In an unpublished opinion*, the 10th Circuit Court in Moon v. Tall Tree Administrators, LLC (10th Cir. May 19, 2020) upheld a self-insured group health plan’s exclusion of “pregnancy charges acting as a surrogate mother” as unambiguous and enforceable, even though that exclusion was nested within a larger exclusion of “[n]on-traditional medical services, treatments, and supplies.”
In the case, Moon, an employee of Mountain View Hospital in Utah and a participant in their self-insured group health plan, asked the third party administrator in 2011 whether surrogate maternity expenses were covered and was told that they were not. Moon underwent a surrogate pregnancy in 2013 without notifying the plan and her expenses were covered. She agreed to act as a surrogate again in 2015, but this time the plan denied coverage for her pregnancy expenses under the cited exclusion. Moon argued that her expenses were conventional prenatal and childbirth expenses and that because the exclusion for surrogacy expenses was nested within a larger exclusion of “non-traditional” services and treatment, it was not applicable. The district court disagreed, and granted summary judgement for the plan.
Because it was decided on summary judgment, the 10th Circuit reviewed the matter “de novo” – i.e., as a trial court would, rather than under the “abuse of discretion” standard of review applicable under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) when the plan document expressly accords discretion to the plan administrator to interpret the terms of the plan document.
The 10th Circuit affirmed enforcement of the exclusion on the grounds that “a reasonable person in the position of the participant would view ‘pregnancy charges acting as a surrogate mother’ as an example of a non-traditional medical expense” and hence as excluded care. Perhaps illustrating the legal maxim that “bad facts make bad law,” it is impossible to tell whether the court’s conclusion was tainted by the fact that the plaintiff proceeded with two separate surrogate pregnancies after confirming that that the plan did not cover this type of expense.
In an earlier case, Roibas v. EBPA, LLC, 346 F. Supp. 3d, 164 (D. Maine 2018), the exclusion simply stated “[e]xpenses for surrogacy,” and a dispute arose as to whether that referred to the cost of hiring a surrogate, or the surrogate’s own pregnancy and childbirth expenses. The plan had already covered some prenatal coverage before learning that it was a surrogate pregnancy and denying subsequent claims. Acknowledging that the exclusion was ambiguous, the Maine District Court upheld it out of deference accorded to the plan administrator’s interpretation of the ambiguous plan term (the Firestone standard of review applied), and based on the conclusion that the plan administrator’s interpretation was reasonable.
For sponsors of self-insured health plans, these cases highlight the importance of careful drafting of plan exclusions, particularly in an area like surrogate births where medical advancements and social trends are evolving fairly rapidly. They also provide an inflection point to examine some of the other legal pitfalls of excluding surrogate pregnancy costs from coverage.
First, there is a practical concern presented by not always being able to know when a participant or dependent’s pregnancy is for surrogacy purposes. The plans in both the Moon and Roibas cases unwittingly reimbursed some surrogate pregnancy expenses before terminating coverage. Because the facts of surrogacy are not always transparent, the plan sponsor may have difficulty consistently enforcing even unambiguous exclusions of surrogate pregnancy expenses. This could potentially lead to fiduciary breach charges. Plan sponsors may also be hard pressed to justify denying the costs of an intended surrogate pregnancy while covering the maternity expenses of a participant who intends to permit the child to be adopted.
As for legal concerns, there are two salient ones. First, the Pregnancy Discrimination Act, applicable to employers with 15 or more employees, mandates that a group health plan cover pregnancy in the same manner as other medical conditions, making it difficult for a plan sponsor to justify excluding coverage of a pregnancy based on the way in which the mother became pregnant or on their plans for the child, once born. Second, for non-grandfathered group health plans under the Affordable Care Act, the Act requires first-dollar coverage of preventive services including prenatal and post-natal care. The ACA does not carve out surrogate pregnancies in this regard. There are also potential tax consequences to providing surrogacy benefits, and fertility benefits, that are reviewed in some detail here.
As an alternative to a coverage exclusion, group health plan sponsors who want to limit the use of their plan benefits by individuals who may be compensated for a surrogate pregnancy may give thought to applying their plan’s right of reimbursement and subrogation to compensation that the participant receives. Subject to state insurance law, this is generally how group health insurance carriers approach the issue, covering the cost of surrogate prenatal care and delivery but seeking reimbursement, or asserting subrogation rights, thereafter.**
To take this approach essentially equates the compensation paid to a surrogate by a couple struggling with infertility, to the recovery an injured participant receives from a third party tortfeasor. Plan sponsors may have varying levels of comfort with this approach and should certainly seek ERISA counsel first, as well as counsel with expertise in surrogacy laws, as they vary significantly state to state.
*Unpublished opinions generally are not binding precedent but may be cited for persuasive value. The 10th Circuit covers the district courts of the states of six states of Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah, plus those portions of the Yellowstone National Park extending into Montana and Idaho.
**Effective January 1, 2020, Nevada is a notable exception to other states in this regard, banning carriers from denying coverage for surrogate pregnancies and from seeking reimbursement, subrogation, etc.
The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader. Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose. © 2020 Christine P. Roberts, all rights reserved.
Photo Credit: Christian Bowen, Unsplash.