Long-Term Medical-Cost Planning and Medicare Set-Asides After a Catastrophic Settlement

The Bottom Line

In catastrophic-injury cases, future medical care is usually the largest component of damages — and the piece most settlement planners underweight. The disciplined sequence is to build a life-care plan first, then layer Medicare Secondary Payer (MSP) compliance, Medicare Set-Aside (MSA) funding, structured-settlement funding, benefit preservation, and lien resolution on top of it. Workers' compensation MSAs operate under detailed CMS guidance with concrete review thresholds; liability MSAs have no formal CMS rule at all. But the underlying obligation to consider Medicare's interest applies either way.

Future Medical Is the Heart of the Case

A life-care plan is a comprehensive, evidence-based projection of every future treatment, medication, surgery, therapy, piece of durable medical equipment, home modification, and attendant-care need over the injured person's lifetime — with costs attached. It is prepared by a Certified Life Care Planner (CLCP) (often a registered nurse, nurse practitioner, physician, or rehabilitation professional), working from medical records, a client interview or home visit, and treating-physician input, and frequently paired with a forensic economist who reduces the projected stream to present value.

The practice point catastrophic-injury firms stress repeatedly: do not settle before the life-care plan is complete. The settlement happens only once, and the same plan also feeds the MSA allocation and benefit-preservation analysis.

The Medicare Secondary Payer Framework Drives Everything

The MSP Act (42 U.S.C. §1395y(b)) makes Medicare a secondary payer whenever payment "has been made or can reasonably be expected to be made" under liability, no-fault, or workers' compensation insurance. That creates three distinct obligations:

1. Reimbursing conditional payments (past medical) Medicare made before settlement. The Benefits Coordination & Recovery Center recovers these; under 42 C.F.R. §411.37, Medicare reduces its recovery to account for procurement costs (attorney fees and costs).
2. Considering and protecting Medicare's interest in future medical.
3. Section 111 mandatory reporting by the insurer/Responsible Reporting Entity. CMS finalized a civil money penalty rule for untimely reporting, applied on a tiered basis; the inflation-adjusted figures reach approximately $1,512/day per claimant at the top tier.

WCMSAs Are Well-Defined; LMSAs Are Not

Workers' comp MSAs (WCMSAs). The controlling document is the CMS WCMSA Reference Guide (currently Version 4.5, dated April 13, 2026). A few load-bearing points, verbatim from the Guide where noted:

• Submission is voluntary. "There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review."
• Review thresholds. CMS will review when "the claimant is a Medicare beneficiary and the total settlement amount is greater than $25,000.00," or when "the claimant has a reasonable expectation of Medicare enrollment within 30 months… and the anticipated total settlement amount… is expected to be greater than $250,000.00." Critically, these are workload thresholds, not safe harbors — the Guide stresses they are "not intended to indicate that parties may settle below the threshold with impunity."
• Finality. When CMS approves a WCMSA amount, it "stands behind that amount." Without approval, "Medicare may deny related medical claims, or pursue recovery… up to the full amount of the settlement."

Liability MSAs (LMSAs) — genuinely unsettled. There is no formal CMS LMSA review process and no regulation requiring an LMSA. CMS sent a "Medicare Secondary Payer and Future Medicals" proposed rule to review and then withdrew it without publication on October 13, 2022, and as of mid-2026 nothing has replaced it. The underlying MSP obligation not to shift future injury-related costs to Medicare still applies to liability settlements with Medicare beneficiaries — but the mechanism and any bright-line trigger are undefined. Industry practice borrows the WC thresholds and the treating-physician approach as risk-management heuristics, but those are not CMS-endorsed for liability. This should not be stated as settled law.

Professional Administration vs. Self-Administration

CMS permits a beneficiary to self-administer an MSA where state law allows, but the WCMSA Reference Guide says it is "highly recommended" that recipients use a professional administrator. Self-administration requires depositing funds in a separate, interest-bearing, FDIC-insured account; paying only Medicare-covered, injury-related expenses at the correct price; keeping detailed records; filing annual attestations; coordinating with Part C and Part D plans; and handling exhaustion reporting — for life. The error risk is high, and a mistake can cause Medicare to deny injury-related coverage. (Legal fees and administration fees are not allowable expenses payable from the MSA itself.)

Structured Settlements to Fund the MSA

CMS expressly permits funding an MSA as a lump sum or a structured settlement. In a structured MSA, an initial "seed" deposit covers the first procedure for each body part plus the first two years of payments; an annuity then replenishes the account each year for life expectancy. The benefits:

• Cost savings. The present cost of funding via annuity is lower than dollar-for-dollar lump-sum funding. Synergy Settlement Services notes "it is not uncommon to see a 20-30% cost savings by using a structured settlement to fund an MSA as opposed to a lump sum."
• Rated ages. Life insurers' rated-age determinations, accepted by CMS as evidence of reduced life expectancy, can reduce the amount required and the annuity duration.
• Annual temporary exhaustion. Acts like a yearly deductible — Medicare can pick up costs for the rest of a year once the annual amount is exhausted, then the next deposit replenishes the account.

Coordinating With Benefit Preservation and Liens

Medical-cost planning fails if it isn't coordinated with the rest of the settlement.

• Benefit preservation. Medicaid and SSI are means-tested (commonly a $2,000 countable-asset limit for an individual). A first-party (d)(4)(A) special needs trust — for a beneficiary under 65, with a Medicaid payback at death — holds the settlement (and may hold the MSA) without counting as a resource. For a dual-eligible client, the MSA is typically "nested" inside the SNT.
• Lien resolution. Three major lien types must be resolved. Medicare conditional-payment liens are reduced for procurement costs under §411.37. Medicaid liens — after Gallardo v. Marstiller (2022) — can reach the portions of a settlement allocated to both past and future medical expenses, making careful damages allocation more important. ERISA/private liens are governed by plan language under US Airways v. McCutchen (2013) and Montanile (2016).

The Practical Sequence for a Catastrophic Case

1. Identify Medicare/Medicaid/SSI status early — current beneficiary, or a reasonable expectation of Medicare within 30 months (SSDI pending, ESRD)?
2. Order the conditional-payment investigation and begin tracking liens.
3. Commission the life-care plan and present-value analysis before negotiating future-medical value.
4. Analyze Medicare's future interest and decide on an MSA approach.
5. Choose funding — almost always evaluate a structured (seed + annuity) MSA with rated ages.
6. Choose administration — strongly consider professional administration.
7. Preserve benefits with a first-party or pooled SNT where the client is on or eligible for Medicaid/SSI.
8. Resolve all liens with documented reductions, and confirm Section 111 reporting.

This is exactly the kind of whole-picture, long-term medical-cost planning most planners overlook — and it's central to how we work. Talk to us about a catastrophic case or see medical-cost planning.

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LMSA law is unsettled; do not rely on it as settled law. CMS figures, WCMSA Reference Guide versions, and the inflation-adjusted CMP tiers change — verify current values at the time of each engagement. This is general educational information, not legal or financial advice for a specific case.