Maryland insurance regulators have reopened the question of whether the state’s nonprofit hospitals owe taxes on money they keep in offshore “captive” insurance companies, many of them based in the Cayman Islands. The answer matters for residents of Baltimore and the rest of the state because the dispute involves state revenue a whistleblower puts in the millions of dollars, and because Maryland’s hospitals operate under a state-regulated rate system that patients and insurers ultimately pay for.
The Maryland Insurance Administration held its first public information-gathering session on the issue this week, Maryland Matters reported. Under a law passed this spring, the agency must send its findings and recommendations to the governor and lawmakers by Jan. 1, 2027.
What is a captive insurance company?
A captive is an insurance company that a business creates to insure itself. Hospitals can use captives to cover risks that commercial insurance does not fully handle, such as medical malpractice and cybersecurity claims.
Maryland is one of 15 states without a regulatory framework for in-state captives, according to Maryland Matters. That is why, decades ago, nonprofit hospitals set up their captives offshore, in places such as the Cayman Islands.
Why are Maryland hospitals’ offshore captives being questioned?
Insurers pay a 3% state tax on policies sold to Maryland customers, The Baltimore Banner reported in April. Hospital-owned captives have generally not been paying it. Most hospitals believed they were exempt, while some other nonprofits with captives may have paid.
The issue surfaced after Jason Schupp, a former insurance executive from Frederick County, alerted the state under Maryland’s whistleblower law. Schupp has said as much as $3 billion in nonprofit hospital funds sits in offshore captives, though he acknowledged in April testimony that the figure could be closer to $1.7 billion.
How much money is at stake?
No official total for any unpaid taxes has been published. The estimates so far come from different sources and measure different things:
| Figure | What it measures | Source |
|---|---|---|
| $1.7 billion to $3 billion | Nonprofit hospital funds held in offshore captives | Whistleblower Jason Schupp |
| At least $2.3 million a year | State tax revenue Maryland is missing out on | Maryland Insurance Administration estimate, as reported by The Banner |
| At least $20 million | Lost tax revenue over the past five years | Jason Schupp, as reported by The Banner |
| 3% | State premium tax rate on insurance policies | The Baltimore Banner |
What did the 2026 General Assembly do?
The fight played out in Senate Bill 890, sponsored by Sen. Dawn Gile, D-Anne Arundel. As first filed, the bill would have exempted hospitals from the tax. It was later amended to pause tax collection for two years while regulators studied the issue, a change that drew opposition from economic policy groups and the whistleblower during House hearings in April.
The final version dropped the moratorium. As signed by Gov. Wes Moore on May 26, 2026, the law, Chapter 638, only requires the Insurance Administration to study how Maryland entities use, regulate and tax captive insurers, according to the General Assembly’s bill record. The law took effect July 1.
What do hospitals and critics say?
The Maryland Hospital Association argues that hospitals set aside their own money in captives based on actuarial assessments of risk, gained no tax-deduction advantage and use captives in part because Maryland restricts hospital rates. Andrew Nicklas, the association’s senior vice president for government affairs and policy and general counsel, suggested hospitals could register their captives with the state for transparency.
“This is not something that is necessarily new, or novel, or certainly not nefarious.”
Andrew Nicklas, Maryland Hospital Association, via Maryland Matters
Schupp argues that offshore captives move money outside the nonprofit structure, where it faces less accountability, and that the transactions are hard for tax authorities to detect. He told regulators that most captive owners do not report the transactions or pay the premium tax. In the spring, the Maryland Center on Economic Policy and the Economic Action Maryland Fund opposed pausing collection, saying the state should investigate and collect what is owed.
Earlier this year, hospital officials backed a 3% tax going forward without retroactive penalties, Maryland Matters reported.
What does this mean for Baltimore patients and taxpayers?
Baltimore is home to several of the state’s largest nonprofit hospital systems, but none of the reports have identified which hospitals hold offshore captives or how much each holds. The study’s recommendations could affect state tax revenue and how much hospital money falls under state oversight.
Gile, the bill’s sponsor, said in March that hospital finances, especially at rural hospitals, were a reason to move carefully, Maryland Matters reported. Critics say the state should not leave tax money uncollected.
What happens next?
Insurance Commissioner Marie Grant said this week’s virtual session was one part of the agency’s information gathering, not the only one, according to Maryland Matters. The report is due to the governor, the Senate Finance Committee and the House Health Committee by Jan. 1, 2027, just before the next General Assembly session begins. Its recommendations could lead to new legislation if lawmakers decide it is needed.
Featured image: The Maryland State House in Annapolis, where lawmakers will receive the captive insurance study. Photo: Famartin / Wikimedia Commons, CC BY-SA 4.0.