Workers' compensation practitioners have a CMS review process for Medicare set-asides. Liability practitioners do not. That gap leaves plaintiff counsel with a recurring question in settlements involving Medicare beneficiaries or claimants who will soon become beneficiaries: does the settlement need to account for future medical care that Medicare would otherwise pay, and if so, how?
The Source of the Concern
The Medicare Secondary Payer Act makes Medicare a secondary payer when a liability insurer or other primary plan is responsible for payment. Medicare can pursue recovery of conditional payments it made for accident-related care. The harder issue is the future. If a settlement pays a claimant for future medical expenses and the claimant then shifts the cost of accident-related treatment onto Medicare, the program may argue that the primary payer, and potentially the claimant and counsel, failed to protect its interests.
In the workers' compensation setting, CMS has published a review process for proposed set-aside amounts. For liability settlements, CMS has taken the position that the statute applies but has not adopted a formal review procedure or a prescribed method for allocating funds. Since the agency has repeatedly declined to issue a liability-specific set-aside framework, practitioners generally describe the area as lacking a safe harbor. A court-approved or negotiated allocation can help but does not bind CMS.
When the Issue Is Live
The question is most pressing in cases where all of the following are true:
- The claimant is a Medicare beneficiary now, or has a reasonable expectation of becoming one soon, such as being over 62 and a half, receiving or applying for disability benefits, or having end-stage renal disease.
- The injury requires ongoing or future treatment that Medicare would cover, such as surgery, injections, physical therapy, or prescription drugs.
- The settlement is large enough, or the future care costly enough, that the amount could meaningfully affect the claimant's net.
For smaller cases and short-term soft-tissue injuries, most practitioners conclude that no set-aside is warranted, and document why. The file should show the reasoning, not simply the absence of an allocation.
Approaches Practitioners Use
With no official process, firms follow a range of strategies. Each has trade-offs.
No allocation, with documentation. Where the claim lacks significant future medical needs, counsel records the treating physician's opinion that treatment is complete or minimal, confirms the claimant's Medicare status, resolves conditional payments, and includes releases and acknowledgments in the settlement papers.
Allocation by agreement. The parties negotiate a specific portion of the settlement for future care and place it in a professionally administered account or a self-administered account with documented spend-down. A life care plan or a medical cost projection, priced at Medicare rates, typically supports the number. A vendor-prepared liability set-aside report can provide a method, though it carries no official CMS endorsement.
Court determination. In some cases a court approves the allocation, such as in a minor's compromise or a probate proceeding. Judicial approval provides evidence of reasonableness but does not bind CMS on its own.
Lump-sum allocation language. Some settlements state that the claimant is responsible for future accident-related medical expenses and will use the funds accordingly. That language is common, and it helps allocate responsibility, but it is not a substitute for a real analysis when substantial future care is likely.
Practical Steps at Intake and Negotiation
Build the issue into the workflow from the start. At intake, confirm Medicare status and track upcoming eligibility dates. During treatment, ask providers for prognosis and future care recommendations in writing. When you prepare the demand, include a future medical component supported by a plan, which both supports value and sets up the allocation analysis.
Negotiating with defendants is also a pressure point. Defense carriers must report settlements involving Medicare beneficiaries under the Section 111 reporting requirements, and many carriers will request set-aside documentation before issuing payment. Be prepared to address their requests with an organized file. Some carriers insist on specific language or on their own vendor's analysis, and resisting that can delay payment, so raise the subject early in mediation rather than after the number is agreed.
Disbursement mechanics also matter. If a portion of the settlement is designated for future care, the funds should be placed where they can be properly tracked, and the engagement letter should record that counsel advised the client about the issue. The liens and settlement category includes additional discussion of disbursement accounting, and our practice operations coverage addresses file-checklist design for these recurring tasks.
Risk Allocation and Ethics
The consequences of ignoring the issue range from Medicare denying coverage for accident-related care until the settlement funds are exhausted, to recovery claims against the primary payer, to potential professional exposure for counsel who did not advise the client. Courts have not uniformly accepted that Medicare can deny future coverage on the basis of an inadequate allocation, so exposure is contested rather than certain. Still, the most defensible position is a documented, reasoned decision made in consultation with the client.
A written advisory letter helps. It should explain that Medicare may decline to pay for accident-related care if the settlement included compensation for it, describe the options considered, state the decision reached, and record the client's informed consent. Consider advising clients to obtain independent counsel or an elder law consultation if the amounts are substantial.
Checklist
- Confirm current and anticipated Medicare status at intake and again before settlement.
- Obtain written prognosis and future-care opinions from treating providers.
- Resolve conditional payments through the Medicare recovery process.
- Decide on allocation approach and document the reasoning.
- Coordinate with defense Section 111 reporting and any carrier demands.
- Send a client advisory letter and keep it in the file.