Consequences of Not Using a Medicare Set-Aside Account

Worker standing on beams of building under construction
Mercy Hall, Esq.

Mercy Hall

Posted on Mon Jul 03 2023

Those who obtain a workers’ compensation settlement for future medical expenses must create a Medicare Set-Aside (MSA) Account to preserve their eligibility for Medicare. This separate, interest-bearing account pays for medical costs related to the worker’s injury. After the funds are exhausted, Medicare provides coverage for medical fees related to the injury.

Why You Should Create an MSA Account

Failing to establish an MSA can have significant consequences for Medicare eligibility. Neglecting to create an MSA can result in losing Medicare, as well as means-tested government benefits like Medicaid. In certain cases, not using an MSA following a settlement can lead to liability.

Keep Your Medicare Coverage

Individuals who receive settlements or judgments to cover future medical care must use these funds for that purpose to preserve Medicare coverage. For these expenses, Medicare is not the primary payer. Payments for the injury kick in only after the account is depleted and the beneficiary files a report with the Medicare Secondary Payer (MSP) Recovery Contractor.

Receiving a settlement for future medical expenses without setting up an MSA jeopardizes Medicare eligibility. Someone who ignores the requirement to create an MSA could forfeit Medicare coverage entirely. This could mean losing coverage for all medical expenses, including those unrelated to the injury.

If Medicare acts as the primary payer – meaning that Medicare pays first – when funds should have come from workers’ compensation, Medicare has a right of action. It can take legal action against the primary payer responsible for the payment, as well as those who received Medicare’s funds.

When beneficiaries are unaware of the rules and fail to create an MSA, they could lose coverage. (Learn more about the Medicare Secondary Payer Act.)

Stay Eligible for Public Benefits Programs With Asset Limits

Not having an MSA, or setting one up that is ineffective, can also make individuals ineligible for means-tested benefits such as Supplemental Security Income (SSI) and Medicaid.

The Social Security Administration counts settlement funds as assets. Without a proper MSA, a person who acquires money to cover prospective medical costs following an accident could lose their public benefits.

Increases in assets can also disqualify beneficiaries of the following programs:

  • Supplemental Nutrition Assistance Program (SNAP)
  • Temporary Assistance for Needy Families (TANF)
  • Low-Income Home Energy Assistance Program (LIHEAP)

People who obtain workers’ compensation settlements can continue to receive means-based benefits, along with Medicare, when they have a well-structured MSA. According to the Special Needs Alliance, embedding a special needs trust (SNT) within an MSA can allow a person to continue accessing government benefits. This is because the funds in an SNT are not countable assets.

Avoid Liability After a Workers Compensation Settlement

The Centers for Medicaid and Medicare Services (CMS) requires that workers’ compensation settlements reasonably consider Medicare’s interests. A workers’ compensation settlement requires a person to create an MSA. If they fail to do so, they could face legal consequences for breaching their settlement agreement.

CMS can also obtain restitution from anyone involved in the settlement, including the worker, workplace, insurance companies, and attorneys.

Consult With a Special Needs Planning Attorney

Creating and maintaining an MSA can be complex. If you wish to keep your Medicare eligibility while receiving compensation for an injury, working with an attorney to help you set up and manage an MSA is critical.

Consider consulting with a special needs planning attorney. They can help you stay eligible for Medicare after acquiring a workers compensation settlement. Find a qualified special needs planner near you today.

Learn More About MSAs