You are ready to settle your workers' comp case. The number sounds good. You sign the papers, deposit the check, and move on with your life.
Six months later, you need surgery on the same injury. You go to your doctor, and Medicare refuses to pay. Not because you are ineligible — but because you settled your workers' comp case without properly protecting Medicare's interests. Now you are paying out of pocket for treatment that should have been covered.
This is not a hypothetical. It happens to workers across New York every year. And the rules changed again in 2025, making the stakes even higher.
What Is a Medicare Set-Aside?
A Medicare Set-Aside (MSA) is money carved out of your workers' comp settlement and placed in a separate account. That account is reserved exclusively for future medical expenses related to your work injury — expenses that Medicare would otherwise cover.
The legal basis is the Medicare Secondary Payer Act. Workers' compensation is always the primary payer. Medicare is secondary. When you settle your comp case and close out future medical benefits, Medicare requires that you set aside enough money to cover future injury-related care before it will step in and pay for anything.
Think of it this way: Medicare does not want to pick up the tab for medical costs that your settlement was supposed to cover.
When Does an MSA Apply?
Not every settlement requires a formal MSA. But the thresholds are lower than most people think:
- If you are already on Medicare and your settlement exceeds $25,000, CMS (the agency that runs Medicare) will review your MSA
- If you are reasonably expected to enroll in Medicare within 30 months and your settlement exceeds $250,000, CMS will also review it
"Reasonably expected" covers more people than you might think. If you have applied for Social Security Disability, are appealing an SSDI denial, or are 62 and a half years old — you are in the window. If you are on a Medicare Advantage plan (Part C) instead of traditional Medicare, the same rules apply. The Medicare Secondary Payer Act covers all Medicare programs — no exceptions.
Even if you are not on Medicare and your settlement is below $250,000, you should still discuss Medicare implications with your attorney before finalizing any settlement. Circumstances change, and what does not trigger an MSA today can create problems years from now.
In New York, a Section 32 settlement that closes out medical benefits still has to account for future medical care. As a practical matter, a settlement that sets aside very little for medical can draw added scrutiny before it is approved, and how much is appropriate depends on the future treatment you are realistically likely to need. That medical allocation and a formal MSA are technically different things, but they serve the same purpose: making sure future medical costs are accounted for.
What Happens If You Ignore Medicare's Interests?
The consequences are severe and they follow you for the rest of your life:
- Medicare denies future claims related to your work injury — you pay out of pocket for treatment you expected to be covered
- Medicare seeks repayment from you, your attorney, or the insurer for any injury-related expenses it paid
- The debt goes to the U.S. Treasury, which can offset your Social Security payments and tax refunds
- Double damages are possible under the Medicare Secondary Payer Act
These are not theoretical enforcement mechanisms. CMS actively pursues recovery, and every workers' comp settlement involving a Medicare beneficiary is now tracked in a federal database.
The MSA Is Not Your Money to Spend Freely
This is where many workers make their most expensive mistake. The MSA account is legally restricted. You can only spend it on Medicare-covered, injury-related medical expenses. If you use MSA funds to pay rent, buy groceries, or cover a medical expense unrelated to your work injury — Medicare can deny future claims and demand repayment.
You are also responsible for self-administering the account unless you hire a professional administrator. That means tracking every dollar, keeping receipts, and submitting annual attestations to CMS. Sloppy recordkeeping is one of the most common reasons workers lose Medicare coverage after settlement.
What Changed in 2025?
Two major CMS changes made the landscape more dangerous for injured workers:
April 2025 — Mandatory reporting. Insurers must now report all workers' comp settlements involving Medicare beneficiaries to CMS, regardless of the dollar amount. There is no more flying under the radar with a small settlement.
July 2025 — No more zero-dollar MSA reviews. CMS used to accept and review $0 MSA proposals. If approved, that gave you a safe harbor — Medicare could not come after you later. That safe harbor is gone. Now, if you claim no MSA is needed, you are on your own to document why. If CMS disagrees years later, you get a recovery demand letter with no prior warning.
There is one situation where a set-aside may not be required at all: a case that is settled while it is still controverted — that is, before the insurer has ever accepted liability. If liability was never established, there is no admitted responsibility for future medical care to set aside. In the past, CMS would sometimes confirm this with an approved $0 MSA. After July 2025 it no longer issues that confirmation, so the basis for a $0 allocation has to be carefully documented in the settlement itself. This is exactly the kind of judgment call where an experienced attorney matters.
The practical effect: settling a workers' comp case without properly addressing Medicare is riskier now than it has ever been.
Why This Matters for Your Settlement
Part of your Section 32 settlement may be earmarked as an MSA — money that is still yours, but that you can only spend on future injury-related medical care. If the MSA calculation says $80,000 must be set aside, that $80,000 is carved out for medical costs rather than being cash you can use freely.
That is exactly why you need an attorney who understands both workers' compensation and Medicare compliance. When CMS has to approve the set-aside, the amount is not up for negotiation between you and the insurance carrier — the carrier submits your records to CMS, and CMS determines the figure. When CMS approval is not required, there is more flexibility in how the medical portion is structured, and your attorney can make sure it is set at a level the Board will approve while still protecting your future coverage.
Your attorney should also coordinate the MSA with the rest of your settlement — making sure the medical allocation is set at a level a judge will approve and the account is structured in a way that protects your Medicare coverage going forward.
Do Not Settle Without Getting This Right
If you are on Medicare, approaching 65, or receiving Social Security Disability — your workers' comp settlement has a Medicare component whether you like it or not. Ignoring it will not make it go away. It will make it worse.
The insurance company is not going to protect your Medicare interests. Their goal is to close your file for as little as possible. If the MSA is inadequate or missing entirely, that is your problem — not theirs.
Settling a workers' comp case while on Medicare?
Workers’ compensation is what we do. At Schotter Millican, LLP, we represent injured workers across New York City, and we have never represented an insurance company or carrier.
Call (718) 770-3708 for a free case review. No fee unless we win.
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