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Medicare Liens and Set Asides (MSA) in Liability Cases: Myth or Reality?

What is a Medicare Set Aside (MSA)?
In 2001 Medicare (CMS) announced that it would begin to exercise the Medicare Secondary Payer (MSP) statute.  The concept of the law is that Medicare is a "secondary payer" when any other form of insurance exists to pay claims.  Before 2001, that meant traditional health insurance, but starting in 2001 CMS began to interpret that to mean that even third party insurance, specifically Worker's compensation settlements that "cut off" future medical benefits (clinchers), would be subject to the MSP regulations.

This meant that any Workers Compensation clincher that resaonably cut off future workers compensation benefits would have to be reviewed by CMS to determine if there should be an MSA "allocation."  Accordingly, Medicare would look at the case and decide what the future medical costs for the injury would be.  The future costs would be placed in a MSA trust for the payment of medical services related to that claim. Click here to read what Medicare says about MSA's.

Qualified claimants are  often referred to as Class I and Class II claimants or beneficiaries and  are determined as follows:                   

  • CLASS I - Any claimant who is currently Medicare eligible and the total settlement value is greater than $25,000.
  • CLASS II - Any claimant who has a reasonable expectation of Medicare enrollment in 30       months or less and the total settlement value is greater than $250,000.

Does the MSP apply to Liability Settlements?
The answer is yes, and no.  Yes, because the MSP statute clearly says that liability settlements are covered by the MSA guidelines:

USC Title 42, Chapter 7, Subchapter XVIII, Section 1395y comprises the Medicare Secondary Payer Statute.According to the Code of Federal Regulations(CFR) Title 42, Part 411, Subpart B, Section 411.20 (2), “Section1862(b)(2)(A)(ii) of this Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following:”

  (i) Workers’ compensation
(ii) Liability insurance
(iii) No-fault insurance

The "no" part of the answer is because CMS has not yet started enforcing Medicare Set Asides in standard laibility cases, but that is coming, I think.

Dark Clouds on the Horizon
Here are the signs that things may be changing in the future:

United States of America v. Baxter International, 345 F.3d 866 (11th Circuit 2003) This was a class-action products liability case centered on leaking silicone breast implants.The defendants settled the class-action lawsuit in 1995 for $4.2 billion with no admission of liability. The Office of General Counsel filed suit in 2001 on behalf of Medicare asserting a right of recovery consisting of payments Medicare made to treat the toxic condition of many of the claimants. The government’s case was dismissed  at the district court level for failure to state a claim.  However, the Eleventh Circuit U.S. Court of Appeals reversed and remanded the case, determining that Medicare did in fact have a right of recovery. The case is significant because it expands the reach of the MSP to civil litigation and upholds Medicare’s secondary payer rights.

According to Gould & Lamb, LLC, an MSA company,

  • In late 2003, CMS appointed a Director of Liability in the Baltimore Home Office to begin addressing liability settlements. They have indicated that CMS is diligently developing the MSP Liability enforcement policy covering liability and no-fault settlements. While the thresholds and case criteria remain unclear, it is clear that liability settlements’  involving consideration of future medical costs will be the target of this CMS program.
  • Medicare Prescription Drug Improvement and Modernization Act of 2003 included changes to the MSP Statute that increase Medicare rights as a secondary payer. The legislation is written as if the changes noted in the Act were included in the original MSP, dating back to 1980. The Act closed loopholes and eliminated previous legal arguments used to defend against the MSP, including “prompt payment” and “self-insured plan” exclusions. The Act also added that an admission of liability is not necessary to have exposure to the MSP; it applies if any payments are made to settle the claim.
  • During a recent CMS Conference in Atlanta (June 2004), representatives of the Office of General Counsel  of the United States confirmed the intention of Medicare to begin enforcing the MSP against liability and no-fault cases in the very near future. They remain guarded about the specifics of the program and Gould & Lamb continues to monitor this situation closely. However, it is our considered opinion that an official MSP enforcement policy will be forthcoming within 12-24 months.

It's Coming, Get Ready
Given that Medicare is continually put on the chopping block by the federal government, and our current administration is not exactly "lawyer friendly", we should expect that we will have to deal with tMedicare Set Aside issues in liability cases in the near future.  Fortunately, in the recent case of Arkansas v. Ahlborn the US Supreme Court has at least given us the ability to argue that if CMS gets a piece of the settlement for future meds, then at least their lein for the past medical expenses must be allocated in proportion to the ratio of the medical costs to the overall value of the case.

Chris Nichols
Nichols Law Firm

www.NicholsTrialLaw.com 1.800.906.5984


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Jonathan Ginsberg


Thank you for an excellent summary of how the Medicare Set Aside works. We are finding that the Set Aside does not come into play in Class I cases if the claimant has not yet filed for Social Security disability. At the same time, a claimant's insurability for SSDI runs out within a few years after stopping work so it is not always possible for the claimants to hold off on filing. As is the case in most workers comp matters, timing is everything.

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Craig Hughes

How does one settle with liability insurance when Medicare has not filed a lien? Maximum recovery has occurred and the liability limits have been met.

Chris Nichols

Response to Craig's question above:

Craig, well, first of all, Medicare does not have to "file" a lien. There is no notice provision in Medicare Third Party recovery. If you know that your client has Medicare (or should know) then you are considered "on notice" of the lien.

Lawyers all over the U.S. have the same problem you have: the claim exceeds the liability policy limits, the liability policy tenders, and you can't get Medicare to tell you the exact amount of the lien. For liens on past medicals paid, the best you can do is to "pre-figure" the Medicare lien reduction, and hold that money in trust. I've set that formula out in this post:

Then you just have to pester Medicare until they send you the "final pay" letter. In NC at least, we've seen waits of one to two years in some cases.

Now, if you were talking about MSA's in liability cases (for future medicals) my position is that they do not exist right now (except in workers comp cases).

I hope this answers the question. If it doesn't maybe you can add a little more to the question.

Chris Nichols

Stephen Larocque

I noticed that the information regarding the MSA's for Liability cases is a couple of years old. Has there been any progress? Is there any links to information regarding this aspect?

Stephen Larocque


Assuming there has been total compliance with Medicare's lien, short of consistenly pestering Medicare, is there some action attorneys can take to somehow expedite their clients receiving their settlement after Medicare has taken control over it?


i am trying to settle my w.c. and we are waiting on medicare to tally up what i will be getting. how long does this process take? i am in georgia.

Chris Nichols

It ia always difficult to judge how quickly Medicare will respond to any request. In years past it sometimes took a year or more for them to get back, but in recent years the times have shortened considerably. If you have a lawyer, they should be able to give you some estimate based on prior cases. Also, it depends on what stage of the request process you are in.

avery lewis

how do i find a lawyer to help me get a reduction of my MSA

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