Demystifying Medicare Set-Asides: What Every Legal Professional Should Know

Demystifying Medicare Set-Asides: What Every Legal Professional Should Know

What is a Medicare Set-Aside and why should legal professionals be concerned about them?  It all centers around the questions of Medicare’s future interests.  That’s where Medicare Set-Asides (MSAs) come in. But even experienced trial lawyers and paralegals find MSAs confusing. No statute requires them. CMS guidance is limited. Liability settlements have zero guidance in this regard.

So what are you supposed to do?

Here’s what you need to know and what your law firm should be doing now to stay compliant and protect your clients.

What Is a Medicare Set-Aside?

An MSA is a portion of a settlement earmarked to cover future Medicare-covered treatment for injury-related care. If one is set up as  part of a settlement, Medicare isn’t supposed to pay for these services until the set-aside funds are properly exhausted.

The amount of the set-aside is determined case by case. In Workers’ Compensation claims, MSAs can be submitted to CMS for approval if they meet certain review thresholds. For liability cases, CMS review is rare. Most regional offices won’t review submissions.

Key point: even though MSAs are common in Workers’ Comp, there’s no federal statute requiring one not even in Comp.

Why Are MSAs a Big Deal?

The Medicare Secondary Payer Act (MSP) prohibits Medicare from paying when another primary payer exists. That includes settlement proceeds intended to cover future medical care.

In practice, this means that if Medicare thinks your client was compensated for future care but didn’t set money aside, they could possibly deny payment for that care. And if it did, the appeals process is lengthy and punishing.

Lawyers often ask: If CMS doesn’t review liability MSAs, and no statute mandates them, why bother?

Because CMS has been clear, shifting the cost of future care to Medicare violates their interpretation of the MSP. Failing to consider Medicare’s future interests can harm your client and expose your firm to risk.

The Regulatory Reality

There are no clear laws. No formal rules. And yet, Medicare’s expectations haven’t changed.

Since 2001, CMS has released guidance via memos and its Workers’ Comp Set-Aside Reference Guide. In liability cases, there have been repeated attempts to codify rules but every time, CMS has pulled back due to practical and legal challenges.

In 2022, CMS formally withdrew a proposed rule that would have established new requirements for liability MSAs. That doesn’t mean personal injury firms are relieved of any obligations under the MSP. On the contrary, CMS has not changed its formal regulatory position.

Case Law You Should Know

Several trial court cases help clarify how MSAs may be handled when full value isn’t recovered:

• Aranki v. Burwell: No law requires MSAs, but Medicare’s future interests still matter. The court did not say you can ignore them.
• Sterrett v. Klebart: If a settlement doesn’t fund future medicals, an MSA isn’t required. The court recognized that compromise settlements don’t always compensate for future care.
• Benoit v. Neustrom: The court allowed a reduction to the MSA based on the proportion of the settlement compared to total damages. This is a blueprint for arguing that Medicare’s interests were reasonably considered when recovery is limited.

These cases offer practical tools, but no guarantees. They are not binding on CMS. They are persuasive authority to be used strategically when documenting your file and protecting your client.

Practical Steps for Law Firms

To avoid the risks of potential Medicare denials, malpractice claims, or other potential negative consequents, you need a process:

1. Identify Medicare beneficiaries which you represent.
2. Analyze whether future medicals were funded.
3. Advise clients about the risks of not setting anything aside.
4. Document your decision and your client’s consent.
5. Coordinate with the defense on what ICD codes are reported under MIR.

This isn’t theoretical. The Department of Justice has pursued personal injury firms that failed to resolve conditional payments. Similar exposure could follow for future care if lawyers fail to address it during settlement.

What You Should Be Doing Right Now

Every firm should have a Medicare compliance checklist. Educate your clients. Consult experts on complex cases. Push back on unreasonable release language. And most of all, treat the MSP as a serious compliance obligation, not a box to check.

There are no shortcuts. But there are smart, defensible approaches that protect both your client’s recovery and your practice.