What is Workers' Compensation?

Workers' compensation is a form of insurance mandated for employers, providing financial compensation to employees who are injured on the job or develop an occupational illness. These benefits are granted in exchange for the employee's mandatory waiver of their right to sue the employer for negligence.

A structured settlement allows workers' compensation payments to be customized to better meet the needs of an injured worker. Workers' compensation payments are conceptually designed to partially replace income by addressing both current and future lost earnings caused by a workplace injury, "on-the-job" injury, or illness. However, medical and indemnity payments, as determined by workers' compensation statutes, may not always align with the employee's specific needs.  

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Benefits of Structured Settlements for Workers' Comp Claimants

• If the settlement proposal is imaginative, the claimant is relieved of the responsibility of managing large sums of money, yet is provided funds for immediate use plus a regulated income allowing him/her to adjust his/her lifestyle with the confidence that there will be no interruption in the income stream. There are many cases where a structured settlement annuity, may create a more advantageous settlement package than a lump sum approach or the continuation of benefits under a state's workers compensation act. This is particularly true when the indemnity benefit is minimal and the majority of the cost is associated with future medical care. Often the medical costs are high during the recovery period, then stabilize and the claimant finds he/she can’t survive financially on the income benefits provided.
• Replace lost wages
• Replace retirement shortfalls
• Provide benefits for survivors instead of payments ending at death
  
• A structured settlement pursuant to a qualified assignment may provide the Claimant with greater security because the annuity issuer and assignee may be financially stronger than the employer, insurer or funding pool that has making the workers compensation claim payments.
• Tax advantaged (see next section)

How Are Workers' Comp Structured Settlements Taxed?

Payments for workers compensation are excluded from gross Income pursuant to Internal Revenue Code §104(a)(1).  Like damages for personal physical injury, workers compensation future payment obligations can assigned by the employer or employer's workers comp insurer by way of a qualified assignment, subject to IRC §130.  Not only is the amount used to fund the structured settlement income tax free, but the total payout is as well because each of the payments is consideration for the settlement.

What is a Workers Compensation Medicare Set Aside Arrangement (WCMSA)?

A Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness, or disease. These funds must be depleted before Medicare will pay for treatment related to the workers’ compensation injury, illness, or disease. 

Source: Center For Medicare and Medicaid Services (CMS)

Reduce the Cost of Workers' Compensation Medicare Set Aside Arrangements (WCMSA)

The cost of a  Workers Comp MSA can be discounted through the use of a Structured MSA or annuity funded MSA.   See  Medicare Set Aside FAQ (4structures.com)

Last updated July 29, 2025