A Medicare Set-Aside (MSA) is a special account funded from your personal injury settlement to cover future medical expenses related to your injury that Medicare would otherwise pay for. When you settle a lawsuit for a significant amount and you’re enrolled in or expected to enroll in Medicare, the law requires that a portion of your settlement money be set aside in this interest-bearing account rather than given to you as a lump sum. For example, if a 68-year-old Medicare beneficiary settles a premises liability case for $500,000, the settlement may require that $150,000 be placed in an MSA to cover anticipated future doctor visits, physical therapy, and imaging related to the injury, while the remaining funds go to the plaintiff.
This requirement exists because Medicare doesn’t want to end up paying for medical care that resulted from an injury for which the plaintiff already received compensation. The law treats Medicare as a secondary payer when a settlement exists—meaning Medicare should not have to cover costs that the plaintiff’s settlement should cover instead. Failure to properly establish an MSA can have serious consequences, including loss of Medicare benefits and potential liability for restitution to Medicare itself.
Table of Contents
- What Types of Medicare Set-Asides Apply to Personal Injury Cases?
- Eligibility Thresholds for Medicare Set-Asides in Personal Injury Settlements
- How Your Medicare Set-Aside Amount Is Calculated
- Funding Options and Ongoing Administration of Your Medicare Set-Aside
- Recent Regulatory Changes to Medicare Set-Aside Rules (2025–2026)
- Personal Injury Liability MSAs Versus Workers’ Compensation MSAs
- Non-Compliance Penalties and Consequences for Inadequate Medicare Set-Asides
What Types of Medicare Set-Asides Apply to Personal Injury Cases?
There are two main types of Medicare Set-Asides, and it’s critical to understand which applies to your settlement. Workers’ Compensation MSAs (WCMSAs) apply to workers’ compensation claims and settlements, while Liability MSAs (LMSAs) apply to personal injury cases—these include car accidents, slip-and-fall cases, medical malpractice, premises liability, and other third-party liability claims. The rules and CMS review processes differ between the two, which matters significantly for your settlement structure.
For personal injury settlements specifically, the Centers for Medicare & Medicaid Services (CMS) does not have a formal mandatory review process for Liability MSAs the way it does for workers’ compensation cases. This means you are not legally required to submit your LMSA to CMS for approval before settling. However, CMS does recommend voluntary submission when your case meets the eligibility thresholds. This voluntary approach creates a gray area for many plaintiff attorneys and claimants—some choose to submit anyway for certainty that Medicare’s interests are protected, while others proceed without CMS review and assume the risk that Medicare might later dispute whether the allocation was adequate.
Eligibility Thresholds for Medicare Set-Asides in Personal Injury Settlements
The rules for when an MSA is legally required depend on your Medicare status at the time of settlement. If you are already a Medicare beneficiary at the time of settlement, an MSA is required when the settlement amount is $25,000 or more. This threshold is lower for current beneficiaries because Medicare is already covering your medical bills and needs protection immediately. By contrast, if you are not yet enrolled in Medicare but are expected to become eligible within 30 months of the settlement, the threshold is much higher: $250,000 or more.
These thresholds were designed with the understanding that larger settlements carry higher risk that they will be used for injury-related medical care. However, the gap between $25,000 and $250,000 creates practical challenges—someone 62 years old settling for $100,000 who will likely be on Medicare in a few years may not meet the technical threshold, yet will probably incur Medicare-related medical expenses. Additionally, these thresholds apply only to the portion of the settlement allocated to medical damages; other settlement components like pain and suffering or lost wages do not count toward the threshold. This means a case with $500,000 total settlement but only $80,000 allocated to future medical expenses would trigger MSA requirements if you’re currently on Medicare, but the MSA itself would only cover that $80,000 (or whatever amount CMS determines is appropriate).
How Your Medicare Set-Aside Amount Is Calculated
The MSA amount is calculated on a case-by-case basis, meaning there is no simple formula or table that determines how much must be set aside. Instead, the calculation considers multiple individualized factors: your current age, life expectancy, medical history, pre-existing conditions, the nature of your injury and whether it will require ongoing or future treatment, physician statements about projected care needs, and current treatment costs. A 55-year-old who suffered a severe spinal cord injury that will require lifelong physical therapy and imaging may have an MSA calculated at $300,000, while a 65-year-old who fractured a wrist that healed fully might have an MSA of only $5,000.
The calculation also excludes services that Medicare would not cover or that are unrelated to the compensable injury. For example, if you settle a car accident case and you have a pre-existing heart condition, the MSA would not include costs for treating that heart condition unless the accident aggravated it. This specificity is why professional MSA administrators or specialized attorneys typically get involved—they have access to medical cost data, life expectancy tables, and settlement history that allows them to make a defensible calculation. One important limitation: if CMS reviews a WCMSA proposal and determines that the allocation is unreasonably low, they can reject it and require a recalculation, which delays settlement and creates additional cost.
Funding Options and Ongoing Administration of Your Medicare Set-Aside
You have two primary options for how to fund your Medicare Set-Aside: a lump-sum payment directly from your settlement proceeds, or a structured settlement that makes periodic payments over time into the MSA account. The lump-sum option is simpler to administer—you receive the total settlement amount, a portion is placed immediately into the MSA account, and you receive the rest. However, lump-sum funding requires setting aside a larger total amount because the calculation must account for all anticipated future medical expenses over your remaining lifetime. The structured settlement option is more complex but often results in a lower total MSA amount because the payments occur over time and can be sized to match expected medical costs year by year. For example, in a case with anticipated $500,000 in total medical costs over 20 years, a structured settlement might fund the MSA with periodic payments totaling $400,000 because the periodic payments will accumulate interest and the account is only funded when needed rather than sitting fully funded upfront.
However, structured settlements require ongoing coordination with the insurance company or settlement administrator, and any changes to your medical needs require amendments to the original settlement agreement. Regardless of funding method, the MSA must be held in a separate interest-bearing account—not commingled with your other funds. Any interest earned in the account stays in the account for future medical expenses, not to you personally. You (or your representative) must file annual accountings with CMS showing how much was spent, how much remains, and what balance exists. Funds can only be withdrawn to pay for medical services or products related to the settled injury that Medicare would otherwise cover.
Recent Regulatory Changes to Medicare Set-Aside Rules (2025–2026)
The CMS updated its Medicare Set-Aside rules several times in 2025, creating new requirements that affect ongoing cases. Effective July 17, 2025, CMS no longer accepts or reviews WCMSA proposals with zero-dollar ($0) allocations—meaning you cannot submit a settlement for CMS review claiming that zero dollars need to be set aside for future medical care related to the injury. This change was made because too many settlements were being submitted with no allocation despite clear future medical needs, putting Medicare at risk. Additionally, effective April 7, 2025, claimants and attorneys can now request amended WCMSA reviews from CMS at any time after the case is initially approved, not just within a limited window as before. This flexibility is helpful if you initially thought you would not have future medical expenses but then a new condition or complication emerges.
However, a third major change may affect how future medical costs are estimated. Effective September 20, 2025, CMS switched to the CDC’s “Table 1: Life Table for the total population: United States, 2023” for calculating life expectancy in MSA cases, replacing previous actuarial tables. This change affects how long your MSA funds are projected to last—different life expectancy assumptions can significantly raise or lower the required allocation amount. A practical warning: if your settlement is currently being negotiated or is in draft, these new rules apply immediately. If you’re working with an older template or calculation from early 2025, your attorney or administrator needs to update the methodology to comply with the new July and September 2025 rules, or CMS may reject a WCMSA submission and delay your settlement approval.
Personal Injury Liability MSAs Versus Workers’ Compensation MSAs
While this article focuses on personal injury settlements (LMSAs), it’s important to understand how they differ from workers’ compensation MSAs because the distinction affects how strictly the rules are enforced. Workers’ Compensation MSAs are subject to mandatory CMS review—meaning if your case involves a workers’ compensation injury, your attorney must submit the MSA proposal to CMS before the settlement is finalized, and CMS must approve it. Liability MSAs, by contrast, are not subject to mandatory CMS review, though CMS recommends voluntary submission.
This difference creates practical consequences. A workers’ compensation claimant knows, before settlement closes, exactly what CMS thinks about the MSA allocation because CMS has reviewed it. A personal injury claimant who does not submit to CMS for voluntary review takes the risk that, years later, when Medicare tries to pay for an injury-related service, it might dispute whether the MSA adequately covered that service and seek restitution from the plaintiff or other parties. Some plaintiff attorneys argue this risk is small because CMS has limited resources to pursue LMSA disputes, but healthcare defense attorneys and insurance companies take the risk seriously and often negotiate to include CMS review for major settlements anyway, simply for certainty.
Non-Compliance Penalties and Consequences for Inadequate Medicare Set-Asides
If you receive a settlement and fail to establish a Medicare Set-Aside when one is legally required, the consequences can be severe. Medicare may deny future claims for injury-related medical services, forcing you to pay out of pocket. Additionally, Medicare has the legal right to seek restitution—meaning it can demand repayment from multiple parties involved in the settlement, including the insurance company, the defendant, the plaintiff (you), and sometimes even the attorney. This restitution claim can be substantial because Medicare calculates it based on all injury-related services it paid for after the settlement, which in serious cases involving years of treatment can reach six figures. A concrete example: a 72-year-old who settles a car accident case for $300,000 without establishing an MSA receives the full settlement amount.
Two years later, she undergoes surgery related to the accident injury. Medicare pays $45,000 for the surgery. Medicare then sends a notice of restitution demanding repayment of the $45,000 because the plaintiff should have set aside funds for this anticipated care. This is separate from any civil liability—it’s Medicare’s administrative right to recover funds it believes should not have been its responsibility to pay. The plaintiff may have already spent the settlement money on other needs, creating a genuine financial hardship when the demand arrives years after settlement.