Medicare Set-Aside (MSA): Workers’ Comp Settlement Guide

A Medicare set-aside (MSA) is money from a workers’ comp settlement that is reserved to pay for future injury-related medical care that Medicare would otherwise cover. It matters mainly when you are on Medicare, or expect to be soon, and your settlement closes future medical care, as a compromise and release usually does. Medicare generally won’t pay for that care until the set-aside money is properly spent.

Why Medicare set-asides exist

Under the Medicare Secondary Payer law (42 U.S.C. §1395y(b)), workers’ comp is supposed to pay first for work-injury care. Federal regulations treat a lump-sum workers’ comp compromise as a workers’ comp payment, and Medicare won’t pay for care when a settlement shifts the cost of future injury-related treatment onto Medicare (42 CFR §411.46).

An MSA is the usual way to show that a settlement accounts for Medicare’s interests. According to CMS, the set-aside funds “must be depleted before Medicare will pay for treatment related to the workers’ compensation injury.”

When an MSA comes up

An MSA is mainly a concern when two things are true: your settlement closes future medical care, and you are on Medicare or likely to be soon. In California, that usually means a compromise and release (C&R). According to the Division of Workers’ Compensation, once a C&R is approved the claims administrator usually isn’t liable for further medical care. A stipulated award keeps the insurer responsible for your injury-related care, so it usually doesn’t raise the same issue.

CMS will review a proposed workers’ comp MSA if either applies:

These are the points at which CMS will review a proposal. Falling below them doesn’t mean Medicare’s interests can be ignored; it means CMS generally won’t review the MSA. CMS also states that no statute or regulation requires submitting a proposal for review, though it recommends the process.

Whether you “reasonably expect” Medicare enrollment depends on CMS’s criteria and your circumstances. If you have applied for Social Security Disability benefits or are approaching Medicare age, raise the question early.

What the set-aside covers

• Covered: future medical care for the accepted work injury that Medicare would normally pay for, such as doctor visits, surgery, prescription drugs, therapy and medical equipment.
• Not covered: care Medicare doesn’t cover, care for unrelated conditions, and the non-medical parts of your settlement such as permanent disability money.

The amount is usually estimated from your medical records, your doctors’ treatment recommendations, your prescription history and pricing rules, often by a vendor that prepares MSA allocations. The estimate should reflect the treatment you are actually expected to need.

A hypothetical example

Ana, 66, is on Medicare and has an accepted shoulder injury. Her doctor expects she will need injections and possibly surgery. The insurer offers a $150,000 C&R that would close future medical care. Because she is a beneficiary and the settlement exceeds $25,000, it meets CMS’s review threshold. If the parties agree that $40,000 of the settlement will fund an MSA, Ana would use that money for her injury-related, Medicare-covered care first. Once it is properly spent, Medicare would then generally cover that care.

The point for Ana: the $40,000 isn’t extra money to spend freely, so she should compare the rest of the offer with what she would get under a stipulated award that keeps medical care open.

Funding and managing an MSA

• Funding. An MSA may be funded in one lump sum or in a structured way, such as an initial deposit followed by annual payments.
• Self-administration or professional administration. You can manage the account yourself, or a professional administrator can pay providers for you.
• Use the money correctly. Spend it only on Medicare-covered care for the work injury, and keep records of every deposit and payment. CMS offers a transaction record template and a self-administration toolkit.
• Annual attestation. CMS requires an annual attestation that the funds in a self-administered account were used correctly.
• Don’t bill Medicare first. Until the set-aside is properly exhausted, bills for injury-related care should be paid from the account.

What happens if Medicare’s interests are ignored

If a settlement shifts future medical costs to Medicare, Medicare may refuse to pay for injury-related treatment until the amount that should have been set aside has been spent. Separately, if Medicare already paid for injury-related care before your settlement, it may seek repayment of those conditional payments from the settlement. Both issues can leave you paying out of pocket.

How MSAs fit into a California settlement

No C&R is valid until a workers’ compensation judge approves it (Labor Code §5001), and the judge must look at whether the settlement is adequate (8 CCR §10700). If an MSA is part of the deal, the settlement documents should describe it. Other deductions also matter, such as attorney’s fees and liens; see liens on a workers’ comp settlement.

1. Tell your attorney about Medicare early. Include any Social Security Disability application or upcoming Medicare eligibility.
2. Get your doctor’s future-care plan. The MSA should match your real needs.
3. Ask for the full breakdown. See how much goes to the MSA, fees, liens and you.
4. Compare it with a stipulated award. Keeping medical care open may be better if you expect ongoing treatment. Our guide on whether to accept a settlement offer can help.

Frequently asked questions

Is a Medicare set-aside required by law?

No statute or regulation requires you to submit an MSA to CMS for review. But federal rules protect Medicare from paying for care a settlement was meant to cover, so most settlements that close medical care for Medicare beneficiaries address it.

Do I need an MSA if my settlement is under $25,000?

CMS generally won’t review it, but Medicare’s interests still need to be considered if the settlement closes future medical care. Ask your attorney how the settlement handles this.

Does a stipulated award need an MSA?

Usually not, because the insurer remains responsible for your injury-related medical care.

Can I use MSA money for anything else?

No. It is for Medicare-covered care related to your work injury. Other uses can cause Medicare to deny injury-related care.

What happens when the MSA money runs out?

Once the funds are properly spent and documented, Medicare generally becomes responsible for covered injury-related care.

Talk to a California workers’ comp lawyer

Employees First Labor Law represents workers exclusively, including injured workers deciding whether to close future medical care. We offer free virtual consultations to review a settlement offer before you sign. Contact us online or call (310) 853-3461.

This article is general information about California law as of 2026, not legal advice for your situation. Reading it does not create an attorney-client relationship.