What is Medicare Set-Aside?
A Medicare Set-Aside is an account created in the settlement of a workers’ compensation case. The interest bearing account is created from a portion of the settlement proceeds to be used to pay future medical expenses that are (1) related to the job injury; and (2) would otherwise be payable by Medicare.

When are Medicare Set-Asides Required?
A Medicare Set-Aside (MSA) is required in the settlement of any workers’ compensation case in which future medical benefits are closed and either of the following exists:

Either the injured worker is, at the time of settlement, a Medicare beneficiary (regardless of the amount of the settlement) OR The settlement amount is greater than $250,000 and the injured worker can reasonably be expected to become a Medicare beneficiary within 30 months of the settlement.

Who are Medicare Beneficiaries?
Medicare is a federal insurance program that provides benefits for certain medical and hospital expenses for anyone who:

Is 65 years of age or older; or
Has been receiving Social Security Disability Income benefits for 24 months or more; or
Is suffering from end-stage renal disease.

Who can “reasonably be expected to become a Medicare beneficiary within 30 months?”
A person is reasonably expected to become a Medicare beneficiary within 30 months if at the time of settlement of the workers’ compensation case, he or she:

Is between the ages of 62 ½ and 65; or
Has applied for or been approved for Social Security Disability Income benefits; or
Has been denied Social Security Disability Income benefits but anticipates appealing within 30 months the decision; or
Has an end-stage renal disease but does not yet qualify for Medicare.

How is the MSA fund Created?
Generally, four steps are involved in setting up the MSA fund

Analysis of the claim and medical information in order to determine the amount of money needed to put into the fund
Negotiations of a tentative settlement and preparation of draft settlement documents to settle the workers’ compensation case, incorporation terms for creation and administration of the MSA fund
Obtaining approval of the Centers of Medicare and Medicaid Serves (CMS) of the settlement, the MSA fund amount and the proposed administration of the MSA fund.
Finalizing the settlement and funding the MSA.

How is the Set-Aside amount determined?
Typically, the MSA fund amount is determined by expert analysis of the claim and medical information, considering many factors, including:

Date of and basis for entitlement to Medicare
Type and extent of injury or illness
Age of the injured worker and impact of injury or illness on life expectancy
Extent of disability
Prior and future medical needs related to the job injury
Compensability period
Medical prognosis
Medical expense inflation
Reduction to present value
Medicare coverage limitations
Workers’ compensation fee schedules

How is the MSA funded?
The MSA can be funded either by a lump sum payment from the employer/insurer or by the employer/insurer purchasing a structured settlement annuity or both. Since the typical MSA is to cover medical expenses incurred over a period of several years, it often is less expensive to fund the MSA with a structured settlement annuity. For example, to establish an MSA for a 60-year-old female with a life expectancy of 23 years and expected future Medicare-covered medical expenses of $2,000 per year would require a lump sum payment of more than $55,000. Alternatively, the MSA could be funded with a structured settlement annuity costing thousands of dollars less. A big advantage of funding an MSA with an annuity is that in any year in which the covered medical expenses exceed the balance in the MSA fund, Medicare will cover the medical expenses until the next annuity payment is received.

Who administers the MSA fund?
The fund can be administered either by the injured worker (“self-administered”) or by a third- party trustee, such as a guardian or a trust company. If a third-part does administer the fund, any administration fees will need to be considered in determining the amount to be set-aside. In most cases, a third-party administrator is the best recommendation for the administration of MSA.

What is involved in administration the MSA fund?
The money is deposited in an interest-bearing account, from which Medicare-covered medical expenses related to the job injury will be paid as of the date the injured worker qualified for of Medicare. The fund administrator receives the injured worker’s medical bills, makes sure the expenses are covered by Medicare and are related to the job injury, makes payment, retains copies of all bills and proof of payment, makes annual reports to CMS and makes a final accounting when the funds are exhausted or when the fund is no longer needed.