A Medicare Set-Aside — usually called an MSA or WCMSA — is one of the most misunderstood pieces of a workers’ comp settlement. Skip it when you shouldn’t, and Medicare can legally refuse to pay for anything related to your work injury for years after the check clears. Here’s how the system actually works.
What an MSA actually is
An MSA is a portion of your workers’ comp settlement that gets carved out and dedicated to paying for future medical treatment related to your work injury — specifically, the treatment that Medicare would have covered if the injury hadn’t happened. The money sits in a separate account, and you spend it down before Medicare picks up the tab.
The MSA isn’t a tax. It isn’t a fee paid to the government. It’s still your money — you just can’t spend it on anything other than Medicare-covered treatment for the body parts and conditions tied to the claim. Once it’s exhausted properly, Medicare takes over.
Why CMS requires this
The Medicare Secondary Payer Act of 1980 says Medicare is the secondary payer when another source — like a WC carrier — is legally responsible for your medical bills. If you settle your WC claim for a lump sum that includes future medical, Medicare’s position is simple: that money was supposed to pay for your injury care, not Medicare.
CMS (the Centers for Medicare & Medicaid Services) created the WCMSA review process to enforce this. Without the set-aside, Medicare can refuse coverage for any injury-related claim until they’re satisfied that the settlement money was actually used the way it was supposed to be.
Who actually needs one
CMS has two formal review thresholds. You meet the thresholds for CMS review if either of these is true:
- You’re already a Medicare beneficiary and the total settlement is more than $25,000.
- You have a “reasonable expectation” of Medicare enrollment within 30 months (typically because you’ve applied for SSDI, are 62.5+, or have end-stage renal disease) and the total settlement is more than $250,000.
Below those thresholds, CMS won’t formally review your MSA — but the Medicare Secondary Payer obligation still exists. Plenty of attorneys still build an MSA even on sub-threshold settlements, just without sending it to CMS, to protect the worker from later Medicare denials.
How the approval process works
If you cross the thresholds, the typical workflow goes like this:
- An MSA vendor or allocator prepares a written report projecting your future Medicare-covered treatment, priced at Medicare-allowable rates, over your life expectancy.
- The report is submitted to the WCMSA review contractor through CMS’s online portal.
- The reviewer either approves the proposed amount, counters with a higher number, or asks for more documentation. The process usually takes 30 to 90 days.
- Once approved, the settlement closes with the MSA amount carved out as a specific line item.
CMS approval isn’t technically required by law — the statute just requires that Medicare’s interests are “reasonably considered.” But approval is the gold standard because it’s the only way to get written confirmation that you did it right.
Where the money sits after settlement
Once the settlement funds, you have two options:
- Self-administration. The injured worker opens a separate, interest-bearing account, deposits the MSA funds there, and personally tracks every spend. CMS requires annual attestations showing what was paid and to whom. Cheap, but the paperwork burden is real, and a sloppy ledger can cost you Medicare coverage later.
- Professional administration. A third-party company — Ametros, Sapphire, MSA Solutions, and others — holds the funds, pays providers at Medicare-allowable rates, files the annual reports, and handles disputes. Costs a setup fee plus ongoing fees, but you don’t touch the paperwork.
For larger MSAs, or for any worker who isn’t confident navigating Medicare billing, professional administration is usually worth the cost.
What happens if you skip the MSA
This is the trap. Settle without considering Medicare’s interests and Medicare can deny coverage for any treatment related to the injured body part — surgery, prescriptions, physical therapy, durable medical equipment — until the amount they think should have been set aside is exhausted.
You pay out of pocket the entire time. There’s no statute of limitations on Medicare’s right to recover or refuse. Workers have been denied injury-related Medicare coverage 10+ years after a settlement because no MSA was funded.
How the MSA amount gets calculated
Allocators don’t pull a number out of the air. The projection is built bottom-up:
- Medical records review. The allocator reads every treating physician note, every prescription history, every imaging report.
- Future treatment plan. Each anticipated item gets projected by frequency — PT sessions per year, office visits, injections, the probability of a future surgery.
- Medicare-allowable pricing. Every line item is priced at the Medicare fee schedule for the relevant locality, not the WC fee schedule (which is usually higher).
- Prescriptions priced separately. Drugs use the Average Wholesale Price or the Red Book, with adjustments for generic availability.
- Life expectancy. Standard CDC tables, or rated-age tables if your treating doctor documents that serious comorbidities shorten life expectancy.
The mistakes that bite workers later
Three common ways MSAs go wrong:
- Under-funding. A low-ball allocation runs out years before Medicare expected. The worker pays out of pocket for everything until the “phantom” remaining balance burns down on paper.
- Miscategorized future surgery. If a knee replacement is realistic but excluded from the MSA, that surgery isn’t a Medicare expense later — the worker eats the cost.
- Missing prescription costs. Long-term opioid, neuropathic pain, or anti-inflammatory regimens are the single biggest driver of MSA size. Skipping or undercounting prescriptions is the most common reason CMS counters with a higher number.
How an MSA fits with the rest of your settlement
The MSA is just one component of what gets carved out of a WC settlement. You also have to think about indemnity (lost wages), the value of permanent impairment, and how taxes hit each piece. We cover the full structure in our settlement guide and the tax map in how WC benefits are taxed — the MSA corpus itself, and any qualified disbursements from it, are tax-free.
When to bring in an attorney
An MSA is one of the few WC topics where going it alone almost never makes sense. The allocator works for whoever hires them — if that’s the carrier’s allocator, the number trends low. Having your own attorney (and often your own allocator) is how the projection comes out fair. Browse our WC attorney directory or use the lawyer-finder to start.
For background on the broader claim mechanics, the workers’ comp FAQ hub and first-72-hours playbook cover what comes before settlement. If your claim was denied, start with the denial-appeal guide — there’s no MSA conversation until there’s an accepted claim.