Medicare Set-Asides (MSAs) can make or break a workers' compensation settlement. Get them right, and you close files faster, spend less, and stay on the right side of CMS. Get them wrong, and you invite disputes, overfunding, and enforcement risk.
At this year's National Comp conference in Las Vegas, NV, attorneys Jeanmarie Calcagno and Lynn Combs, MSA expert Marty Cassavoy, and annuity specialist Ryan Oliphant shared practical strategies for handling MSAs and Medicare compliance. Their focus: defense strategies, evidence-based MSAs, and the smart use of annuities. Here are the lessons every claims professional, adjuster, insurer, and attorney should know.
CMS now sees every settlement
CMS now requires reporting of all workers' compensation settlements involving Medicare beneficiaries. That applies regardless of the settlement amount, and whether or not the MSA is submitted for approval.
Under this new WCMSA reporting requirement, CMS learns the MSA amount, life expectancy, and annuity payments a few months after settlement when the claim is reported. Medicare then sends the beneficiary a letter with instructions on how to handle the funds. Accurate reporting and careful preparation up front are now essential to avoid confusion or disputes down the road.
Two paths: CMS approval or evidence-based
There are two main ways to approach an MSA. You can submit it to CMS for review and approval, or you can use an evidence-based MSA.
CMS approval requires funding for any treatment that might be needed, even if it's unlikely. The result is often an overfunded MSA. Evidence-based MSAs include only treatment that is more likely than not to be needed, based on the available medical evidence.
The difference adds up. Evidence-based can be substantially less than traditional MSAs in mid-complexity cases. In more complicated catastrophic cases as well as low-complexity claims with minimal future medical there’s still a measurable difference between what CMS is willing to sign off on and reality.
Get prescriptions under control
Prescriptions are one of the biggest drivers of MSA cost. CMS bases MSA prescription funding on the most recent prescriptions, so outdated or unrelated medications that are mentioned in records but not filled by the claimant can inflate the number fast.
The fix is collaboration with the treating physician. Attorneys work with doctors to obtain medical treatment and prescription clarification statements that confirm current prescriptions and eliminate outdated or unrelated ones. This step can dramatically reduce MSA costs, in some cases from $200,000 down to $5,000, and it gives CMS clear documentation to rely on.
Annuitize whenever you can
Funding an MSA with an annuity saves an average of 30%, and sometimes more than 40%. Instead of a single lump sum, an annuity-funded MSA pays an initial seed amount followed by future periodic payments.
The presenters covered four common annuity types:
• Period certain: guaranteed payments for a set term.
• Temporary life: payments until the claimant's death or the end of the term, whichever comes first.
• Life only: payments for the claimant's lifetime, with no beneficiary.
• Certain and life: a guaranteed period, followed by payments for the rest of the claimant's life.
The right choice depends on the specifics of the case, cost, and the beneficiary interests at stake.
Use rated ages to lower annuity costs
A rated age is a substandard life expectancy based on medical underwriting. It can further reduce annuity costs, especially for life-contingent annuities.
Independent underwriters review the claimant's medical records, typically from the past 2 years and no more than 25 pages, to decide whether the claimant's life expectancy is shorter than the general population's. Timing matters: rated ages are obtained after CMS approval, or for non-submit MSAs, so they deliver better pricing without hurting the MSA submission.
Negotiate beneficiary interests up front
Who gets the money if the claimant dies? That question is a key negotiation point for both annuities and professionally administered MSA accounts.
Employers or funders can negotiate to receive any remaining guaranteed annuity payments, or funds left in the MSA account, after the claimant's death. Commutation provisions let them convert those future payments into a lump sum and close the file.
Reversionary clauses in professionally administered MSA accounts go a step further. They allow unused funds to return to the employer at no additional cost. The potential future savings are significant, which is a strong reason to raise the issue early and transparently with opposing counsel.
Choose professional administration
The presenters strongly recommend professional administration for both compliance and cost efficiency. Professional administrators:
• Handle annual reporting to CMS.
• Apply fee schedule or negotiated rates, which stretches MSA funds further.
• Provide detailed accounting that helps prevent misuse of funds.
The cost is lower than many expect. Professional administration now runs about $900 to $1,000 up front, compared with thousands of dollars historically, and there are no ongoing annual fees.
Self-administration, by contrast, leaves the claimant to manage complex annual attestation forms on their own. It also raises the risk of fund exhaustion or misuse, which can lead to CMS enforcement.
Spot MSA cases early and work as a team
Successful MSA management starts with early identification. Attorneys and adjusters should flag potential MSA cases by reviewing the date of accident, the claimant's date of birth, injury severity, and the medical records.
Alerting supervisors and decision-makers early keeps everything on schedule: reserves get set on time, decisions are well informed, and annuity quotes get approved before they expire. That last point matters, since annuity quotes are only valid for 6 to 10 days.
No one does this alone. Defense counsel, MSA vendors, annuity brokers, and claims professionals need to coordinate closely to control costs, meet CMS requirements, and reach prompt, cost-effective settlements.
What's ahead
Expect CMS enforcement to increase, especially for non-submit evidence-based MSAs, now that CMS receives detailed settlement information. Structured annuity payments offer some protection because they fund the MSA over time, they reduce the risk of running out of money compared with a lump sum.
The presenters also stressed staying flexible. Pivot your strategy as the case evolves, keep communication open with vendors and clients, and never hesitate to ask questions or bring in expert guidance.
The bottom line
MSA compliance rewards teams that are proactive, collaborative, and informed. Evidence-based MSAs, annuity funding, professional administration, and early case identification can deliver real savings, keep you compliant with CMS, and protect everyone from future enforcement. Should you have any questions please contact your local ECS regional compliance consultant, ECS MIR Service Support, or the ECS Compliance Team at mspcompliance@examworkscompliance.com.