An employer may offer a financial settlement when someone has an injury or an illness due to their work. A workers’ compensation settlement may cover initial healthcare costs, while a Medicare set-aside agreement aims to cover costs in the future.

A Workers’ Compensation Medicare Set-aside Arrangement (WCMSA), often called “Medicare set-aside,” involves some of the money from a workers’ compensation settlement being allocated for future costs that Medicare would typically cover.

Medicare has strict guidelines about how a person can use the funds in their set-aside account. This article explores the Medicare set-aside process and rules in detail.

Older Male Adult Shaking Doctor's Hand After Confirming Medicare Set-AsideShare on Pinterest
Image credit: Tom Werner/Getty Images

Medicare helps cover a range of healthcare costs for adults ages 65 and older, as well as for some younger adults with specific health conditions.

If a person receives a settlement for a workers’ compensation claim, a portion of the money is put into a WCMSA account — called an MSA — for future medical care.

Settlement recipients must use the set-aside account funds in their entirety before Medicare starts to cover the costs of care related to the illness, injury, or disease reported in the claim for compensation.

Usually, setting up a Medicare set-aside agreement is voluntary and not federally mandated.

To be eligible to set up a WCMSA, a person must:

  • either be a Medicare beneficiary and receive a settlement greater than $25,000
  • or reasonably expect Medicare enrollment within 30 months of their workers’ compensation settlement date, with the settlement agreement being greater than $250,000

Medicare also mandates that a person consider Medicare’s interests when using the funds. In other words, settlement funds set aside for medical care must be used for those purposes in a way that Medicare recognizes.

If the Center for Medicare and Medicaid Services (CMS) find that this is not the case, they maintain the right to claim back any payments that they have made.

Under Medicare Secondary Payer legislation, in some instances, Medicare does not have the primary responsibility to cover medical costs, and other available insurance is responsible for the coverage before Medicare.

If a person has a WCMSA, the money put away for future healthcare covers medical costs before Medicare, ensuring that the person uses their settlement funds before using Medicare’s federal funds.

The amount allocated to the set-aside account varies, depending on the person’s estimated medical needs. In some cases, the workers’ compensation insurance company asks Medicare to approve a certain amount for the set-aside account.

Medicare then reviews medical documentation and estimates future medical expenses related to the injury or illness in the compensation claim.

Medical costs covered may include:

  • visits to the doctor
  • prescriptions
  • procedures and tests
  • medical supplies and equipment
  • surgeries

Yes. Any money allocated for a WCMSA must go into a separate interest-earning account.

The interest must also stay in the account for future medical expenses.

Medicare has guidelines for WCMSAs. To keep Medicare from denying claims, it is important to follow these rules.

Guidelines for Medicare set-aside agreements include:

  • Individuals must deposit the funds in a separate interest-earning bank account.
  • Money in a WCMSA account must go toward future medical expenses related to the work-related injury or illness. The costs must be among those that Medicare typically covers, including prescription drug expenses.
  • Individuals may not use the funds for any services that Medicare does not cover.
  • Individuals must keep copies of receipts and bills and report all of their WCMSA-related costs to the CMS each year.

No. Only the person who receives the compensation settlement can use their WCMSA funds, and they must go toward healthcare for that individual. A spouse, for example, cannot use the money.

Because the process can be confusing, a person may designate a professional administrator to help with their account. The administrator has access to the account information, but they cannot use the money.

If the person passes away and funds from the WCMSA remain, a CMS regional office and the Benefits Coordination and Recovery Center are responsible for the payment of claims.

Next, after Medicare acknowledges that there will be no further expenses, the remaining set-aside funds are considered part of the individual’s estate.

The CMS only monitor spending once the person is eligible for Medicare.

By monitoring the spending in a set-aside account, the CMS make sure that all expenditures are appropriate. Account-holders must provide an annual disbursement statement to CMS for review.

A person can self-administer their WCMSA account, and they must ensure that their record-keeping is accurate and complete.


Records should include evidence of the services and items covered by the account. A person should save their receipts, medical reports, appointment letters, and prescriptions.

The paperwork should prove that the money from the set-aside account went toward medical costs related to their workers’ compensation claim.

Following the guidelines and collecting the relevant information can be complicated, and a person might prefer to have a professional administrator handle their account. The CMS also offer a self-administration toolkit to help a person manage their WCMSA account.

Using Medicare-approved services

It is essential to only use WCMSA funds for services that Medicare would otherwise cover. A person should check the coverage before spending the money.

If the person uses the funds for other services or items, Medicare may reject all future claims relating to the workers’ compensation injury or illness until the account administrator provides proof of appropriate spending.

When a person has an WCMSA, some money awarded in a workers’ compensation settlement is placed in a separate account, called an MSA, to cover future medical needs related to the illness or injury in the claim.

A person needs to use this money for Medicare-approved services. Only the settlement recipient can use the funds, and Medicare monitors the expenses annually.

Once a person has used all of their WCMSA funds, Medicare starts paying for approved services related to the workers’ compensation claim.