Written By

Greg Wohl

Licensed Medicare Specialist

Medicare is a secondary payer in situations where another party is responsible for your medical costs. This is known as the Medicare Secondary Payer (MSP) law. When you receive a settlement from a workers compensation claim, personal injury lawsuit, or liability insurance, Medicare wants to make sure that settlement money is used to pay for your future injury-related medical expenses before Medicare steps in.

A Medicare Set-Aside (MSA) is the mechanism for doing this. It is a financial arrangement where a portion of your settlement is set aside in a dedicated account to pay for future Medicare-covered medical expenses related to your injury.

Failing to properly account for Medicare's interests in a settlement can have serious consequences, including Medicare refusing to pay for future treatment related to the injury. This guide explains how MSAs work, when they are required, and what steps to take.

Key Takeaways

Medicare is a secondary payer to liability and workers comp: Under the Medicare Secondary Payer law, Medicare does not pay for medical expenses that another party (such as a workers comp insurer or liability carrier) is responsible for. Settlement money must be used for injury-related care before Medicare pays.
MSAs are most common in workers compensation settlements: Workers Compensation Medicare Set-Asides (WCMSAs) are the most established type. CMS has formal review thresholds for WCMSAs and will review and approve them under certain conditions.
CMS review thresholds determine when submission is recommended: CMS recommends submitting a WCMSA for review if the claimant is a Medicare beneficiary and the settlement is $25,000 or more, or if the claimant has a reasonable expectation of Medicare enrollment within 30 months and the settlement is $250,000 or more.
MSA funds must be used correctly or Medicare can deny claims: MSA funds must be spent only on Medicare-covered, injury-related medical expenses. If you exhaust the MSA appropriately, Medicare will then cover future injury-related care. If you misuse the funds, Medicare can refuse to pay.
Conditional payments must be repaid: If Medicare paid for injury-related treatment before your settlement, those are conditional payments that must be repaid to Medicare from your settlement proceeds.
Professional MSA allocation is strongly recommended: MSA calculations are complex and must account for future medical costs, life expectancy, and Medicare's interests. Errors can be costly. Work with an attorney and a qualified MSA professional.

What Is the Medicare Secondary Payer Law?

The Medicare Secondary Payer (MSP) law, enacted in 1980, establishes that Medicare pays secondary to other available coverage in certain situations. When a workers compensation insurer, liability insurer, no-fault insurer, or other responsible party is obligated to pay for your medical expenses, Medicare is not the primary payer.

This means that if you are injured in a car accident and the at-fault driver's liability insurance is responsible for your medical bills, Medicare should not be paying those bills. If Medicare does pay them (often because the settlement has not yet been resolved), those are called conditional payments and must be repaid to Medicare when you receive your settlement.

The MSP law applies to:

Workers compensation settlements
Liability insurance settlements (auto accidents, slip and fall, medical malpractice, etc.)
No-fault insurance (personal injury protection)
Self-insured entities

The law applies whether you are currently enrolled in Medicare or have a reasonable expectation of enrolling within 30 months (for example, if you are receiving Social Security Disability Insurance and are approaching the 24-month Medicare eligibility threshold).

What Is a Medicare Set-Aside and How Does It Work?

A Medicare Set-Aside (MSA) is a portion of your settlement that is allocated specifically to pay for future Medicare-covered medical expenses related to your injury. The purpose is to protect Medicare's interests by ensuring that settlement funds are used for injury-related care before Medicare is asked to pay.

How the funds work:

The MSA amount is calculated based on your expected future medical needs related to the injury, your life expectancy, and Medicare's payment rates for those services
The funds are typically held in a separate interest-bearing account
You pay for Medicare-covered, injury-related medical expenses from the MSA account
You must keep records of all MSA expenditures and submit annual attestations to CMS (for CMS-approved WCMSAs)
Once the MSA funds are exhausted (spent appropriately), Medicare becomes the primary payer for future injury-related care

What happens if you do not set aside funds: If you settle your claim without properly accounting for Medicare's interests and then seek Medicare coverage for injury-related care, Medicare can deny those claims. In some cases, Medicare can also seek recovery from your attorney, the settling insurer, or other parties involved in the settlement.

Workers Compensation Medicare Set-Asides (WCMSAs)

Workers Compensation Medicare Set-Asides (WCMSAs) are the most common and most formally regulated type of MSA. CMS has established a voluntary review process for WCMSAs.

CMS review thresholds (as of 2026):

The claimant is a current Medicare beneficiary and the total settlement amount is $25,000 or more
The claimant has a reasonable expectation of Medicare enrollment within 30 months (e.g., is receiving SSDI) and the total settlement amount is $250,000 or more

If your case meets these thresholds, CMS recommends submitting the WCMSA proposal for review and approval. While submission is technically voluntary, having CMS approval provides significant protection. If CMS approves the MSA amount, Medicare will not challenge the adequacy of the set-aside later.

The WCMSA review process:

A qualified MSA professional prepares a WCMSA proposal documenting future medical needs and costs
The proposal is submitted to CMS through the Workers Compensation Review Contractor (WCRC)
CMS reviews and either approves the proposed amount or issues a counter-proposal
Review typically takes 4 to 6 months, though complex cases can take longer

For settlements below the review thresholds, parties can still voluntarily submit for review or self-administer an MSA without CMS approval. However, the adequacy of the set-aside may be challenged later.

Liability Medicare Set-Asides (LMSAs)

Liability Medicare Set-Asides (LMSAs) apply to personal injury settlements, including auto accidents, slip and fall cases, and medical malpractice. Unlike WCMSAs, CMS does not have a formal review process for LMSAs.

This creates uncertainty. CMS has issued guidance stating that settling parties should consider Medicare's interests in liability settlements, but has not established formal thresholds or a review process comparable to the WCMSA program.

In practice, many attorneys handling significant liability settlements involving Medicare beneficiaries will prepare an LMSA or take other steps to protect Medicare's interests, such as:

Preparing a formal LMSA allocation by a qualified MSA professional
Documenting that the settlement does not include future medical expenses (if the injury has fully resolved)
Obtaining a conditional payment demand from Medicare and repaying any conditional payments from the settlement

The risk of not addressing Medicare's interests in a liability settlement is real. Medicare can seek recovery from the settling parties, including the plaintiff's attorney, under certain circumstances.

If you are a Medicare beneficiary settling a liability claim, discuss MSA considerations with your attorney early in the process. Our team can help connect you with the right resources. Contact us for guidance.

Conditional Payments: Repaying Medicare Before You Keep Your Settlement

Before you finalize any settlement, you must address Medicare's conditional payments. If Medicare paid for any medical treatment related to your injury while your claim was pending, those payments are conditional and must be repaid to Medicare from your settlement proceeds.

How to identify and resolve conditional payments:

Request a conditional payment letter: Contact the Benefits Coordination and Recovery Center (BCRC) at 1-855-798-2627 or log in to the Medicare Secondary Payer Recovery Portal at msprc.medicare.gov to request a conditional payment letter
Review the list: The conditional payment letter lists all claims Medicare paid that may be related to your injury. Review it carefully with your attorney, as not all listed claims may actually be related to your injury
Dispute unrelated claims: If Medicare included claims unrelated to your injury, you can dispute them before settlement
Repay at settlement: The final conditional payment amount must be repaid to Medicare from your settlement proceeds before you receive your net settlement

Failing to repay conditional payments can result in Medicare pursuing recovery from you, your attorney, or the settling insurer.

For more information on how Medicare coordinates with other coverage, see our overview of Medicare Supplement plans and how they interact with primary coverage.

Medicare Set-Aside: Key Steps to Protect Yourself

If you are settling a workers compensation or personal injury claim and are a Medicare beneficiary (or will be within 30 months), here are the essential steps:

Identify conditional payments early: Contact the BCRC before settlement to get a conditional payment letter and resolve any disputes
Work with a qualified MSA professional: Have a certified MSA allocator prepare your set-aside calculation; do not estimate this yourself
Consider CMS submission for WCMSAs: If your workers comp settlement meets the review thresholds, submit for CMS approval to protect against future challenges
Repay conditional payments at settlement: Ensure conditional payments are repaid from settlement proceeds before distribution
Administer the MSA correctly: Keep records of all MSA expenditures and submit required annual attestations

This is a complex area where mistakes can cost you Medicare coverage for future injury-related care. Work with an attorney experienced in Medicare Secondary Payer law. Our advisors can help you understand how your Medicare coverage is affected by your specific situation.