James had a terrible work-related accident----so bad, in fact, that he was unable to return to work because of his injuries. Fortunately, he qualified for Social Security Disability benefits and in a few months, he will be entitled to health coverage through Medicare.  His attorney has negotiated a fair settlement of his workers' compensation case, but there is a huge delay because, James was told, a Medicare Set Aside is required and must be submitted to Medicare for approval.   James' settlement may take months to finalize because of this Set Aside requirement.  This confuses James, and he does not understand why this is necessary.


Medicare is federal health insurance coverage available to the elderly and the disabled.  When a person applies for and receives Social Security Disability benefits, they become eligible for Medicare benefits 29 months after the date of their entitlement.  


Medicare is a secondary payer to other insurance coverage.   This includes workers' compensation coverage. In other words, Medicare does not pay until a primary payer has paid first.  If a worker has a workers' compensation claim and is also on Medicare, then Medicare will not pay for any treatment for the work-related injury, because it is the workers' compensation carrier who is the primary payer.  This is a pretty simple concept to understand if the workers' compensation claim is open, because it is likely that the workers' compensation carrier is paying for the medical treatment while the case is open.  However, it is not so simple once the injured worker settles the workers' compensation case and then release the workers' compensation carrier from any further obligation to pay for your medical treatment. What happens if a few years after you settle your case, you start having problems with your work injury and need more treatment? The workers' compensation carrier is no longer responsible for paying for your treatment, and Medicare won't pay for your treatment, either, because Medicare takes the position that you should have provided for future medical care in your settlement with the workers' compensation carrier. This is where a Medicare Set Aside comes in.


A Medicare Set Aside Arrangement is a financial arrangement where the parties set aside a portion of a settlement for the payment of future medical expenses that would be related to the work injury.  Medicare will not pay for any medical expenses related to the work injury until all the funds in the Medicare Set Aside are exhausted.  The amount that needs to be set aside is determined on a case-by-case basis. Medicare's interest needs to be considered in EVERY settlement. However, Medicare will not review a set aside for its reasonableness unless:  1. You are are already on Medicare and the settlement is for more than $25,000; or 2. You are not yet on Medicare but have an expectation of Medicare entitlement within 30 months and the settlement is for more than $250,000. If the settlement does not meet the review thresholds, then the attorney representing the worker must work hard to ensure that Medicare's interests have been fully considered in the settlement and that appropriate funds are set aside.  


Because, in this hypothetical instance, the injured worker is entitled to Medicare in a few months, it is vital that money be set aside for future medical treatment.  The worker's doctors must be consulted to determine what future medical treatment is probable and then a cost needs to be attached to this treatment.  Typically, insurance carriers use Medicare Set Aside vendors to gather this information, calculate the cost and then submit a proposal to Medicare. Once a proposal is submitted, it can take several months for the set aside to be reviewed and approved by Medicare. Once approved, the workers' compensation settlement can be finalized, and the injured worker will need to establish a separate account for the set aside money and will need to report how the funds are used yearly to Medicare.  


This sounds like a huge hassle, and it is......but it is a very important process that must be taken in order to protect your future Medicare benefits. If a Medicare Set Aside is properly done and approved, and if you exhaust the funds in that set aside, Medicare will then pay for treatment related to the work injury.  If, on the other hand, a set aside is not properly prepared, you may jeopardize your Medicare benefits. 


For more information, you can visit cms.gov.  A handy reference guide is available.