Medical Insurance Issues As They Affect The Selection Of A Potential Surrogate

By Steven H. Snyder, Esq.

A couple which chooses to use surrogacy to build a family faces many costs that the average parent never incurs. Most of these costs are readily apparent and known at the beginning of such a program. There are (1) the obvious medical expenses for the embryo transfer/insemination, together with the required psychological and medical testing and fertility drugs, (2) the reimbursable expenses and possible compensation of the surrogate (and, possibly, an egg donor, as well), (3) legal fees for the initial surrogacy contract and the subsequent parentage proceedings, and (4) potential overall administrative costs for someone to locate and adequately screen the surrogate and coordinate the implementation of the medical, legal, and financial aspects of the program. This could easily add up to $35,000.00-$65,000.00 or more, depending on the couple's circumstances and choices.

In addition to the expected costs set forth above, however, there can also be costs that are hidden or unexpected. The most potentially devastating of these is the medical cost of the surrogate's actual pregnancy, including prenatal care, delivery, and post-natal care of both the surrogate and child(ren). Although the parties to a surrogacy arrangement often assume, without much investigation, that the surrogate's health insurance will certainly cover the bulk of these expenses (save for the co-pays and deductibles), this is often not the case.

Health insurance policies approach coverage for surrogate pregnancies in a variety of ways. Some policies have a clear and express exclusion from coverage for surrogate pregnancies. An example of such an exclusion would be:

Maternity charges incurred by a covered person acting as a surrogate mother are not covered charges. For the purpose of this plan, the child of a surrogate mother will not be considered a dependent of the surrogate mother or her spouse if the mother has entered into a contract or other understanding pursuant to which she relinquishes the child following its birth.

In the face of a clear exclusion like this, an intended parent can certainly not rely on the surrogate's insurance coverage and will either have to find alternative coverage for the surrogate, pay all of the medical expenses for the pregnancy out-of-pocket, or find another surrogate.

More often, however, policies have uncertain or ambiguous definitions or terms that, depending on how they are interpreted, may or may not exclude a surrogate pregnancy from coverage. Examples would be policies that simply state that there is no coverage for "a surrogate mother" (which might mean only that an insured can't obtain coverage for using a surrogate to have a child) or that an eligible dependent only includes "a natural biological child" (which may or may not cover a child to whom a surrogate gives birth but to whom she is not genetically related). In these instances, careful and discrete inquiries need to be made of the insurance carrier in order to determine the exact intent of the ambiguous provisions, as best as possible, while not unnecessarily alerting the insurance company that one of its insureds is planning to become a surrogate mother. Nevertheless, the result of the inquiry may not be entirely clear, and the intended parents may still be subject to a moderate to significant risk of no coverage. Whether they are willing to assume this risk varies from parent to parent.

Finally, there are some group policies that have no express exclusion or definitions that obscure the nature or extent of coverage. This is the best scenario for an intended parent, but it is still not a guarantee that the insurance company will not attempt to deny coverage. The good news is that, without an express exclusion, the insurance company may (or may not) lose any appeal for benefits that the insured initiates, and the pregnancy expenses may very well be covered; the bad news is that the insurance company can still deny coverage even without an express exclusion and force the time and expense of an administrative appeal in order to obtain coverage. This does not usually happen, but it can.

Because surrogacy is still a developing area of the law, the terms of the applicable insurance policy are not the only factors to be considered in determining the likelihood of appropriate insurance coverage in a particular case. One must also be aware of and evaluate the developing court cases that are being decided, not only in the jurisdiction where the surrogate lives, but across the country, as well. Even though court decisions in other jurisdictions may not be binding on a local court, they can still be persuasive precedent if the facts and policies being litigated are very similar.

For example, a federal judge in South Carolina decided that a child that was genetically related to both the intended mother and the intended father and born to a gestational surrogate was not covered by either party's health insurance. As a result, the intended parents had to pay all of the medical costs for the child's post-natal care out-of-pocket. Mid-South Insurance Co. vs. Doe, 2:02-1789-18, 274 F.Supp.2d 757 (D.S.C. 07/29/03). The judge reasoned that the child was not a dependent of the surrogate since she never intended to keep the child or have legal responsibility for it. Thus, the child was not covered by the surrogate's husband's group insurance policy even though it had no express surrogacy exclusion. The child could have been covered by the intended parents' policy as a legal dependent since it was their genetic child, but the intended parents had not added the child to their policy as required by the policy's coverage provisions because they expected the surrogate's policy to provide the necessary coverage. This oversight cost the intended parents a significant unexpected medical expense. Although it is not clear that this case will be followed in other jurisdictions, this is a huge risk for intended parents since IVF procedures have a higher incidence of multiple pregnancies, premature births, and the associated high medical bills for the post-natal care of the child(ren) in intensive care for extended periods of time.

Some surrogates and/or intended parents try to avoid these issues by, essentially, pretending at the hospital that the birth is just a normal birth or an adoption rather than a surrogacy arrangement.  In this way, they hope that the hospital will code the expenses related to the birth as normal maternity expenses that are covered by the policy with no references to surrogacy that would jeopardize coverage or payment.  This is an approach often recommended by online surrogates who “advise” their prospective intended parents as to how to get insurance coverage, but it is never recommended by responsible legal or insurance professionals.  This “don’t tell” approach is very risky and amounts to fraud under the terms of most policies.  Provisions of a typical policy state that providing incomplete or inaccurate information relating to a claim is fraud and will result in the ultimate denial of the claim and, possibly, termination of the insured’s coverage.  Therefore, this approach is very risky, unwise, and should never be attempted.

The clear message of the foregoing discussion is that a careful review of the applicable insurance policies and relevant court cases is necessary at the beginning of every surrogacy program. This analysis must be completed before the time and expense of a formal surrogacy contract is incurred as part of the preliminary qualification of any potential surrogate. If the surrogate has inadequate coverage, alternate coverage should be identified and obtained, if possible, or another surrogate should be selected. This analysis should be completed by a qualified representative of the intended parents who has a working knowledge of all of the issues and potential risks involved. Even with such a review, there is no guarantee of coverage; there is just somewhat greater comfort knowing that all possible precautions have been taken and that coverage is likely.

There was a time when insurance coverage was readily obtained and rarely contested by insurance companies. As surrogacy has gained in acceptance and popularity, however, insurance companies have become more aware of it as a coverage issue and more reluctant to concede coverage. More policies have express exclusions, and the insurance companies are being more creative in litigating the coverage issue. The trend is distinctly in the direction of less available coverage and more difficulty in enforcing it. For these reasons, knowledgeable advice and guidance in dealing with this issue is absolutely necessary, and the parties to any surrogacy arrangement should implement it very discretely so as to not unnecessarily create coverage disputes. With these appropriate precautions, low-risk, successful insurance outcomes may still be available for surrogacy programs.

(This article is not intended as legal advice and should not be relied upon as such. Each family and agreement is unique, so you should hire a competent attorney to advise you specifically about your particular case.)