The Medicare Set‑Aside (MSA) process protects both Medicare and employers by reserving a portion of a settlement for future medical care. If the allocation is wrong, Medicare can deny benefits or demand repayment, and workers may not have funds for treatment. When the Centers for Medicare & Medicaid Services (CMS) published its fiscal year 2025 MSA data and introduced new reporting rules at the end of 2025, it wasn’t just another government spreadsheet; it was a wake‑up call. The trends and policy shift behind those numbers will affect how claims resolve, how much reserves you hold, and how you document settlements. This article distills the key insights and, more importantly, explains what you should do about them.
What’s in The FY 2025 Release
Each fall, CMS shares a snapshot of the prior fiscal year’s MSA reviews. That data shows how many submissions came through, how much money was recommended, and how those figures compare with what carriers proposed. For FY 2025, CMS reviewed 13,884 submissions, down from 14,862 the year before. Fewer reviews aren’t necessarily a win; they signal that CMS is tightening its gatekeeping and is less desired by the WC industry than ever before. Carriers are either submitting fewer cases or shifting to evidence‑based MSA products or both. Two policy changes (expanded Section 111 reporting and the end of CMS’s review of zero‑dollar MSAs) are driving that shift, and they carry real consequences if you’re unprepared.
New Rules You Can’t Ignore
Section 111 reporting gets muscle: CMS’s updated Section 111 reporting rules took effect on April 4, 2025, and require you to submit detailed MSA information for every settlement with a Medicare beneficiary involving a Total Payment Obligation to the Claimant (TPOC) of more than $750. Even if your MSA allocation is zero dollars, you must report certain data to CMS, such as the total amount of your MSA allocation, how many years that allocation covers, and whether it’s paid in a lump sum or through an annuity. CMS warns that inaccurate or late reports may trigger civil money penalties of up to $1,000/day per file or more. In practical terms, this means you need to audit your data fields, retrain staff, and ensure your reporting systems capture each required element. It’s not just paperwork; without compliance, you risk fines from the federal government and delays in settling claims.
No more CMS‑approved zero‑dollar MSAs: CMS decided it would no longer review/approve a zero‑dollar MSA. As of July 17 2025, the agency stopped reviewing proposals that allocate nothing for future medical care. This doesn’t mean you can never do a zero-dollar MSA allocation; denied claims and situations where a doctor certifies there’s no future treatment may still justify it. But you won’t get CMS’s blessing. If you go that route, keep signed physician statements, denial letters, or court orders on file. Without that documentation, Medicare can refuse to pay future bills or try to claw back settlement dollars.
Amended reviews, anytime: Finally, CMS has loosened its policy on amended reviews of MSAs. Since April 7 2025, you no longer have to wait a year after approval to request an updated review of a previously submitted MSA. If the injured worker’s medical needs change or you obtain a new rated age, you can ask CMS to reconsider right away. That flexibility can free up settlement dollars or adjust funding if circumstances change, but only if you monitor ongoing care and act promptly. Remember that while CMS is willing to review the MSA again, it is only willing to do that once. Make sure when you ask CMS for that, you are ready and prepared for the results.
What the FY 2025 Numbers Reveal
Fewer reviews, bigger settlements: CMS reviewed fewer MSAs in FY 2025 than in the prior two years. That doesn’t mean injuries are disappearing; it means carriers are more selective about MSA submissions, and non‑submit MSA options and evidence‑based reports are gaining traction. At the same time, the average settlement amount increased for claims involving MSAs submitted for review. Think of it this way: the cases that do go to CMS tend to be higher‑value or more complex. For budgeting purposes, plan for larger settlements and anticipate that CMS will scrutinize them closely.
Proposed vs. approved amounts: CMS is increasingly conservative. Carriers proposed roughly the same average MSA amount as in FY 2024, but CMS approved a higher number, creating a 24% gap. In plain terms, CMS often adds extra dollars for future care that the parties did not include in its original MSA allocation. This is the widest variance we’ve seen in five years. Prepare for CMS to increase your proposed allocation and budget accordingly.
Pharmacy costs fall, medical costs rise: The FY 2025 data shows that the average prescription drug portion of approved MSAs continues to decline. Compared with FY 2021, the first year in CMS’s five‑year report, average Rx allocations are about 15% lower, proving that pharmacy management programs and formularies are working. The downside is that medical treatment costs keep climbing; compared with FY 2021, CMS’s recommended medical allocation has grown by nearly 15%. We reference FY 2021 because it marks the baseline in CMS’s rolling five‑year dataset, and the trend since then underscores how pharmacy savings are being offset by rising medical inflation. The takeaway: don’t rest on Rx savings alone; invest in utilization review and early intervention to control medical costs and improve outcomes that will have a material effect on the final MSA allocation.
Why This Matters
CMS is likely to increase your numbers. A 24% variance between proposed and approved MSAs shows that carriers and CMS aren’t always aligned. Weak medical records or optimistic care projections will be adjusted upward. Budget with room to spare and shore up your documentation. You should almost expect CMS to counter higher than your MSA proposal.
The zero‑dollar shortcut is gone. When CMS stopped reviewing zero‑dollar MSAs, it effectively pushed the risk back on settling parties. If you intend to allocate zero, make sure you have a physician letter, denial order, or other proof on file. Without it, Medicare might deny future bills and refuse to change its mind.
More data, more scrutiny. The expanded Section 111 requirements mean CMS will see details about almost every settlement involving a Medicare beneficiary. That transparency could lead to audits or policy changes. Invest in clean data and robust reporting workflows. The effort you put into reporting protocol audits, data clean-up, and workflow efficiency will be rewarded, even if you don’t see that reward.
Pharmacy savings can’t carry you. Rx allocations are falling thanks to pharmacy benefit managers and formularies, but rising medical costs have more than offset those gains. Focus on early return‑to‑work programs, nurse case management, and evidence‑based treatment to rein in medical inflation. Early preventative measures will generate more robust outcomes.
Actionable Guidance by Audience
For risk managers & self‑insured employers
- Audit your reporting workflows. Sit down with your TPA or IT team and walk through each field in your Section 111 report. Do you capture the total MSA amount (Field 37), years of coverage, and funding method? If not, fix it immediately; the April 4, 2025, effective date has already passed, and you are currently non-compliant.
- Build in a buffer. Use the 24% variance as a benchmark for your reserves. If you’re budgeting at the proposed amount, you’ll likely come up short at the worst possible time.
- Lean into non-submit MSAs. Choose MSA providers, attorneys, or internal clinicians who follow Medicare guidelines and federal/state law as it relates to workers’ compensation. Make sure your non-submit MSA provider will back up, defend, and (dare I say?) guarantee certain results. Strong documentation makes it harder for CMS to bump up your numbers down the road.
- Document zero-dollar allocations carefully. If a claim truly merits a zero-dollar MSA allocation, collect physician certifications or denial letters and keep them on file. If the justification for the zero is legal, not medical, seek legal advice from lawyers practicing MSA law for guidance. Since July 2025, you can no longer count on CMS approval for zero allocations. But you should trust in something for the accuracy of that zero-dollar MSA allocation.
For claims professionals & TPAs
- Send CMS a complete story. Claims can be delayed or inflated when submissions are sloppy. Provide clear treatment records, rated ages, and projections of future care. A thorough file gives CMS less reason to add to your allocation.
- Keep pressing on, pharmacy. Continue partnering with pharmacy benefit managers and clinical pharmacists. The steady decline in prescription allocations shows these programs work.
- Prepare staff for new reporting fields. Make sure adjusters and supervisors understand the added Section 111 data points. A pre‑settlement check with legal and risk management teams helps align expectations.
- Take advantage of MSA amended reviews. If a claimant’s health improves or you get a new rated age, use the new flexibility to request an amended review of your MSA. A timely adjustment can return unused funds to your insured or employer.
For HR professionals & employer stakeholders
- Partner with claims teams early. HR’s role in gathering employment records and coaching injured workers to attend medical appointments can make or break an MSA. Missed visits and inconsistent documentation inflate projections. Early coordination lowers costs.
- Help secure zero‑allocation documentation. If a claim truly has no future medical exposure, HR can assist in obtaining physician certifications or court orders. Good paperwork protects the employee’s Medicare benefits and your bottom line.
- Manage expectations with injured workers. New reporting rules may extend settlement timelines. Keep employees informed and reassure them that the added steps are about protecting their future Medicare coverage.
For defense attorneys & legal counsel
- Ensure clients meet reporting obligations. Every settlement involving a Medicare beneficiary, no matter the MSA size, must be reported. Ignoring Section 111 reporting can cost your clients in penalties and delays.
- Document zero allocations thoroughly. If your client pursues a zero allocation, help them gather physician statements, denial letters, or court rulings. This documentation will be your only defense if Medicare later challenges the settlement.
- Draft indemnification language thoughtfully. With variances growing, address future Medicare recoveries in settlement agreements. Utilize properly drafted indemnification language to protect your client. Explore MSA solutions for high‑exposure cases, which will be reliable in the event of CMS scrutiny at a later date.
- Use MSA amended reviews to your advantage. Don’t leave money tied up unnecessarily. If circumstances change, file an amended review when it makes sense.
Practical Strategies for Improving MSA Outcomes
To keep your MSAs lean and defensible, integrate these practical steps:
- Bring in nurse case managers early. Early intervention gets workers the right care at the right time, speeding return to work and producing more accurate future care projections.
- Follow evidence‑based guidelines based on state workers’ compensation law. Use recognized treatment guidelines like the Official Disability Guidelines or ACOEM to justify your projections. Aligning with medical standards reduces the likelihood that CMS adds treatments.
- Control pharmacy spend. Review medication histories and explore non‑drug alternatives. Generic switches and step‑therapy protocols lower Rx allocations, as CMS’s own data shows.
- Audit the file. Clean billing histories and consistent diagnosis codes prevent overfunding. Make sure records match the injury and exclude unrelated care.
- Work with experienced partners. Don’t go it alone on complex claims. Tap vendors who specialize in non-submit MSAs and Section 111 reporting to avoid surprises.
Closing Thoughts and Next Steps
CMS’s FY 2025 report tells a story of tightening scrutiny, bigger settlements, and the end of shortcuts. Section 111 reporting will now capture more detail on every settlement, and zero‑dollar MSAs are no longer blessed by the agency. This isn’t just bureaucracy; these shifts will shape budgets, workflow, and liability.
Navigating these new requirements can feel daunting, but you don’t have to do it on your own. We connect our community with professionals who have deep experience in evidence‑based MSAs, pharmacy management, and Section 111 reporting. Whether you’re looking for a quick bit of guidance or a more thorough review of your program, we’re here to share what we’ve learned and answer questions.