If you are thinking about settling your New York workers’ compensation claim, and you are on Medicare or may be soon, you will hear about a Medicare set-aside. It is one of the most misunderstood parts of settling a comp case, and getting it wrong can leave you paying for your own injury-related care later.
This page explains what a set-aside is, when one comes up, how the money can and cannot be spent, and the choices you have before you sign anything.
What a Medicare set-aside is
Under federal law, Medicare is a secondary payer when workers’ compensation is responsible for your medical care. Medicare is not supposed to pay for treatment that your comp claim should cover. When you settle a claim and close out future medical care in exchange for money, part of that money is meant to stand in for the medical care the carrier would otherwise have paid.
A Workers’ Compensation Medicare Set-Aside Arrangement, usually called an MSA or WCMSA, is the portion of the settlement set aside for that future care. It is used to pay for injury-related treatment and prescriptions that Medicare would otherwise cover. Once it has been properly spent, Medicare pays for that care as usual.
In plain terms: the set-aside is not a penalty and it is not taken from you. It is your money, earmarked for your own medical care for the work injury, with rules about how it is spent.
When a set-aside comes up
Submitting a set-aside to the Centers for Medicare & Medicaid Services (CMS) for review is voluntary, but it is strongly recommended, and CMS will review one only when a settlement meets its review thresholds. As of CMS’s July 2026 reference guide, those are:
- You are already a Medicare beneficiary and the total settlement is more than $25,000; or
- You have a reasonable expectation of Medicare enrollment within 30 months of the settlement, and the total settlement is expected to be more than $250,000. You can be treated as expected to enroll if, for example, you have applied for Social Security Disability benefits or you are at least 62 years and 6 months old.
Those thresholds decide when CMS will look at a set-aside. They do not mean a smaller settlement can ignore Medicare. CMS says plainly that settling below the thresholds does not let the parties disregard Medicare’s interests. Even in a smaller case, future medical costs have to be considered.
Since July 2025, CMS no longer reviews zero-dollar set-asides in certain situations, such as a claim that was denied with no medical or indemnity benefits ever paid.
A set-aside only matters if you close out medical care
This is the point people most often miss. A set-aside is about future medical treatment. If your future medical care stays open, there is usually nothing to set aside, because the carrier keeps paying for treatment.
- A schedule loss of use award does not close your medical care. Treatment for the injury generally stays open. See schedule loss of use awards.
- A Section 32 settlement that resolves only your weekly benefits and leaves medical care open generally avoids a set-aside for the same reason.
- A full Section 32 settlement that closes medical care is where a set-aside comes in. See Section 32 settlements.
So one of the first questions in any settlement discussion is whether to close medical care at all. For some injuries that are healed and stable, closing medical makes sense. For others, especially conditions that may need care for years, such as a diabetic foot injury, a failed back surgery, or a joint that will likely need replacing, keeping medical open can be worth more than the extra money on the table. Our page on diabetic foot injuries explains why those injuries in particular can need care long after the claim.
How the set-aside amount is calculated
The amount is based on a projection of the injury-related medical care and prescriptions you are expected to need over your lifetime that Medicare would cover. It usually starts with a review of your medical records, your treatment history and your life expectancy. If the set-aside is submitted to CMS, CMS reviews it and either approves the proposed amount or counters with its own figure. When CMS approves an amount, it stands behind that amount.
In New York, a Section 32 settlement that requires a set-aside is often structured so the deal depends on CMS approving the set-aside amount before the Board approves the settlement. That protects both sides, but it adds time, so build it into your expectations.
How the money can and cannot be spent
This is where most set-aside problems happen, long after the case is over. The rules are strict:
- The money goes into a separate, interest-bearing account, insured by the FDIC, and not mixed with your checking or savings.
- It may be spent only on treatment and prescriptions related to the work injury that Medicare would cover.
- If the set-aside was priced using the workers’ compensation fee schedule, providers should be paid at fee schedule rates, not their full charges.
- It cannot be used to buy a Medicare supplement policy, or for unrelated care.
- The interest is taxable. The tax on that interest can be paid from the account, and the set-aside money itself is not taxable income.
If the money is spent on the wrong things, or providers are overpaid, the account runs out early, and Medicare can refuse to pay for injury-related care until the misspent amount is put back and properly used up.
Self-administration or a professional administrator
You can manage the account yourself, or a professional administrator can manage it for a fee. Either way, someone has to keep records and send Medicare a signed attestation each year summarizing what was spent, and a final attestation within 60 days of the date the account is completely used up. Annual and final attestations can be submitted electronically.
Self-administration saves the fee, but it puts the bookkeeping on you, and the consequences of mistakes fall on you too. For a large set-aside, or for anyone who would rather not track every bill, professional administration is worth considering.
Lump sum or structured
A set-aside can be funded all at once, or structured with an initial deposit followed by annual deposits, usually through an annuity. With a structured set-aside, if a year’s money is properly spent before the next deposit, Medicare covers injury-related care until the next deposit arrives.
What happens to money left over
If you pass away before the set-aside is used up, Medicare first makes sure all injury-related claims have been paid. Any money left over is then distributed according to state law and the terms of the settlement.
If you are on Social Security Disability
A set-aside is a different issue from the Social Security offset, but they are often confused, and both can come up in the same settlement. If you receive Social Security Disability, read the Social Security offset and workers’ comp settlements before you settle. The wording of the settlement agreement can make a large difference to your monthly check.
Questions to ask before you settle
- Do I need to close my medical care at all, or can I settle only my weekly benefits?
- Am I on Medicare, or likely to be within 30 months?
- What will my injury-related care realistically cost over my lifetime?
- Will the set-aside be submitted to CMS for approval?
- Who will administer the account, and what will it cost?
- How does the settlement interact with any Social Security Disability benefits?
Frequently Asked Questions
What is a Medicare set-aside in workers’ comp?
It is the part of a workers’ compensation settlement set aside to pay for future injury-related medical care and prescriptions that Medicare would otherwise cover. Once it has been properly spent, Medicare pays for that care as usual.
Do I need a Medicare set-aside to settle my New York workers’ comp case?
Only if the settlement closes your future medical care and Medicare’s interests are involved. CMS reviews set-asides when you are a Medicare beneficiary and the settlement is over $25,000, or when you reasonably expect to enroll in Medicare within 30 months and the settlement is over $250,000. Even below those amounts, future medical costs have to be considered.
Does a schedule loss of use award require a Medicare set-aside?
Generally not. A schedule loss of use award does not close your medical care, so treatment for the injury stays open and there is usually nothing to set aside.
Can I spend Medicare set-aside money on anything I want?
No. It can be used only for treatment and prescriptions related to the work injury that Medicare would cover, and it must be kept in a separate, interest-bearing account. Spending it on other things can lead Medicare to refuse injury-related care until the money is replaced.
Can I manage my own Medicare set-aside?
Yes. You can self-administer it or use a professional administrator. Either way, records must be kept and an attestation sent to Medicare every year, plus a final attestation within 60 days of the account being used up.
What happens to the set-aside money if I die?
Medicare first makes sure all injury-related claims have been paid. Any money left over is then distributed according to state law and the settlement terms.
Talk to a New York workers’ compensation attorney
The Law Offices of Frank J. Dito, Jr. handles workers’ compensation claims from the office on Staten Island, for injured workers throughout the five boroughs and across New York State. Whether to settle, what to settle and how to protect your future medical care are decisions worth making with someone who has read your whole file. Call, and we will walk you through your options.
Call 718.701.2776 or 800.310.5520. Consultations are free. If we don’t recover money for you, we don’t get paid.
1610 Richmond Road #200, Staten Island, NY 10304