Medicare Set-Asides

Managing Medicare's Interests in Third Party Liability Cases

In connection with the 2007, extension of the State Children’s Health Insurance Program (“SCHIP”). Congress enacted Section 111 of the law mandating that insurance companies and other payers of third party liability claims report claims and settlements to Medicare through CMS. The reporting obligations are now in effect and claim and settlement reports are being made.

A “side effect” of the claims and settlement reporting provision and CMS’ subsequent tightening and expansion of its conditional payment reimbursement programs was to raise the question whether “Set-Aside” accounts were necessary in connection with the settlement of third-party claims involving payments for claimed future medical services. To date, CMS has given no definitive policy guidance on this topic, though that appears to be changing as of this writing (July, 2016).

In 2009, we posted and circulated an article concerning the effect of the law and addressed the question whether set-aside accounts were required. With the passage of time and some additional “intelligence” from Medicare, we have some better insights into the issue.  The article has been updated to include recent highlights of CMS action on the topic.

The real challenge that participants in the management of third-party liability cases face is not the question of whether set-asides are required but the broader question of how to appropriately “consider Medicare’s interests” in connection with third-party liability settlements, and even trials, where payments relate in some part to compensation for future medical expenses. The requirement that Medicare’s interests be considered in connection with settlements has been part of the law for many years. In the past, assuring that Medicare’s interests were considered in settlements involving payments for future care has not been addressed by Medicare and typically was not a factor for the participants in the resolution of cases. With the advent of mandatory reporting of claims and settlements to Medicare, the need to “consider Medicare’s interests” is a practical necessity and the use of set-aside account needs to be seriously considered in appropriate cases.

The updated article can be found hereMeeting the Obligation to “Consider Medicare’s Interests” in Third-party Liability Cases – Set-asides and Beyond

We hope this article will be of benefit to practitioners in preparing for and in specifically addressing the need to consider Medicare’s interests.  This is an evolving area of law and administrative procedure. The purpose of this article is provided the reader with general background on the problem and some suggestions on how to approach and resolve the issue in particular cases. The discussion is not endorsed, approved or reviewed by Medicare. There is no “magic formula”. The best we can do is to be thoughtful and creative in addressing the issue. There is no reason that the need to consider Medicare’s interests should derail the settlement process.

Your comments and suggestions on the article would be welcome. Please email them to

Also, please check this site for updates to include suggested settlement agreement language.

Recent Developments and Helpful Links:

Recent CMS Policy Statements regarding Set-Aside accounts and related issues.

Medicare “Set-Aside Accounts and Related Topics

June 8, 2016:  CMS has announced that it is considering expanding its “voluntary Medicare Set-Aside Arrangements (MSA)” review to include review of proposed third-party liability insurance (including self-insurance and no-fault insurance) MSA amounts. In an earlier announcement, CMS indicated the potential to include review of third party liability MSA proposals for contractors currently providing that services in the Workers’ Compensation arena. (The CMS website post can be found here: ( (Site last checked of June 29, 2016)

 the announcement indicates that CMS plans to work with the “stakeholder community” with regard to implementation of this expansion. Notwithstanding the withdrawal of proposed regulations regarding third-party MSA accounts (see update below) this development, along with other recent guidance, is of great significance.

December 24, 2015CMS has issued an important policy proclamation having potentially significant impact on third-party liability settlements where future medical expenses for Medicare beneficiaries (current or future) are implicated. Effective January 1, 2016, where an insurer (or workers’ compensation entity) reports a settlement involving an obligation to provide ongoing medical care (“ORM”-“Ongoing Responsibility for Medical”), CMS will match reported ICD-9 or ICD 10 codes against future claims to determine if Medicare should pay them. (

While this a policy pronouncement does not immediately and directly implicate lump sum settlements which include a potential amounts allocated to future medical payments, is a significant step in Medicare’s utilization of reporting information and emphasizes the need to assure accurate reporting of medical conditions settled in third-party cases. It is inevitable that this matching will apply to a broader range of third-party settlements in the future.


October 8, 2014: CMS has withdrawn its proposed rules governing third-party liability MSAs

Recent Developments in Medicare Set-asides The 'Sipler" Case

The United States District Court in New Jersey recently issued an interesting, though unpublished, opinion concerning Medicare Set asides. In Sipler v. Trans-M Trucking, the parties reached a preliminary settlement of the case without discussing potential Medicare liability. In the settlement documentation subsequently presented by the defense, the defense included a previously un-discussed confidentiality provision and a provision concerning Medicare:

“1) he [Sipler] cannot claim reimbursement from Medicare for injuries arising out of the March 8, 2006 accident; (2) his private health insurance will not pay for claims arising out of accident-related injuries because those injuries are preexisting; and (3) Medicare will not pay for any future treatment for injuries arising out of the accident.”

The court enforced the settlement agreement on plaintiff’s motion without requiring the inclusion of any language regarding Medicare or a Medicare set aside. The court discussed Medicare’s rights and the potential requirement for Medicare set-asides in third-party cases:

“Indeed, no federal law requires set-aside arrangements in personal injury settlements for future medical expenses. To be sure, Medicare set-asides are prudent in settlements for future medical expenditures in the worker’s compensation context because, under the MSP, Medicare becomes a secondary payer for such expenditures to the extent a “compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses,” 42 CFR 411.46(a), or “the settlement agreement allocates certain amounts for specific future medical services,” 42 CFR 411.46(d)(2).

The settlement in this case, however, does not arise in the worker’s compensation context. And it does not indicate a particular amount to compensate Mr. Sipler for future medical expenses arising out of the accident. Nor should it. In contrast to the worker’s compensation scheme that “generally determine[s] recovery on the basis of a rigid formula, often with a statutory maximum …. [t]ort cases … involve noneconomic damages not available in workers’ compensation cases, and a victim’s damages are not determined by an established formula.” Zinman v. Shalala, 67 F.3d 841, 846 (9th Cir. 1995) (citation omitted). Thus, to require personal injury settlements to specifically apportion future medical expenses would prove burdensome to the settlement process and, in turn, discourage personal injury settlements. See McDermott, Inc. v. AmClyde, 511 U.S. 202, 215 (1994) (noting that “public policy wisely encourages settlements”). In sum, the parties in this case need not include language in the settlement documents noting Mr. Sipler’s obligations to Medicare or fashion a Medicare set aside for future medical expenses.”

I think that Judge Debevoise is spot on, and not just because he reaches the same conclusion as I do in the article on this website (Click HERE for our article).

I am told that some plaintiffs’ attorneys are reading the conclusion in Sipler that set-asides are “not required” as the beginning and end of the inquiry in their cases. This is a shallow and foolish approach.

The issue before the court in Sipler was not whether Medicare set-asides are “required,” but whether a party could insist upon the inclusion of that term in final documentation contrary to the original agreement.

I read the Sipler decision as holding that, because Set asides are not specifically required, and thus not “inherently” a part of settlement agreements, they cannot be forced on a party, absent agreement.

There is nothing in Sipler, however, that prevents a defendant from insisting upon some form of set aside or other arrangement to protect Medicare’s interest as a condition of settlement in the first instance. Had this been the case in Sipler, I think the outcome would have been different.

Based on my reading of the case, I think it is foolish to read the court’s accurate holding in Sipler and conclude, without more thought, that Medicare set-asides are not “required”. The point, among others, of the discussion of Medicare Set asides on this website is that the absence of a formal “requirement” for Medicare Set Asides is not the end of the analysis as to whether one should be pursued. The failure to include set asides in the right case may, in fact, be contrary to the plaintiff’s best interests. Moreover, such a failure could ultimately subject plaintiff’s counsel to liability either to Medicare or to the plaintiff saddled with the denial of Medicare benefits or to an unexpected reimbursement claim.

Click HERE for a PDF version of the Sipler decision. Remember, it is unpublished!

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