Maryland Officials Review Offshore Captive Insurance Taxes for Nonprofit Hospitals
State officials are examining how Maryland nonprofit hospitals store billions of dollars in offshore captive insurance companies based in the Cayman Islands to determine if those funds owe state taxes, Maryland Matters reported. Hospital representatives, a national whistleblower, and Maryland Insurance Administration officials met virtually for the first public information-gathering session on whether hospitals are avoiding state tax laws.
- Maryland nonprofit hospitals hold an estimated $1.7 billion to $3 billion in offshore captive insurance accounts, according to national whistleblower Jason Schupp.
- State insurance regulators are studying whether these self-insurance funds are subject to Maryland’s 3% premium tax under statutes affecting nonprofits.
- The Maryland Insurance Administration must submit formal findings and recommendations to the governor and lawmakers by Jan. 1, 2027.
Whistleblower Claims Nonprofit Hospitals Hide Billions Offshore
The renewed scrutiny follows intervention by Jason Schupp, a national whistleblower and former insurance executive from Frederick County, who testified before the House Ways and Means Committee in April. Schupp asserts that approximately $3 billion of nonprofit hospital funds sit in offshore captives, though he acknowledged in earlier testimony that the figure could be closer to $1.7 billion. Schupp testified that paying the tax is essentially on the honor system because transactions are difficult for tax authorities to track, and most captive owners do not report their transactions.
The Maryland Insurance Administration estimates that at least $2.3 million per year in state tax revenue is missing, while Schupp calculates that at least $20 million in tax revenue has been lost over the past five years, as reported by The Baltimore Banner. While a handful of captive owners faithfully report their transactions and pay the premium tax, most do not, according to Schupp.
Maryland Hospital Association Defends Use of Captives
Hospital representatives dispute the characterization that their financial arrangements evade taxes or bypass nonprofit accountability. Andrew Nicklas, senior vice president of government affairs and policy and general counsel at the Maryland Hospital Association, told state officials during the meeting that hospitals set aside their own money based on actuarial assessments of risk. Hospitals form captives to cover financial losses not covered by commercial insurance, specifically addressing medical malpractice claims and cybersecurity risks. Nicklas stated that hospitals gained no tax deduction advantage by using captives. He explained that because Maryland restricts hospital rates, facilities have limited avenues to raise money for insurance coverage against unique risks, forcing them to funnel their own money into captive insurance accounts. Nicklas noted that Maryland is one of 15 states without a regulatory framework to establish captives in-state, explaining why hospitals set up offshore accounts in places like the Cayman Islands decades ago. He suggested that state officials could ensure hospitals register their captives locally to give greater transparency to those operations, adding that the practice is neither new nor nefarious.
Legislative History and the 2026 General Assembly Action
The current information-gathering study stems from legislative debates surrounding Senate Bill 890, sponsored by Sen. Dawn Gile (D-Anne Arundel). As first filed, the bill would have explicitly exempted hospital captives from the tax. Lawmakers later amended the bill to require hospitals to pay a 3% tax going forward, but economic policy advocates pushed to require back taxes. Lawmakers then added a two-year moratorium on tax collection while the Maryland Insurance Administration studied the issue. After receiving further pushback, the General Assembly removed the tax moratorium entirely. Gov. Wes Moore signed the resulting legislation, Chapter 638, on May 26, 2026, which took effect July 1 and requires the Insurance Administration to study how Maryland entities use, regulate, and tax captive insurers.
Future Timeline and Pending Recommendations
Insurance Commissioner Marie Grant emphasized that the public meeting was part of an ongoing information-gathering and consultation process rather than an exclusive mechanism. The findings from these sessions will directly inform a mandated study and set of recommendations due to the governor and lawmakers by Jan. 1, 2027. Those regulatory recommendations will form the basis for potential legislation in future legislative sessions.