• A Medicare set-aside arrangement pays the costs of treatments for an injury or illness before Medicare does.
  • Medicare set-aside arrangements are funded by settlements you receive from a worker’s compensation claim, liability lawsuit, or no-fault car accident claim.
  • The money in a Medicare set-aside arrangement can be used only for treatments of the condition that lead to your settlement.
  • Medicare will pay for treatments related to your settlement only when the money in your Medicare set-aside arrangement runs out.

When you’ve been injured at work or through the fault of a company or another person, you might receive a cash settlement for your time off work and medical expenses.

If you’re enrolled in Medicare, the money from your settlement will pay for care related to that injury before Medicare does.

You can set up an account called a Medicare set-aside arrangement to make sure the correct amount of money from your settlement is going toward related medical treatments.

Medicare will pick up the costs once you’ve used all the funds in your Medicare set-aside arrangement, but only if your arrangement has been set up and managed correctly.

In this article, we’ll go into the details of what Medicare set-aside arrangements are, how they work, and how you can get help setting one up.

A Medicare set-aside arrangement is an amount of money set aside to pay the medical costs for a specific injury or illness. The money in your Medicare set-aside arrangement comes from one of three sources:

  • settlement of a worker’s compensation claim
  • settlement of a liability lawsuit
  • settlement of a no-fault car accident claim

All of these situations are times you might get money to treat a medical condition caused by your employer, a company, or another person.

If you’re eligible for Medicare or will be soon, that money must be used for care related to your condition before Medicare will pay.

When does Medicare kick in?

Medicare is always the secondary payer when another option, like a worker’s compensation or liability settlement, is available.

This is because Medicare is taxpayer funded. Medicare doesn’t want to spend taxpayer money on your treatment if you’re already receiving money from a settlement to treat it.

As an example, let’s say you’re enrolled in Medicare and fall due to the poor maintenance of a hotel you’re staying in. If the court determines that the hotel is at fault for your injuries, you’ll receive a financial settlement.

Money from that settlement can go toward any treatments you receive, such as surgery or physical therapy. Medicare will pay only for care that’s not related to that injury or when the money from your settlement runs out.

A worker’s compensation claim falls under the same rules. If you’re injured at work and are paying for care with the money from a worker’s compensation claim, Medicare won’t pay for any treatments related to that injury.

Again, once the money from your worker’s compensation claim settlement runs out, Medicare coverage will then kick in.

How are different types of settlements handled?

Your Medicare set-aside arrangement funds are required to be kept in a separate account from all your other assets. Your Medicare set-aside arrangement account must earn interest, and the earned interest must also be used to pay medical expenses related to your settlement.

The way you add money to your Medicare set-aside arrangement will depend on the settlement you receive. Generally, settlements are paid in one of two ways:

  • Lump sums. With a lump sum, all the money will be owed to you at once. You’ll typically receive less money overall in a lump sum, but you’ll get the money much faster.
  • Structured payments. You’ll receive standard payments over the course of several years or even over your lifetime. Depending on your settlement, payments might be made to you monthly, quarterly, or yearly.

You’ll add money to your Medicare set-aside arrangement from a lump sum right away. If you’re receiving structured payments, you’ll pay into your account from each payment you receive.

A professional can help you determine which option is best for your care needs and budget. We’ll discuss how to find a professional to help you later in this article.

Medicare has different rules for Medicare set-aside arrangements, depending whether they’re related to worker’s compensation.

Worker’s compensation Medicare set-aside arrangements (WCMSAs) are required if you receive $25,000 or more and are already enrolled in Medicare or plan to enroll within the next 30 months.

So, for example, if you receive worker’s compensation of $300,000, and you’re 63 years old, you’re required to set up a WCMSA, even though you’re not yet enrolled in Medicare.

Medicare doesn’t have set rules for making a Medicare set-aside arrangement for a liability or no-fault settlement. If you had an attorney representing your case, they should be able to tell you if you need a Medicare set-aside arrangement or not.

Filing a proposal

No matter the type of Medicare set-aside arrangement, you’ll need to file a proposal with Medicare. Your proposal will contain the amount of your settlement, details about your injury or illness, and the amount you wish to put in your account.

In some cases, you’ll need to do what’s called a medical cost projection.

The medical cost projection will estimate the costs for future care related to your settlement. You can submit proposals for your WCMSA online through the WCMSA portal.

Your proposal will be reviewed and either approved or denied by Medicare. Medicare will determine if the amount you’ve proposed for your WCMSA will cover the projected medical bills for your injury or illness.

Medicare will notify you by mail about the decision.

Your proposal might not be accepted if Medicare determines that you need to include more money in your WCMSA. You have the right to appeal a denial or a WCMSA amount determination that you believe is too high.

Keeping track of your funds and expenses

You might be wondering how to keep track of the money spent on care for your specific injury. After all, many people receive money from settlements in a large lump sum that they deposit into their bank account.

That’s where a Medicare set-aside arrangement comes in. Using a Medicare set-aside arrangement, you can set aside the money you’ll need for treatment.

The money in your Medicare set-aside arrangement will then be used to pay for the care you need as a result of your injury or illness. Common expenses include:

Expenses for healthcare needs that are not related to your injury will still be covered by Medicare.

For example, if you’re receiving treatment for broken ribs and muscle damage you sustained at work, all the therapies and pain management would be paid out of your Medicare set-aside arrangement.

If you’re also managing a chronic condition, or get sick and need care, Medicare would cover those costs.

In most cases, you won’t be required to set up a Medicare set-aside arrangement, but it’s highly recommended. If you don’t have an account set up, Medicare might deny claims or bill you for reimbursement later.

You’ll need to manage your Medicare set-aside arrangement once it’s been approved and set up. There are rules you’ll need to follow, including:

  • All the money in your Medicare set-aside arrangement must be spent on treatments and services related to your settlement. You can’t spend the money on anything else, for any reason.
  • Your account must earn interest.
  • You must keep receipts and bills for all treatments related to your settlement.
  • You must only pay the “usual and customary” amount for any treatments you receive.
  • You’ll need to report your Medicare set-aside arrangement spending to Medicare each year.
  • You must notify Medicare when your Medicare set-aside arrangement runs out.

These rules are in place to make sure your settlement money is going toward treatments.

Since Medicare won’t pay for your treatments until your Medicare set-aside arrangement runs out, it’s important to have proof that the money went toward certain treatments. If your Medicare set-aside arrangement isn’t handled properly, Medicare might deny your claims when it runs out.

Finding the right professional can help you manage your account and take some of the stress off of you. If you used a lawyer during your settlement case, they might be able to connect you with a professional to help manage your Medicare set-aside arrangement.

You might also be able to get recommendations from your bank, or any financial professionals you already use, like your retirement account manager.

How can I find help to set up a Medicare set-aside arrangement?

You can contact the Medicare Benefits Coordination & Recovery Center by calling 855-798-2627 for answers to many questions you may have about setting up a Medicare set-aside arrangement.

There are also many different professionals who can provide assistance in setting up your Medicare set-aside arrangement, including:

  • private attorneys
  • tax professionals
  • financial planners
  • account administrators

It may be a good idea to get professional guidance, especially if your case is complex or your settlement amount is large.

An experienced professional can help you estimate the amount of your settlement that needs to go into your Medicare set-aside arrangement and get the account set up once it has been approved by Medicare.

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If you’d prefer to do it on your own, Medicare has a self-administration toolkit to guide you.

However, Medicare recommends that you use a professional if you’re able. Properly managing your account helps make sure that Medicare will pay your figure claim after your Medicare set-aside arrangement runs out.

No matter how you manage your account, it’s a good idea to sign up for updates from Medicare.

Updates can provide you with important information and changes that affect Medicare and Medicare set-aside arrangement plans. You can use this link to enter your email and start receiving updates.

What if my situation changes?

There are certain situations that might change the way your Medicare set-aside arrangement is handled, including the following examples:

  • What if the Medicare set-aside arrangement holder dies before all the money in the account is spent? You can name a beneficiary to your account. If you pass away before the money is spent, and all your outstanding claims have been paid, the remaining money will go to your beneficiary.
  • What if I overfund my Medicare set-aside arrangement account? The amount of money in your Medicare set-aside arrangement is set by your estimated medical costs. If you still have funds when all of your treatments are done, you can close the account and keep the remaining money. A professional can help you with this.
  • What if I overfund my Medicare set-aside arrangement account structured payments? If your payment is too high in a certain period, the money will roll over and reduce the amount of your next month’s payment.
  • What if I underfund my Medicare set-aside arrangement? It depends. If your Medicare set-aside arrangement was approved by Medicare and you run out of funds, Medicare will pick up your treatment costs. If you set up an unofficial Medicare set-aside arrangement that has not been approved by Medicare, your claims might be denied.
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  • Funds you receive from settlements after a worker’s compensation claim or certain other types of injury lawsuits can be placed into a Medicare set-aside arrangement.
  • Medicare set-aside arrangements pay for any care related to an injury that led your settlement.
  • Medicare won’t pay for care for your injury until your Medicare set-aside arrangement runs out.
  • If your Medicare set-aside arrangement isn’t managed correctly, Medicare might deny your future claims.
  • You can use professional services to help you set up and manage your Medicare set-aside arrangement properly and avoid claim denials later.

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