Medicare Set Asides

What is a Medicare Set Aside?

Medicare is a government-provided health insurance program that assists certain people with hospital care, medical costs, and other expenses. Qualifying beneficiaries are 65 or older, those younger than age 65 with certain disabilities, and/or people of all ages with permanent kidney failure. If you are a Medicare beneficiary and are about to receive a settlement intended to pay for future injury-related expenses, you could lose your benefits if you do not consider Medicare’s rules and requirements.

Medicare is a “secondary payer,” which means that when an injured person has certain types of insurance coverage or compensation (such as a settlement), those payers are first responsible for a beneficiary’s related medical expenses. These additional sources might include:

  • Liability insurance (including self-insurance)
  • Group health plan insurance
  • No-fault insurance
  • Workers’ compensation, if applicable
  • The defendant in a personal injury case, if applicable

These parties are legally responsible for paying first for medical expenses related to the injury before Medicare pays. If those companies do not cover the full cost of services, Medicare may then become responsible for the balance of payment. Beneficiaries risk a denial of coverage for future medical expenses if the Centers for Medicare and Medicaid Services (CMS) determine that they are not appropriately considering Medicare’s interests. A Medicare set aside account is one way to avoid compromising this much-needed coverage.

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Types of Medicare set asides

A Medicare set aside is an account that is funded using a portion of an injured person’s settlement. There are two types of Medicare set asides:

  1. Workers’ compensation Medicare set-aside arrangement (WCMSA)
  2. Liability Medicare set-aside (LMSA)

Individuals can establish a WCMSA when they are going to receive money from a workers’ compensation claim. They can establish an LMSA when they will receive a personal injury settlement. The two types are largely similar in that they are both financial agreements that allocate a portion of a person’s settlement to pay for future medical services related to an injury, illness, or disease.

Is a Medicare set aside required in a liability case?

Establishing a Medicare set aside account is not mandatory. These funds are the U.S. Centers for Medicare & Medicaid Services’ (CMS) preferred method for overcoming primary payer issues, but all MSA arrangements are voluntary.

An MSA is often not recommended if the plaintiff is Medicare-eligible but none of the settlement money is meant to cover future medical care. On the other hand, an MSA might be helpful to maintain eligibility if some of the settlement proceeds are intended to cover injury-related expenses. Consider consulting with a settlement planner as early in the process as possible to determine whether an MSA is advisable.

Establishing a Medicare set aside

Funds for a Medicare set aside must be established under an insured account and may be managed by the injured plaintiff or administered through a custodial account. Milestone coordinates the administration and setup of Medicare set asides through a third party to ensure plaintiffs do not over-fund the account.

Our recommended four-step process is as follows:

  1. Determine if an MSA is necessary based on the individual’s anticipated settlement amount, potential cost of future related medical care, and current Medicare status and eligibility.
  2. Determine the appropriate allocation. An expert allocator will gather information about the beneficiary’s covered and non-covered medical needs.
  3. Prepare for compliance. Plaintiffs may choose to self-administer their Medicare set aside accounts. However, self-administration could mean making critical accounting errors and improperly using funds. A professional administration firm can handle the process instead to ensure proper use and management.
  4. Implement the most cost-effective funding solution. Medicare set asides can be funded in different ways. A member of our team can explain each option to determine which is best for the individual beneficiary.

By taking a logical, structured approach to the process, Milestone ensures that personal injury plaintiffs and workers compensation claimants comply with Medicare and that their future medical needs and Medicare eligibility will be protected.

How much money do I need for a Medicare set aside account?

Every case is different, but the following four factors generally determine the appropriate amount:

  • The settlement recovery amount.
  • The full value of the case if you went to trial or arbitration.
  • The amount allocated to future medical care.
  • Future Medicare-allowable medical treatment needed over the beneficiary’s lifetime.

One of our experienced settlement planners can assist you or your client in determining how much money is appropriate to place in the account.

What happens to a Medicare set aside after death?

What happens to unused Medicare set aside funds, such as in cases where the beneficiary passes away before the funds are gone? If the claimant has named a beneficiary on the Medicare set aside account and has passed away before the proceeds are exhausted, the remaining money will go to that person – but only the amount of money that is already in the account as cash. If there is no named beneficiary, then these funds pass in accordance with state intestacy statutes.

However, the majority of Medicare set asides are set up with life-only annuities with no remainder interest to beneficiaries – a potential windfall to the insurance company, but not to the beneficiary.

Getting professional assistance with Medicare compliance

Beneficiaries can either elect to self-administer Medicare set asides or retain a professional administration firm to handle the process. The decision between self-administering or retaining professional assistance is one that should be made by consulting with an unbiased expert, such as your attorney.

Interested in learning more about establishing a Medicare set aside? Contact Milestone for a free, no-hassle chat.