at 855-798-2627 for help with setting up a WCMSA.

Various professionals can assist with establishing a WCMSA, such as:

• Private attorneys
• Tax advisors
• Financial planners
• Account administrators

Seeking expert guidance is wise, particularly for complicated cases or large settlements. A knowledgeable professional can estimate the portion of your award that should be allocated to the WCMSA and help set up the account after Medicare’s approval.

For related planning, consider reviewing options like medicare plan e which may be relevant as you coordinate coverage and out-of-pocket costs.

Is it possible to close a WCMSA?

Closing a WCMSA requires approval. Under current rules, you cannot submit amended review requests until one year after case approval.

Beginning April 7, 2025, however, you’ll be able to request amendments at any time after approval.

Certain events can change how a WCMSA is managed, including these scenarios:

• If the WCMSA holder dies before funds are exhausted: You may designate a beneficiary. If you die after paying all outstanding claims, remaining funds can pass to your beneficiary.
• Overfunding: WCMSA amounts are estimates of future medical costs. If funds remain at year-end and treatment continues, excess funds roll forward. If treatment concludes, you can close the account and retain the leftover money.
• Underfunding: If Medicare approved the WCMSA but funds run out, Medicare will cover the treatment costs. Conversely, if you set up an unofficial WCMSA not approved by Medicare, related claims could be denied.

Frequently asked questions

Can I cash out my WCMSA?

Per the WCMSA Reference Guide, funds in the WCMSA may only be used for medical care or prescriptions tied to the work-related injury that Medicare would otherwise cover.

What happens to unused WCMSA funds?

Any remaining money in your WCMSA that is not spent will carry over into subsequent years.

How long does Medicare take to approve a WCMSA?

People report that approvals can take about a month, though processing times vary depending on the specifics of each case.

Summary

Settlement funds from workers’ compensation or certain liability claims can be allocated to a Medicare set-aside arrangement to pay for care tied to the injury.

A WCMSA covers treatment connected to the injury until those funds are depleted; Medicare won’t pay for related care until that time.

Improperly managing a WCMSA can lead to Medicare denying future claims. Using professional services to establish and administer the WCMSA can help prevent claim denials and ensure proper coordination of benefits.