Medicare Set-Asides (WCMSA) in Workers' Comp Settlements

If you're on Medicare, or likely to be soon, a workers' comp settlement that pays you a lump sum and closes out your future medical benefits usually can't just hand you a check and walk away. A piece of that settlement is typically set aside — earmarked in a dedicated account — to pay for your future work-injury medical care first, before Medicare pays anything toward that same injury. That earmarked pot is called a Workers' Compensation Medicare Set-Aside Arrangement, or WCMSA. It isn't a punishment and it isn't red tape someone invented to slow you down. It exists because of one basic rule: Medicare is a secondary payer, not a backstop for costs a workers' comp insurer was responsible for.

Why Medicare cares about your settlement at all

Medicare generally may not pay for treatment that another payer — including a workers' comp carrier — is responsible for. While your claim is open, that's straightforward: comp pays your injury-related medical bills. The complication arrives when you settle. A full and final settlement often closes out your right to future medical benefits for the injury in exchange for money now. If nothing were done to protect Medicare's interest, settlement money meant for future care could be spent on something else and the same injury-related surgery, injections, or prescriptions could then be billed to Medicare. The Centers for Medicare & Medicaid Services (CMS) uses the WCMSA framework to prevent that shift of cost onto Medicare.

Two different things are in play, and people mix them up. A WCMSA is about future care. Separately, if Medicare already paid injury-related bills that comp should have covered, those are conditional payments that Medicare is entitled to recover out of the settlement. Ask about both.

Who this actually matters for

WCMSA considerations come up most often for two groups:

• People already enrolled in Medicare when they settle their workers' comp case.
• People with a reasonable expectation of Medicare enrollment in the relatively near future — most commonly because they have applied for or been awarded Social Security Disability Insurance (SSDI), which generally leads to Medicare eligibility.

If neither applies, Medicare's interests may still deserve a look, but the stakes are usually lower. Your workers' comp attorney or the claims adjuster should be able to tell you which category you fall into — and if you have an SSDI application in progress, say so early, because it can change how the settlement is structured. (Observed.org covers the SSDI side, including how workers' comp and disability benefits interact, in our disability benefits section.)

CMS review thresholds and the voluntary submission process

CMS maintains review thresholds — triggers based on things like your Medicare status, your expectation of enrolling, and the total settlement value — that determine whether CMS will review a proposed set-aside amount and approve it. Those are federal figures that CMS updates and republishes, so we won't restate a number here. The current thresholds and process are published by CMS on its Workers' Compensation Medicare Set Aside Arrangements pages, and that is where your attorney or settlement administrator should be checking.

Here's the part that surprises people: submitting a WCMSA proposal to CMS for formal review and approval is voluntary. Falling below CMS's review thresholds does not mean Medicare's interests can be ignored — it only means CMS won't pre-approve your number. The obligation to reasonably protect Medicare's future interest exists in any settlement that closes out future injury-related medical care, whether or not CMS ever looks at it. Many parties submit anyway, because a CMS-approved amount gives everyone — you, the employer, the carrier — certainty that the number will hold up.

What happens if Medicare's interest is ignored

This is the single biggest reason to slow down before you sign. If a settlement closes out future medical care and no reasonable set-aside was arranged, Medicare can decline to pay for treatment related to your work injury until the settlement money attributable to future medical care has been spent on that care. In practice, that can mean you settle, spend the money on rent, a car, or debts, and then get denied at the pharmacy counter or the surgical scheduler's desk. Untangling that afterward is far harder than getting the set-aside right before you sign.

Self-administration versus professional administration

Once a WCMSA is funded, someone has to manage the account and make sure the money is spent only on Medicare-covered items and services related to the injury. Generally there are two options:

• Self-administration — you manage the account yourself: keeping the funds in a separate interest-bearing account, paying injury-related medical bills and prescriptions from it, and keeping records of every transaction.
• Professional administration — an administrator manages the account for you, for a fee, handling bill payment and recordkeeping on your behalf. CMS has consistently encouraged professional administration, particularly for beneficiaries who would rather not track this themselves.

Either way, WCMSA money can only be used for treatment of the work injury that Medicare would otherwise cover — not rent, not unrelated medical conditions, not everyday expenses. And either way there is an ongoing duty: the account administrator (you or your professional administrator) must send CMS an annual attestation, through the Benefits Coordination & Recovery Center or the WCMSA Portal, confirming the funds were used correctly. Miss the attestation, spend the money on something unrelated, or exhaust the account improperly, and Medicare can deny injury-related claims until the problem is fixed. CMS publishes a free self-administration toolkit with the current forms and attestation timing — read it before your first anniversary date arrives.

A newer wrinkle: mandatory Section 111 reporting of WCMSA data

Separately from the voluntary review process, CMS has expanded mandatory Section 111 reporting — the system insurers already use to tell Medicare about settlements — to include WCMSA data fields (such as the set-aside amount and whether it is funded as a lump sum or a structured payout) for qualifying workers' comp settlements, applying to settlement payment dates on or after April 4, 2025. That reporting obligation falls on the workers' comp insurer or self-insured employer, not on you directly, but it means CMS now has systematic visibility into set-aside amounts even when no approval was ever requested. CMS continues to update this guidance, so verify the current rules directly at cms.gov rather than relying on anything you read secondhand, including this article.

What to do

1. Tell your attorney or adjuster your Medicare status — enrolled now, or an SSDI application pending or approved — as early as possible in settlement talks. Be accurate; guessing or leaving it out helps no one.
2. Ask directly whether a WCMSA is being considered, and whether the parties intend to submit it to CMS for review.
3. Ask about conditional payments — bills Medicare already paid for the injury that must be resolved out of the settlement.
4. Get a copy of any proposed set-aside allocation and ask what it's based on — your treating doctor's projected future care, a rated age, a life care plan — before you sign anything that closes out medical benefits.
5. Decide, with advice, between self-administration and professional administration, based on how comfortable you are tracking bills and paperwork over what could be many years.
6. Calendar your annual attestation the moment the settlement is final, and don't let it lapse.
7. Check cms.gov directly for current thresholds, submission process, and attestation timing.

Your state law still controls the settlement itself

Workers' compensation is state law, and there are more than fifty separate systems. State law determines whether your future medical benefits can be closed out at all, how permanent disability is valued, and whether a settlement needs approval from a judge or board. The WCMSA rules above come from CMS, a federal agency, and sit on top of whatever your state's system allows. The deadlines that matter most to your claim — reporting the injury to your employer, filing the claim, and appealing a denial — are short, and they vary by state. Do not assume you know them: check with your state workers' compensation agency, board, or commission immediately, and ask about its free ombudsman or information officer if you don't have a lawyer.

Note also that some workers are outside the state systems entirely — federal civilian employees (FECA), maritime workers (Longshore and the Jones Act), and railroad workers (FELA) are covered by separate federal regimes with their own rules, several of which are fault-based rather than no-fault. The U.S. Department of Labor's Office of Workers' Compensation Programs (dol.gov/agencies/owcp) is the starting point for the federal programs.

Frequently asked questions

Do I need a Medicare set-aside for every workers' comp settlement?

No. Set-asides matter when a settlement closes out future medical benefits for the injury and you are either on Medicare or reasonably likely to enroll before long. If your medical benefits stay open, or you are nowhere near Medicare eligibility, it may not be a factor — but ask, don't assume.

Is CMS approval of the set-aside amount required before I can settle?

No. Submitting a proposed WCMSA to CMS for review is voluntary. But skipping review doesn't remove the underlying duty to reasonably account for Medicare's future interest, and a too-low set-aside can still lead to Medicare denying injury-related claims later.

Can I spend the set-aside money on anything, since it's my settlement?

No. WCMSA funds are earmarked strictly for Medicare-covered treatment of the work injury. Spending them on unrelated expenses can lead Medicare to deny future injury-related claims and create larger problems down the road.

What if my SSDI application is still pending when I'm negotiating my settlement?

Say so. A pending or approved SSDI claim is one of the main things that puts a claimant on CMS's radar for set-aside purposes, because it generally leads to Medicare eligibility. This is exactly the kind of detail your attorney needs before you sign.

Where can I check the current thresholds and rules myself?

Go directly to CMS's Workers' Compensation Medicare Set Aside Arrangements pages at cms.gov. Thresholds, forms, and reporting rules are updated periodically, so treat cms.gov as the authoritative source rather than any figure you hear secondhand.

This article provides general information about Medicare set-asides in workers' compensation settlements. It is not legal advice, and reading it does not create an attorney-client relationship. Workers' compensation law varies by state — consider talking to a workers' compensation attorney, and check your state's workers' compensation agency along with cms.gov, before signing any settlement that closes out medical benefits.