Medicare Set Aside FAQ
Can I Close Out My Future Medical Benefits in a Lump Sum Settlement?
Yes.
In New Mexico, a workers’ compensation judge can approve a lump sum settlement that ends your right to future medical care for a work injury. This can only happen if:
• You understand what you are agreeing to, and
• The judge decides the settlement is fair to both you and the employer and meets other statutory requirements.
Once approved, future medical care for that injury is no longer paid by workers’ compensation.
In New Mexico, a workers’ compensation judge can approve a lump sum settlement that ends your right to future medical care for a work injury. This can only happen if:
• You understand what you are agreeing to, and
• The judge decides the settlement is fair to both you and the employer and meets other statutory requirements.
Once approved, future medical care for that injury is no longer paid by workers’ compensation.
Why Does Medicare Matter in a Workers’ Compensation Settlement?
Even though workers’ compensation is a state law, Medicare is a federal program, and federal law comes first.
Medicare does not want to pay for medical care that should be covered by workers’ compensation. If a settlement does not properly account for future medical costs related to a work injury, Medicare may refuse to pay for that care later.
Medicare does not want to pay for medical care that should be covered by workers’ compensation. If a settlement does not properly account for future medical costs related to a work injury, Medicare may refuse to pay for that care later.
Medicare’s Role in Workers’ Compensation Settlements
In most workers’ compensation settlements, Medicare’s interests must be protected.
The federal agency that oversees Medicare, the Centers for Medicare & Medicaid Services (CMS), has rules to make sure future medical costs are not shifted onto Medicare. When future medical care is closed out, two things must happen:
1. Money must be set aside to pay for future injury-related medical care that Medicare would otherwise cover. This is called a Workers’ Compensation Medicare Set-Aside (WCMSA).
2. That money must be used correctly, only for approved medical expenses related to the work injury.
Both steps are required.
The federal agency that oversees Medicare, the Centers for Medicare & Medicaid Services (CMS), has rules to make sure future medical costs are not shifted onto Medicare. When future medical care is closed out, two things must happen:
1. Money must be set aside to pay for future injury-related medical care that Medicare would otherwise cover. This is called a Workers’ Compensation Medicare Set-Aside (WCMSA).
2. That money must be used correctly, only for approved medical expenses related to the work injury.
Both steps are required.
What Is the Medicare Secondary Payer (MSP) Act?
The Medicare Secondary Payer Act says that Medicare pays second, not first, when another party (like workers’ compensation insurance) is responsible for medical costs.
This law exists to:
• Protect Medicare funds, and
• Prevent taxpayers from paying for costs that belong to workers’ compensation.
If Medicare ends up paying when it should not, it has the right to recover that money.
This law exists to:
• Protect Medicare funds, and
• Prevent taxpayers from paying for costs that belong to workers’ compensation.
If Medicare ends up paying when it should not, it has the right to recover that money.
What Is a WCMSA?
A Workers’ Compensation Medicare Set-Aside (WCMSA) is a portion of a settlement set aside specifically to pay for future medical care related to the work injury.
While WCMSAs are technically voluntary, they are the most common and safest way to protect Medicare’s interests. CMS encourages parties to submit WCMSAs for review.
If a WCMSA is not submitted, Medicare may later decide the settlement improperly shifted costs to Medicare. That can lead to serious problems for everyone involved.
While WCMSAs are technically voluntary, they are the most common and safest way to protect Medicare’s interests. CMS encourages parties to submit WCMSAs for review.
If a WCMSA is not submitted, Medicare may later decide the settlement improperly shifted costs to Medicare. That can lead to serious problems for everyone involved.
What Does WCMSA Administration Mean?
Setting aside the money is only half the job. The money must also be managed correctly.
WCMSA funds must:
• Be kept in a separate, interest-bearing account, and
• Only be used for injury-related medical care that Medicare would normally cover.
Although injured workers are allowed to manage the funds themselves, CMS strongly recommends using a professional administrator. Administrators must follow CMS rules, including sending annual reports to CMS showing how the money was spent.
WCMSA funds must:
• Be kept in a separate, interest-bearing account, and
• Only be used for injury-related medical care that Medicare would normally cover.
Although injured workers are allowed to manage the funds themselves, CMS strongly recommends using a professional administrator. Administrators must follow CMS rules, including sending annual reports to CMS showing how the money was spent.
How Does Medicare Know About Workers’ Compensation Settlements?
Since 2009, workers’ compensation insurers have been required to report settlements involving Medicare beneficiaries to CMS.
Starting April 4, 2025, insurers must also report the WCMSA amount itself. This means Medicare will know when a settlement includes a WCMSA and how much was set aside.
What Happens If the Rules Are Not Followed?
If Medicare’s interests are not properly protected:
• Medicare may refuse to pay for medical treatment related to the work injury.
• Medicare may require proof that all WCMSA funds were spent correctly before it pays anything.
• If the money was spent incorrectly, even if the amount was correct, Medicare can deny coverage.
In some cases, injured workers may be forced to pay for future medical care out of pocket.
• Medicare may refuse to pay for medical treatment related to the work injury.
• Medicare may require proof that all WCMSA funds were spent correctly before it pays anything.
• If the money was spent incorrectly, even if the amount was correct, Medicare can deny coverage.
In some cases, injured workers may be forced to pay for future medical care out of pocket.