How Does a Workers Comp Settlement Affect Medicare?

On behalf of Harper, Evans, Hilbrenner & Netemeyer

March 25, 2025


Settling a workers’ compensation claim is a significant step, but if you receive or will soon receive Medicare, your settlement could have lasting financial and medical consequences. Medicare has strict rules about who pays for work-related injuries, and failing to follow these regulations could result in denied coverage or unexpected costs down the road.

One key consideration in workers' compensation settlements is a workers' compensation Medicare set-aside (WCMSA). This is a portion of the settlement that must be reserved for future medical expenses related to your injury—expenses that Medicare would otherwise cover. Failing to establish a proper MSA could lead to Medicare refusing to pay for future medical treatments related to your workers’ comp claim.

If you're in the process of settling a workers’ compensation case, you need to understand how Medicare is involved and what steps you must take to protect your benefits.

Medicare Set-Aside Account
A Medicare Set-Aside Account (MSA) is an arrangement in which part of your workers’ compensation settlement is allocated specifically for future medical expenses related to your work injury. Medicare requires these funds to be spent before it will cover any injury-related treatments.

The purpose of an MSA is to protect Medicare’s financial interests. If you settle a workers' comp claim for an amount that includes future medical expenses but don't set aside funds for those costs, Medicare could refuse to pay for treatment related to your injury until you have spent the settlement money yourself.

Here’s how an MSA typically works:
  • A portion of your workers’ compensation settlement is placed into a separate account.
  • The funds in this account can only be used for medical expenses related to your work injury.
  • You must follow strict Medicare guidelines when using the funds and keep detailed records of expenses.
  • Medicare will not pay for any injury-related care until the MSA funds have been exhausted.
For some, setting up an MSA is straightforward, but for others, determining how much to set aside and managing the account properly can be complex. This is where legal guidance becomes essential.

Is a Medicare Set-Aside Mandatory?
Not every workers' compensation settlement requires an MSA, but certain cases do. Medicare has specific rules about when an MSA is required, based on settlement amounts and Medicare eligibility status.

An MSA is mandatory if:
  1. You are a current Medicare beneficiary and your settlement exceeds $25,000.
  2. You are not yet on Medicare but are reasonably expected to enroll within 30 months, and your settlement is greater than $250,000.
Even if an MSA is not legally required, Medicare still has the right to refuse payment for work-related injury treatments if it determines that settlement funds should have been used first. This is why many legal professionals recommend setting up an MSA, even in cases where it's not strictly mandatory.

If you don't establish an MSA when required, Medicare can:
  • Deny payment for any medical treatment related to your injury.
  • Demand repayment for any costs Medicare incurs related to your injury.
  • Investigate your settlement to ensure compliance with federal law.
If you’re unsure whether your workers’ compensation settlement requires an MSA, consulting an attorney experienced in workers' compensation and Medicare is crucial.

Compromise and Release Medicare Set-Aside
A Compromise and Release (C&R) settlement is another way to resolve a workers’ compensation case. In a C&R agreement, the injured worker receives a lump-sum payment in exchange for releasing the employer and insurer from future claims. This means that instead of receiving ongoing benefits, the worker gets a one-time payout and assumes responsibility for all future medical costs.

If a settlement includes a C&R, an MSA may still be required. Here’s why:
  • If the worker is a Medicare beneficiary, Medicare may still require a portion of the settlement to be placed in an MSA to cover future injury-related medical expenses.
  • Even in cases where a C&R is used, Medicare can still demand repayment if it believes settlement funds were used improperly.
  • Workers who fail to properly allocate their settlement for medical expenses could end up losing Medicare coverage for treatments related to their injury.
While a C&R settlement can be beneficial in some cases, it also carries risks. If you agree to a lump sum without properly setting aside funds for future medical care, you could find yourself without the money needed to cover necessary treatments.

Before agreeing to a Compromise and Release settlement involving Medicare, it’s critical to consult an attorney who understands the intersection of workers’ compensation and Medicare laws.

Common Mistakes to Avoid When Settling a Workers' Compensation Case with Medicare

1. Failing to Establish an MSA When Required
 If your settlement meets Medicare’s criteria, not setting up an MSA could lead to Medicare refusing coverage for future treatments.


2. Underfunding the MSA
 If you don’t allocate enough funds to your MSA, Medicare may require you to personally cover medical expenses before it steps in.


3. Improperly Spending MSA Funds
 MSAs have strict usage rules. The funds can only be spent on Medicare-covered services related to your work injury. Misuse could result in Medicare rejecting future claims.


4. Not Reporting the Settlement to Medicare
 The Centers for Medicare & Medicaid Services (CMS) must be notified of your settlement. Failing to report it can cause delays in future Medicare coverage.


5. Attempting to Handle the Process Alone
 Medicare’s rules regarding workers’ compensation settlements are complex. An attorney can help you structure your settlement properly and avoid costly mistakes.



Get Legal Guidance for Your Workers' Compensation and Medicare Case
If you’re settling a workers’ compensation case and have Medicare or expect to qualify soon, handling the process incorrectly could jeopardize your future benefits. Medicare has strict rules, and failing to follow them can lead to unexpected medical expenses or loss of coverage.

At Harper, Evans, Hilbrenner & Netemeyer, we have extensive experience helping injured workers navigate workers’ compensation and Medicare issues. Whether you need guidance on setting up a workers' compensation MSA, negotiating a Compromise and Release settlement, or ensuring compliance with Medicare’s regulations, our legal team is ready to help.

Don’t take risks with your settlement. Contact Harper, Evans, Hilbrenner & Netemeyer today for a consultation and protect your future medical coverage.