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Who Needs To Have A Medicare Set Aside Account (Aka A WCMSA Or Just MSA)?
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Only those who are on medicare or are medicare eligible or who have a reasonable expectation of being on, or eligible for, medicare within the next 30 months at the time a settlement is reached need to consider Medicare’s interest. The way we “consider medicare interests” is to obtain a proposed MSA and perhaps an approved MSA.

What Is A Medicare Set Aside Account?

A Medicare Set Aside (MSA) account is an additional amount of money, added to your workers’ compensation settlement, to cover all future injury-related medical expenses that would normally be paid by Medicare. When the MSA account funds exhaust, Medicare will step in as primary payor assuming the injured worker has reported their use of the funds properly to Medicare and, of course, that they are enrolled in a Medicare plan.

In its most basic sense, medicare advises you how much they want you to pay every year, like a deductible, before medicare will pay for your medicare covered medical expenses for your work injury. This deductible can be for example, $1,000 per year. Once you can show you have paid $1,000 in a given year for medicare covered medical expenses, medicare will not ack you for any more money for medical treatment for that calendar year. At that point, its “on the house”.

According to Medicare, a Medicare Set Aside (MSA) account is a portion of an injury settlement “set aside” for all future injury-related medical expenses that are covered and would normally be paid by Medicare. The reason for creating an MSA is to designate a certain amount from the settlement as “future medical money” to cover injury-related medical expenses. The MSA is to be spent fully on those expenses prior to Medicare paying for them. Medicare’s rights to protection and recovery under Section XVIII of the Social Security Act apply to workers’ compensation and it has provided specific definitions and guidelines for Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA’s). In general, parties settling cases with an MSA refer to those WCMSA instructions. Those definitions and guidelines may be found here.

In practice, a Medicare Set Aside is typically set up when an injured worker settles their future medical benefits, called a Compromise and Release (C&R). The injured worker may get only one settlement check, so the injured worker has the responsibility to set up a new checking account with the amount determined by the approved MSA report. Money that is designated to be spent on items that both 1) Medicare would otherwise cover and 2) that are related to the injury, are what is placed in the Medicare Set Aside account. The MSA “account” is a simple checking account opened at any bank in which the MSA funds are deposited and spent only on medicare covered items for the work injury.

What Is A Proposed MSA?

A proposed MSA is a cost projection of all lifetime medicare covered items for the work injury that may be needed based on the prior two years medical and pharmacy records. The Workers’ compensation insurance company pays for this cost projection. Once the proposed cost projection is completed, usually in 30 to 60 days, it is sent to the government contractor called the CMS (center for medicare services) to determine if they agree with the cost projection. You will receive a letter from Medicare which states if they agree with the cost projection or not. If not, they will provide their own approved amount which is typically a bit higher that the Proposed MSA from the private company. The approval can take 3 to 6 months once all items have been submitted to the CMS for approval.

When Do You Need An MSA?

An MSA is a way to show Medicare that you took their interests into consideration at the time of your settlement. An MSA is never required, but workers’ compensation insurance companies usually want to have this process completed as a way to prove no one is trying to shift the burden of medical treatment from private insurance to the public medicare system without some payments to medicare. A proposed MSA is an allocation report showing items that are related to the injury and would be covered by Medicare. MSA’s can be submitted to Medicare for review and approval if they are significant to meet Medicare’s review thresholds. Again, the process of review and approval is voluntary. Getting approval just means Medicare has validated the amount set aside is accurate.

Medicare has offered to review and approve the amounts of these allocation reports only when the injured party is Medicare eligible or will potentially be Medicare eligible in the next 30 months and the amounts are significant enough for review. While Medicare has offered to review significant cases, the review process is entirely voluntary. The thresholds for review are:

  1. The claimant is a Medicare beneficiary and the total settlement amount is greater than $25,000.00; or
  2. The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.00

An individual is eligible for Medicare after they turn 65 or they can be under the age of 65 but are receiving Social Security Disability Insurance (SSDI). There can also be exceptions to the rule in some settlement cases.

What Are The Rules For The Administration Of MSA’s?

Injured workers:

  1. Are only allowed to spend their MSA funds on Medicare-covered treatments related to their injury.
  2. Must place MSA funds in a separate, interest-bearing bank account
  3. Must keep copies of bills & receipts
  4. Must report all expenses they used their MSA funds on to CMS each year and in the case their funds run out
  5. Must only pay the state fee schedule or “usual and customary” pricing for treatments & prescriptions

There are a number of complex rules to follow in the administration of MSAs. These are detailed in CMS’ WCMSA Reference Guide and its Self Administration Toolkit. An administrator, like Ametros, offers products to ensure your account is used and reported properly. CMS “highly recommends” the use of a professional administrator.

The most basic rule to keep in mind is that the injured worker is only allowed to spend their MSA funds on Medicare-covered expenses directly related to their injury. Secondly, the injured party needs to keep track of all the expenses to report to Medicare that they used the funds properly. This is important so that, in the case the MSA funds run out, Medicare will agree to begin coverage for injury-related treatment.

To provide more detail step by step: the MSA funds must be placed in a separate, interest-bearing bank account.

The injured worker needs to keep copies of all bills and receipts, and keep detailed reporting on every expense they incurred with their MSA funds. This report must be sent to The Centers for Medicare and Medicaid (CMS) on a yearly basis in what is called an annual attestation. In addition, if the MSA funds run out, the injured party must file a temporary depletion form (if they will receive future MSA annuity payments), or permanent exhaustion form to CMS if they are permanently out of funds.

The injured party should only pay the California state fee schedule or the ”usual and customary” price for treatments and prescriptions, which many times can be difficult to calculate and request from providers. If the injured worker pays above the fee schedule, they could potentially end up having to repay Medicare for the cost of treatment above and beyond the fee schedule.

Failure to report to Medicare and to use the MSA funds properly will result in Medicare denying to pay for treatments that are related to the injured worker’s injury thereby, jeopardizing their Medicare benefits. Regardless of whether the injured individual is currently on Medicare, it is essential that their use of MSA funds is properly reported to the government.

What Happens When I Exhaust My MSA Money? Will Medicare Pay?

When your MSA funds are exhausted, Medicare will begin to pay for all covered items related to your injury, only if you have properly managed your MSA funds and reported your spending to Medicare, and if you are enrolled as a beneficiary on Medicare. If Medicare steps in to begin covering you for treatments related to your injury, you will be covered just like any other Medicare beneficiary and subject to corresponding co-pays, coinsurance and deductibles.

Again, Medicare will only pay if the injured worker has previously enrolled in Medicare during an enrollment period or have managed their MSA correctly. If someone is not properly spending their MSA funds or not reporting properly, they are jeopardizing their future Medicare benefits for injury-related care. Medicare states it will deny paying for treatments if it cannot track the proper use and exhaustion of the MSA funds.

If care is denied, the injured worker will need to replenish its MSA account for items that were unaccounted for so that it can correct its reporting to Medicare. The injured worker should also consider contacting a professional administrator for help.

Is Getting An Annuity For My MSA Required?

No. However, many parties to a settlement recommend annuities as a way to provide the injured party with security of future payments. Medicare does allow for MSAs to be annuitized and will review and approve the seed amount (initial funding provided to the injured party) and annual payment amounts.

If the MSA submitted to Medicare is approved as a lump sum, then it cannot be changed to an annuity unless it is re-submitted for approval. On the other hand, if the MSA is approved as an annuity, the parties to a settlement can decide to change to a lump sum without notifying Medicare.

What Can I Use My MSA Account On?

The injured party can use their MSA funds on Medicare-approved expenses related to their injury. This can include doctor bills, prescriptions, durable medical equipment, home healthcare, and more. The injured party cannot use their MSA funds for anything other than these expenses.

Are My MSA Funds Taxed?

In most cases, the entire amount paid out in a workers’ compensation settlement are non-taxable. So, your MSA funds, as part of that settlement are also not taxed upon receipt.

The injured worker is responsible for taxes on interest earned on their MSA funds. If the interest earned is accrued over $10, typically the bank will provide the injured party a 1099-INT to use in their tax filings. Interest income taxes can be paid for out of the MSA account per Medicare’s guidelines.

What Happens If I Don’t Properly Manage My MSA Account?

 If you do not properly manage your MSA account, you could severely jeopardize Medicare paying for your future medical care. Consequences include denial of future bills from Medicare if your funds exhaust and being required to repay your MSA account for expenses that were paid for that are not covered by Medicare. Medicare reserves the right to have reporting for up to the entire settlement amount on medicare covered treatments before Medicare agrees to begin covering injury-related bills.

Mismanaging the MSA account will jeopardize the injured party’s future Medicare benefits; for this reason, it’s important to be careful and seek assistance. Medicare “highly recommends” the use of a professional administrator.