Medicare Set-Asides (MSAs) in Virginia Workers’ Compensation Settlements

Your Workers’ Comp Settlement Must Address Medicare’s Interests. A Medicare Set-Aside Is Often How You Do That.

A workers’ compensation settlement can affect whether Medicare pays for future medical treatment related to your work injury or occupational disease.

If you are already a Medicare beneficiary – or may become Medicare eligible after settlement – you need to determine how Medicare’s interests affect the medical part of your workers’ compensation claim. The issue is especially important if you reasonably expect to enroll in Medicare within the next 30 months because the Centers for Medicare and Medicare Services (CMS) uses that period in its WCMSA review thresholds

Considering Medicare’s interests does not prevent you from settling.

Nor does it mean that every injured worker needs a Medicare Set-Aside approved by the Centers for Medicare & Medicaid Services (CMS) before receiving a lump sum settlement.

But if your settlement closes your right to future medical care for the work injury, you must understand who Medicare expects to pay for that care – and how much – before Medicare takes responsibility.

A Workers’ Compensation Medicare Set-Aside Arrangement, usually called a WCMSA or Medicare Set-Aside (MSA), is the method CMS recommends to protect its interests when a settlement includes money for future Medicare-covered medical expenses.

This guide explains:

• • What a Medicare Set-Aside is and how it works
  • When Medicare’s interests are actually in play – and when they are not
  • When CMS reviews a proposed MSA
  • When the Virginia Workers’ Compensation Commission requires you and the insurer to request CMS review of a proposed settlement
  • How the MSA amount is determined, and why the assumptions behind it matter
  • Whether the MSA comes out of your settlement or is paid on top of it
  • Lump-sum versus structured funding
  • Who controls and administers the money after settlement
  • What CMS’s 2025 rule changes mean for your case.

  Before anything else, understand the point most injured workers miss: a Medicare Set-Aside is not a form you fill out after the deal is done. It is part of the deal. A $500,000 settlement that swallows a $300,000 MSA and a $500,000 settlement with the carrier funding a $300,000 MSA separately are described the same way, but are not remotely the same deal. The latter is much better for you. I spent years defending insurance carriers before I began representing injured workers, so I know how the other side builds these numbers – and where the MSA gets buried.

  What Is the Relationship Between Medicare and Workers’ Compensation?

  Medicare is a federal health insurance program available to many people who are age 65 or older, who qualify for Medicare after receiving Social Security Disability Insurance (SSDI) benefits, regardless of age, or who qualify because of end-stage renal disease or another qualifying basis.

  Workers’ compensation and Medicare overlap when an injured employee who has Medicare – or may soon become eligible – needs treatment for a work injury. The Medicare Secondary Payer (MSP) Act generally makes Medicare a secondary payer when another plan has primary responsibility for those medical expenses, and workers’ compensation is one type of primary plan. Section 1862(b) of the Social Security Act, codified at 42 U.S.C. § 1395y(b), generally prohibits Medicare from paying for care to the extent that workers’ compensation has already made payment or can reasonably be expected to do so. Medicare may consider coverage of medical bills, payment of wage-loss benefits, or a negotiated settlement as “payment.”

  In a Virginia workers’ compensation case, the employer or its insurance carrier is generally responsible for reasonable, necessary, and authorized medical treatment causally related to a compensable work injury or illness. You do not shift that responsibility to Medicare just because you turn 65, qualify for Medicare, or settle your claim.

  That is the basic principle behind a Medicare Set-Aside. CMS does not want to foot the bill for treatment that the workers’ comp insurer or your employer should cover.

  What Is a Workers’ Compensation Medicare Set-Aside?

  A WCMSA allocates part of the settlement to pay for future medical care related to the work injury that Medicare would otherwise cover.

  The MSA funds are not unrestricted settlement money. Suppose your settlement includes a $200,000 CMS-approved WCMSA. You cannot spend that $200,000 on a house, a vehicle, a vacation, or ordinary living expenses and then ask Medicare to pay for treatment related to your work injury. The funds must be used properly for qualifying injury-related medical care. Misuse those funds, and Medicare may refuse to pay for additional work-injury treatment until you show that you have spent an equivalent amount on qualifying medical care. In a $200,000 MSA, that can leave you personally responsible for a lot of treatment.

  After the WCMSA funds are properly exhausted and the administration requirements are satisfied, Medicare may resume paying for Medicare-covered treatment related to the work injury.

  Does Medicare Prevent Me from Settling My Workers’ Comp Case?

  No. You can settle a workers’ compensation claim even if you receive Medicare or expect to become eligible within the next 30 months.

  You should consider the Medicare issue if your settlement closes the insurer’s responsibility for future medical treatment. For example, if you have a lifetime medical award for a work-related back injury, and your doctors expect you to need future injections, prescription medication, pain management, or even a lumbar fusion surgery, you should think about how to handle Medicare’s rights if the lump sum offer closes your right to future medical benefits.

  Medicare does not automatically become responsible for that work-related treatment the day after you settle. The settlement may need to account for the future Medicare-covered expenses related to your injury, and a WCMSA is the method CMS recommends for doing that.

  Do I Need a Medicare Set-Aside?

  The better starting question is whether Medicare’s interests are implicated by your settlement at all. Even experienced attorneys confuse three separate issues, and keeping them apart is where good MSA planning starts.

  1. Do you have to consider Medicare’s interests? Yes. The MSP rules require the parties to consider Medicare’s interests when a settlement ends the insurer’s responsibility for future medical expenses.

  2. Should my settlement include a WCMSA? Maybe. Whether you should allocate a part of your workers’ comp settlement to future Medicare-covered expenses through an MSA depends on several factors and the parties’ appetites for risks. Do not make this decision lightly. Once settlement funds are formally allocated to a WCMSA, those funds become subject to spending, recordkeeping, and administration restrictions that do not apply to unrestricted settlement proceeds.

  3. Do I have to submit the proposed WCMSA to CMS? Not under federal law. Submitting an MSA to CMS is not mandatory; however, CMS will review a proposed MSA amount if your settlement amount and Medicare-eligibility situation meet its review thresholds. In my experience, the Virginia Workers’ Compensation Commission will not approve a settlement meeting CMS’s WCMSA review thresholds unless the proposed MSA has been submitted to CMS and approved. I have pushed back on this settlement-review practice, without success. So although federal law does not make CMS submission mandatory, Virginia Commission settlement practice can effectively make CMS approval necessary when a proposed settlement meets the review thresholds.

  As you can see, determining whether you need an MSA requires analysis of multiple issues. Falling below a CMS review threshold does not mean that you can ignore Medicare’s interests. Although a federal statute does not require you to submit an MSA to CMS, Virginia requires you to do so if you meet one of the review thresholds.

  When Will CMS Review a Proposed Medicare Set-Aside?

  CMS currently reviews a proposed WCMSA when either:

  • • The injured worker is a Medicare beneficiary, and the total settlement is greater than $25,000; or
    • • The injured worker has a reasonable expectation of Medicare enrollment within 30 months of settlement, and the anticipated total settlement exceeds $250,000.

      CMS identifies several situations that create a reasonable expectation of enrollment within 30 months, including an injured worker who has applied for SSDI benefits, has been denied SSDI but anticipates appealing, is appealing an SSDI denial, is at least 62 years and 6 months old, or has end-stage renal disease but does not yet qualify for Medicare on that basis.

      This is one reason you cannot always analyze workers’ compensation and SSDI claims separately. When I represent an injured worker with a significant comp claim and a pending SSDI claim, I want to know the status of both before negotiating a full and final settlement.

      How Much Money Goes Into a Medicare Set-Aside?

      No one-size-fits-all rule applies to determining the value of an MSA. Nor does the law require that a fixed percentage be deposited into the account.

      Instead, the appropriate MSA amount depends on the facts of your case, including how much medical treatment you have already received versus what you anticipate needing when the case settles. CMS draws on medical records, treatment history, prescriptions, physician recommendations, anticipated surgery, projected pain-management care, and other case-specific information.

      In many significant settlements, such as those involving traumatic brain injury (TBI) or paralysis from a spinal cord injury (SCI), an MSA vendor prepares the proposed allocation. But I do not treat the MSA report as automatically correct just because a vendor generated it. The assumptions are what matter:

      • • Does the allocation include a surgery that the treating physician no longer recommends?
        • Does it project an expensive medication that the injured worker stopped taking?
        • Does it omit any treatment that the treating doctor recently recommended?
        • Did the vendor rely on outdated medical records?
        • Is one high-cost prescription driving hundreds of thousands of dollars in projected expense?

        A large WCMSA can dramatically move settlement negotiations. That is why the MSA is more than a Medicare compliance document. In the right case, with correct assumptions, it is a settlement valuation document.

        Does the Medicare Set-Aside Come Out of My Workers’ Comp Settlement?

        It depends entirely on how you negotiate the settlement – and this is the single most important thing to get right if you are the injured worker.

        Consider two offers. In the first, the carrier agrees to a total settlement value of $500,000, including the proposed $300,000 WCMSA. That leaves $200,000 of the gross settlement outside the MSA, before you pay an attorney’s fee, costs, and any requests for reimbursement for conditional payments or private health care plan expenditures. In the second, the carrier pays $500,000 to resolve the other settlement components and separately funds the $300,000 WCMSA.

        Some may call both a “$500,000 settlement.” But as far as changing your financial future, they are worlds apart.

        This is why I never evaluate a significant settlement on the headline cash number alone. The terms that actually determine what the deal is worth are these:

        • • How much cash do you receive directly?
          • What is the WCMSA amount?
          • Is the MSA included in or added to the cash settlement?
          • Is the MSA funded by a lump sum or a structured arrangement (an annuity)?
          • Who pays for professional administration, if used?
          • Do you receive separate funds for non-Medicare-covered medical expenses?
          • What wage-loss and other benefits will end?

          As your attorney, I negotiate for the employer or its carrier to fund the WCMSA. I want the settlement documents to state – in writing – the MSA amount, who is funding it, whether it is inside or outside the cash settlement, whether the insurer funds it in a lump sum or with an annuity, when you will receive the funds, and whether the insurer pays for a company to administer the account or you will self-administer it. A catastrophic injury can produce a substantial future medical allocation, and “we’ll fund the MSA” means very different things depending on the terms. Do not assume. These are settlement terms, and I treat them that way.

          Lump-Sum vs. Structured Medicare Set-Asides

          A WCMSA can generally be funded through a lump sum or a structured arrangement.

          With a lump-sum WCMSA, the entire amount is funded at once – if the approved MSA is $400,000, the full $400,000 is deposited into an interest-bearing account. I often prefer lump-sum funding from the injured worker’s perspective, because you can access the full amount immediately. This is important if you are not yet Medicare-eligible and have an upcoming surgery.

          A structured WCMSA uses an initial deposit – often called seed money – followed by scheduled annual payments that fund the remainder of the allocation over time. Structured funding makes a large future medical allocation less expensive for a carrier to fund. While making things cheaper for the insurer is not a priority for claimants’ attorneys like me, it can free up extra cash for you to receive in a lump sum outside of the MSA.

          Who Controls the MSA Money After Settlement?

          A WCMSA may be self-administered or professionally administered.

          If you self-administer, you are responsible for using the funds properly, maintaining records, tracking all expenditures, and complying with CMS’s administrative requirements. Professional administration shifts much of that to a company that manages the account and the payment process. I recommend professional administration whenever the insurer agrees to pay for it, and in cases involving complicated treatment, cognitive limitations, or very large MSAs.

          I have handled workers’ compensation settlements involving CMS-approved MSAs exceeding $800,000. At that level, administration is not a minor detail – the injured worker may be responsible for a medical fund larger than many people’s retirement accounts. The real question is not whether you can self-administer the MSA. It is whether you want to be personally responsible for knowing and following Medicare’s regulations over the next several decades, when an error may cost tens of thousands of dollars from your own pocket.

          What Happens When the Medicare Set-Aside Runs Dry?

          If a lump-sum WCMSA is properly exhausted, Medicare will resume paying for Medicare-covered expenses related to the work injury once the funds have been properly spent and accounted for. Structured MSAs work somewhat differently: because the arrangement receives annual funding, if the available funds for a given year are exhausted, Medicare may pay for otherwise-covered injury-related care until the next scheduled deposit, subject to CMS’s rules.

          Proper administration and documentation matter here. You cannot tell Medicare the money is gone and hope they say “that’s fine, we’ll pick up the rest.” You must document how you spent the WCMSA funds so you can show you spent them appropriately.

          Similarly, hoping that CMS will not find out about the settlement and the WCMSA is a bad strategy. Since April 2025, CMS has required insurers to report Medicare Set-Aside information.

          Can Medicare Pay My Medical Bills While My Workers’ Comp Claim Is Disputed?

          Sometimes. If you are Medicare-eligible, Medicare may make a conditional payment when a workers’ compensation carrier has not paid promptly – or if it does not initially identify the medical treatment as work-related.

          But “conditional” is the key adjective: if Medicare pays for treatment the carrier was responsible for, Medicare may seek reimbursement once the insurer pays any workers’ compensation benefits, including a settlement where the insurer denies responsibility or compensability.

          Conditional payments and WCMSAs address different periods. A conditional-payment involves past medical expenses, while a WCMSA addresses future medical needs. You need to confirm who is responsible for handling both before you finalize a settlement. Otherwise, CMS may come calling months or years later.

          What Happens If I Ignore Medicare’s Interests?

          You may create an expensive gap in your own medical coverage. Here is why: you settle, the settlement closes your right to future treatment, the carrier stops paying your medical bills, and then Medicare determines that settlement funds should have covered the work-related care. Now you are arguing over who pays for treatment after the carrier has already closed its file.

          Proactively analyzing these Medicare Secondary Payer issues is how you prevent this nightmare scenario. As your attorney, I want to protect your access to future medical care after you settle.

          Will CMS Review and Approve a $0 Medicare Set-Aside?

          Not anymore.

          Effective July 17, 2025, CMS stopped accepting or reviewing WCMSA proposals with a zero-dollar allocation. Before that change, parties sometimes submitted $0 WCMSAs in disputed cases, and I obtained CMS approval of $0 WCMSAs under the former process. CMS no longer reviews those proposals.

          That does not mean a zero-dollar future-medical allocation is always inappropriate. CMS continues to identify circumstances where a zero-dollar MSA may be justified. And I have obtained approval of settlements containing $0 allocations from the Virginia Workers’ Compensation Commission. But CMS will not approve a $0 WCMSA under the current process – and that distinction matters, because you no longer get CMS’s sign-off to rely on. The supporting documentation must stand on its own.

          Why a Medicare Set-Aside Can Change What Your Settlement Is Worth

          An MSA can reveal how the carrier thinks, or hopes, your future medical treatment will play out.

          Suppose the carrier values your future treatment as occasional office visits and medication, but the medical evidence supports a future spinal surgery, long-term pain management, and expensive drugs. The carrier’s original valuation no longer reflects its real future exposure. And you can point out these incorrect assumptions when anchoring the insurer to a higher settlement number with your first demand.

          The reverse happens too: an allocation may project treatment or medication that is no longer medically expected, and if no one checks the assumptions, the parties negotiate around a future-medical number that doesn’t match the actual treatment plan. This scenario is much less common.

          Should I Accept a Workers’ Comp Settlement Before the MSA Is Completed?

          Be careful. I generally do not want an injured worker agreeing to a final number without understanding a potentially significant Medicare Set-Aside issue.

          Suppose you agree to “settle for $400,000,” and then the proposed WCMSA comes back at $250,000. Is the carrier funding that $250,000 on top of the $400,000, or is it now telling you the MSA was baked into the offer all along? Those are two very different settlements – and by the time you find out, you may have already shaken hands on the wrong one. Fortunately, you can back out of a workers’ comp settlement if you realize the problem in time.

          Before you agree to a full and final settlement while needing additional medical care, pin down the Medicare issues and MSA funding. “We’ll figure out the MSA later” gets expensive fast when nobody agreed on who pays for it.

          A Virginia Workers’ Compensation Lawyer for Medicare Set-Aside Issues

          The most important question is not simply whether you “need an MSA.” You need to understand whether Medicare’s interests are implicated, whether your settlement closes future medical treatment, whether a WCMSA is appropriate, whether CMS will review the allocation, what medical treatment drives the amount, whether that allocation reflects your actual care, who is funding the WCMSA, whether it sits inside or outside the cash settlement, whether lump-sum or structured funding is better for your case, who will administer the account, and what the settlement is actually worth once the Medicare issues are accounted for.

          I represent injured workers in Virginia workers’ compensation claims and regularly negotiate settlements involving Medicare, Social Security Disability, future medical treatment, and WCMSAs. I have handled settlements involving CMS-approved Medicare Set-Asides exceeding $800,000.

          If you have questions about a Medicare Set-Aside or the structure of a Virginia workers’ compensation settlement, call Corey Pollard Law at 804-251-1620 for a free consultation.

          Corey Pollard Law has offices in Richmond and Hampton Roads. We handle Virginia claims only.

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