Maryland regulators are studying whether nonprofit hospitals’ offshore captive insurance companies, subsidiaries that hospitals form to cover their own risks such as malpractice claims, should be subject to the state’s 3% premium tax.
The Maryland Insurance Administration held a public meeting on the issue Oct. 7, Maryland Matters reported. The study, due to lawmakers by Jan. 1, will include recommendations that could inform legislation. It stems from a 2026 bill that initially would have exempted hospitals’ captives from the tax and went through several amendments before lawmakers settled on requiring the study. Maryland does not allow captives to be established in the state, so many hospitals set them up in places such as the Cayman Islands.
In a March letter to Delegate Julie Palakovich Carr, which the MIA shared with Becker’s, the agency said it has opened investigations since 2023 into potential nonpayment of premium taxes on transactions between captive insurers and Maryland insureds. Seven companies have paid a combined $3.5 million, with penalties and interest waived because they cooperated, and 40 matters remain open, according to the letter. It does not specify how many involve hospitals.
Jason Schupp, a former insurance industry professional who testified at the Oct. 7 meeting and before the House Ways and Means Committee in April, told Becker’s that existing law requires captive premium payments to be reported to the MIA and taxed, and that the state should require hospitals and their captives to comply.
The Maryland Hospital Association said captives are a longstanding risk-management tool. “Maryland hospitals have used captives for decades to manage risk, fulfill their obligations, and preserve resources for patient care,” Andrew Nicklas, the association’s senior vice president of government affairs and policy and general counsel, said in a statement to Becker’s. At the meeting, Mr. Nicklas noted that because Maryland sets hospitals’ rates, the only state to do so, hospitals have limited ways to raise money for coverage against their own risks, according to Maryland Matters.
The MIA has no other public meetings planned on the topic and will not comment further until the study is complete, a spokesperson said in an email to Becker’s.
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