Maryland officials investigate nonprofit hospitals' offshore insurance taxes

Maryland regulators have launched an inquiry into whether nonprofit hospitals in the state owe taxes on funds held in offshore “captive” insurance companies, many of which are located in the Cayman Islands. The Maryland Insurance Administration recently held its first public information-gathering session to investigate the matter.

Captive insurance involves a business creating its own insurance company to cover specific risks, such as medical malpractice or cybersecurity, that commercial insurers may not fully address. While insurers typically pay a 3% state tax on policies sold to Maryland customers, hospital-owned captives have generally not been paying this tax. Many hospitals operated under the belief they were exempt, though some other nonprofit organizations have reportedly paid it.

The investigation was prompted by whistleblower Jason Schupp, a former insurance executive, who alerted the state to the practice. Schupp has testified that between $1.7 billion and $3 billion in nonprofit hospital funds may be sitting in these offshore accounts. Because Maryland lacks a regulatory framework for in-state captives, hospitals have historically utilized offshore domiciles. Under a law passed this spring, the Maryland Insurance Administration must submit its findings and recommendations to the governor and lawmakers by January 1, 2027.