Workers' Compensation: Medicare's Post-Acute Care Crisis

Post-acute care has emerged as a critical pressure point in workers' compensation claims, driven by Medicare policy changes and skyrocketing costs that directly impact claim settlements and future medical allocations.

The Escalating Crisis

Medicare's post-acute care spending has reached unprecedented levels. While total spending stood at approximately $58 billion in 2022, the real story lies in the alarming trends that directly affect workers' compensation claims. Skilled nursing facility costs for workers' compensation claims have surged from $14,700 per claim in 2015 to $33,200 in 2024—increases that far outpace inflation. For catastrophic injuries exceeding $1 million in medical costs, post-acute care now accounts for more than one in every four dollars spent.

The financial implications extend beyond individual claims. Home health agencies are posting Medicare margins of 22.1% in 2022, while skilled nursing facilities maintain margins of 18.4%—suggesting that costs to workers' compensation payers may be similarly inflated. These profit margins have remained extraordinarily high for over two decades, indicating systemic overpricing that affects all payers, including workers' compensation carriers.

Geographic Disparities Create Settlement Challenges

Regional variations in post-acute care spending create significant challenges for workers' compensation settlements. Medicare spending per capita on these services varies wildly across the country—from $8,056 in Burlington, Vermont, to over $15,000 in high-cost areas. These geographic disparities directly impact Workers' Compensation Medicare Set-Aside Arrangements (WCMSAs), as settlements must account for regional cost variations.

Connecticut Medicare beneficiaries remain more than twice as likely to receive nursing home care as those in Arizona. Louisiana still spends approximately $8,800 per patient on home health care—substantially more than New Jersey. These regional variations affect WCMSA calculations and can significantly inflate settlement costs in high-utilization states.

New Reporting Requirements Reshape Settlements

Beginning April 4, 2025, CMS mandated sweeping changes that fundamentally alter workers' compensation settlement practices. Responsible Reporting Entities must now report all WCMSA data—including zero-dollar allocations—for every settlement involving Medicare beneficiaries, regardless of whether the settlement meets the $25,000 CMS review threshold.

The seven new mandatory data elements include the MSA amount and period, funding method (lump sum or annuity), initial deposit amounts, and annual payment schedules. Failure to comply could trigger False Claims Act violations, and Medicare may refuse to recognize settlements or pursue recovery for post-settlement conditional payments. This represents the most significant compliance change in workers' compensation Medicare Secondary Payer obligations in recent memory.

The Workers' Compensation Impact

These Medicare trends create multiple pressure points for workers' compensation claims:

Settlement Inflation: As Medicare post-acute care costs rise, WCMSAs must allocate larger sums to cover future medical expenses. With skilled nursing costs more than doubling in less than a decade, claims professionals face difficult decisions about adequate funding levels. Settlements that seemed reasonable five years ago may now be grossly underfunded.

Compliance Complexity: The new April 2025 reporting requirements demand sophisticated tracking systems and coordination between carriers, third-party administrators, and settlement professionals. Even settlements below traditional thresholds now require detailed Medicare Secondary Payer analysis and reporting.

Quality Control Challenges: With average hospitals discharging patients to 130 different skilled nursing facilities, workers' compensation claims managers struggle to ensure consistent quality and cost control in post-acute care. Unlike Medicare's bundled payment experiments, workers' compensation claims typically lack the leverage to negotiate favorable rates or coordinate care effectively.

Serious Injury Surge: The shift toward more serious workers' compensation claims means more injured workers require intensive post-acute services. Access to appropriate facilities becomes increasingly difficult as healthcare systems face capacity constraints, potentially extending disability periods and increasing total claim costs.

The Medicare Set-Aside Challenge

The intersection of rising post-acute care costs and stricter CMS oversight creates a perfect storm for workers' compensation settlements. CMS updated its WCMSA Reference Guide in January 2025 (version 4.2), emphasizing coordination with Medicare Part C and D prescription drug plans. CMS now notifies these plans when WCMSAs are approved and instructs them to avoid paying expenses that should be covered by set-asides.

This means WCMSA administrators must maintain meticulous records and actively coordinate with multiple Medicare programs. The consequences of inadequate allocations have never been higher. Without CMS approval of WCMSA amounts, Medicare may deny related medical claims or pursue recovery up to the full settlement amount. CMS's recent guidance makes clear that finality only comes through their voluntary—but strongly recommended—review process.

The Trust Fund Pressure

Medicare's Hospital Insurance Trust Fund, which pays for post-acute care, faces insolvency by 2036 according to the 2024 Trustees report. This looming crisis adds urgency to cost-control efforts. The Congressional Budget Office suggests the timeline may extend to 2033, but either way, the financial pressures will likely result in more aggressive Medicare Secondary Payer enforcement and potentially stricter WCMSA requirements.

As Medicare enrollment surges with aging baby boomers—76 million beneficiaries expected by 2029—the pressure on post-acute care resources will intensify. Workers' compensation claims involving Medicare-eligible injured workers will face heightened scrutiny and potentially higher settlement costs to satisfy Medicare's interests.

Bundled Payments and Alternative Models

Medicare's shift toward bundled payment models and value-based care is creating a two-tiered system. Traditional fee-for-service Medicare, which includes most workers' compensation WCMSA projections, continues to pay premium rates to post-acute providers. Meanwhile, Medicare Advantage plans negotiate lower costs and more efficient care pathways.

This disparity puts workers' compensation settlements at a disadvantage. WCMSAs based on traditional Medicare fee schedules may overestimate future costs, but using lower Medicare Advantage rates risks CMS rejection if the injured worker remains in traditional Medicare. The lack of clear guidance creates uncertainty and potentially inflates settlement reserves.

Strategic Implications for Workers' Compensation

Claims professionals and settlement attorneys must adapt to this new reality:

Early Assessment: Identify potential Medicare Secondary Payer issues earlier in the claim lifecycle. With new reporting requirements and higher costs, early intervention can prevent settlement complications.

Network Management: Develop relationships with quality post-acute care providers who demonstrate good outcomes at reasonable costs. Paradigm and similar managed care organizations have shown that coordinated post-acute care networks can improve outcomes while controlling expenses.

Documentation Excellence: The April 2025 reporting requirements demand impeccable documentation. Establish systems now to capture and report the seven new mandatory data elements for every settlement involving Medicare beneficiaries.

MSA Expertise: Given the complexity of current WCMSA requirements and the consequences of inadequate allocations, engage qualified Medicare professionals early in the settlement process. The cost of expert guidance is minimal compared to potential Medicare recovery actions.

Monitor Policy Changes: CMS continues to revise guidelines—January 2025's update to the WCMSA Reference Guide won't be the last. Stay informed about Medicare Secondary Payer developments through reliable sources like CMS's official WCMSA page and industry publications.

Looking Forward

The collision between Medicare's financial pressures, strict compliance requirements, and escalating post-acute care costs will continue to challenge workers' compensation claims management. The April 4, 2025 reporting mandate represents just one wave of change. As Medicare experiments with payment reforms and seeks to control runaway post-acute spending, workers' compensation professionals must remain agile and informed.

The stakes are clear: proper Medicare Secondary Payer compliance protects both injured workers and claims payers from costly recovery actions, while strategic post-acute care management can improve outcomes and control costs. In this new environment, expertise in both workers' compensation and Medicare regulations is no longer optional—it's essential.