How to Avoid a Medicare Set-Aside and What You Need to Know

If you’ve been injured on the job or received a settlement due to a personal injury, you may have heard the term Medicare Set-Aside (MSA). It’s a financial arrangement designed to protect Medicare’s interests by ensuring that future medical costs related to your injury are paid before Medicare steps in. But for many people, this prerequisite raises questions, concerns, and a fair bit of confusion.

In this blog, we’ll break down everything you ought to know about how to avoid a Medicare set-aside, whether or not it’s mandatory, and what happens if you don’t follow the rules.

How to Avoid a Medicare Set-Aside

Understanding how to avoid a Medicare set-aside starts with knowing when an MSA is typically required. MSAs are most commonly used in workers’ compensation and liability settlements where the injured party is a Medicare beneficiary or is expected to become one in the near future.

Avoiding an MSA doesn’t mean skirting legal obligations—it means structuring your settlement and medical care properly. Here are a few ways people manage to do this:

• Demonstrating that Medicare won’t be billed for injury-related care. If your future treatment costs will be covered by private insurance or a group health plan, Medicare’s interest might already be protected.
• Settling for a non-substantial amount. If the total settlement is under a certain threshold (currently $25,000 for current Medicare beneficiaries), you may not be required to create an MSA.
• Obtaining legal or CMS-compliant guidance. Working with professionals can help you avoid triggering Medicare’s involvement unnecessarily.

Still, it’s crucial to understand is a Medicare set aside mandatory in your situation, which we’ll cover next.

Is a Medicare Set Aside Mandatory?

You might be wondering, is a Medicare set aside mandatory in all settlements? The answer is not always. The Centers for Medicare & Medicaid Services (CMS) has issued guidance—but not formal law—that outlines when an MSA should be considered.

For workers’ compensation cases, CMS strongly recommends an MSA when:

• The claimant is on Medicare, and the settlement exceeds $25,000.
• The claimant is reasonably expected to qualify for Medicare within 30 months and the settlement exceeds $250,000.

However, when it comes to liability settlements (like car accidents or personal injury claims), the rules are less defined. There is no strict legal requirement, but CMS expects that Medicare’s future interests be considered.

In short, while is Medicare set aside mandatory can depend on the type of case, failing to allocate future medical costs properly can lead to problems with Medicare coverage down the road.

Is It Illegal to Spend Medicare Set Aside Money?

This is a common and important concern. Is it illegal to spend Medicare set aside money on anything other than the approved medical expenses? While it’s not criminally illegal, it’s a serious violation of CMS guidelines.

Spending your MSA funds improperly could result in Medicare denying payment for future treatment related to your injury. The money in an MSA is strictly intended to cover Medicare-eligible services related to the injury, and CMS expects detailed accounting. So, while you won’t go to jail, you may end up footing large medical bills yourself if the funds are misused.

What Happens if You Don’t Use the Medicare Set Aside?

If you’re asking what happens if you don’t use the Medicare set aside, the answer depends on how the money is handled. If the funds aren’t used properly, Medicare can deny coverage for future injury-related treatment until you’ve exhausted the settlement amount.

Even if you avoid using Medicare altogether, not documenting MSA expenditures properly can result in issues with future claims. That’s why keeping receipts and submitting annual reports to CMS (if required) is so important.

What Is a Medicare Set Aside?

Let’s go back to basics: What is a Medicare set aside? A Medicare Set-Aside Arrangement is a financial account funded from a settlement, designed to cover future medical services that would otherwise be disbursed by Medicare.

The idea is to “set aside” enough money to protect Medicare’s interests. Once those funds are used appropriately, Medicare will cover additional treatment as usual.

Is Medicare Set Aside Mandatory?

Just to reiterate the key point: Is Medicare set aside mandatory? It depends on the nature of your case. CMS guidelines make it clear that MSAs are “recommended” in certain scenarios, especially with workers’ compensation settlements. For liability claims, the rules are less defined, but you may still be expected to show that you’ve considered Medicare’s future interests.

How Long Does a Medicare Set Aside Take?

You’re not alone in wondering how long does a Medicare set aside take to establish. The process can take several weeks to several months depending on:

• The complexity of the medical condition
• CMS review and approval (if submitted)
• Legal consultations and cost projections

It’s worth noting that CMS review is not always required, but when requested, it can delay the settlement process.

How to Calculate a Medicare Set-Aside

Figuring out how to calculate a Medicare set-aside involves projecting the forthcoming medical expenses connected to the injury for the rest of the claimant’s life. This typically includes:

• Expected physician visits
• Prescription drugs
• Therapy or surgeries
• Durable medical equipment

These projections should be based on medical records and life expectancy, often executed by a third-party professional known as a Medicare Set-Aside Allocator.

Where Can I Open a Medicare Set Aside Account?

So, where can I open a Medicare set aside account? While there are no CMS-endorsed banks, you can open an MSA at most financial institutions. The account must be:

• Interest-bearing (if possible)
• Separate from other accounts
• Used only for approved expenses

Some people also choose to use a professional administrator or a self-administered service that provides tracking tools to help comply with CMS requirements.

Are Medicare Set Asides Required?

Are Medicare set asides required by law? Technically, no. But CMS strongly encourages them in specific scenarios. Not complying with CMS recommendations may not lead to criminal penalties, but it can compromise your access to Medicare coverage. Failing to show that Medicare’s interests have been protected can lead to denied claims and financial stress later on.

Can I Spend My Medicare Set Aside Money?

Many people ask, can I spend my Medicare set aside money? You can, but only on Medicare-eligible, injury-related costs. Think of it as a restricted-use medical savings account.

Any non-approved spending could set your Medicare eligibility or future coverage at risk. Some examples of what’s not allowed include: 

• Cosmetic procedures
• Over-the-counter medications not prescribed
• Non-medical purchases like rent or utilities

Adhere to CMS-approved guidelines and record every expense meticulously.

Conclusion

Understanding how to avoid a Medicare set-aside begins with knowing whether your settlement situation truly requires one. While MSAs can be burdensome, they are also an essential tool for maintaining Medicare coverage and avoiding surprise out-of-pocket medical costs.

Work closely with your attorney, financial advisor, or a Medicare expert to evaluate whether is a Medicare set aside mandatory in your case. And if you do establish one, treat it with care—it could save you thousands in the long run.

In a world of complex healthcare rules, making informed decisions today ensures your peace of mind tomorrow.

Disclaimer: This article is for informational purposes only. Medicare coverage and costs can vary by region, plan type, and individual circumstances. Always speak directly with your provider or Medicare representative for the most accurate information.

Source: healthcare.gov