Maryland lawmakers are questioning whether to grant a temporary reprieve to hospitals from paying taxes on the overseas for-profit companies they create to insure themselves.
For years, many of the state’s nonprofit hospitals have socked away money for potential lawsuits and legal claims in offshore, for-profit insurance companies they own, known as “captive insurers,” instead of buying policies from traditional commercial insurers.
The hospitals say the captive insurance companies are akin to rainy day funds that shouldn’t be taxed. Others argue the captive insurers should be paying a 3% tax other insurance companies pay on the policies sold to customers in Maryland.
The state insurance administration estimates Maryland is missing out on at least $2.3 million per year from hospital insurance companies not paying the 3% tax.
A bill pending in the final days of the General Assembly session would hit pause on collecting the tax for two years while the issue is studied. That’s a change from the initial version, which would have exempted hospitals from the tax and wiped out past taxes they may owe.
That bill sailed through perfunctory hearings. But the revised bill was subjected to nearly two hours of intense scrutiny in the House of Delegates on Wednesday following a Banner article this week.
Read More
Del. Joe Vogel said during the hearing he had a hard time sympathizing with representatives of the Maryland Hospital Association who claimed paying the tax would be a burden for hospitals with tight financial margins.
“You’re coming here, asking for us to forgive $2.3 million that you all could very easily cover out of your existing operating funds by maybe making cuts here and there — potentially in CEO salaries — when we’re already giving you tens of millions of dollars in additional compensation," said Vogel, a Montgomery County Democrat.
“I just don’t understand why this is such a big deal for this $2.3 million that you all can be paying, could be paying, right now,” Vogel said.
Andrew Nicklas, a senior vice president of the Maryland Hospital Association, said it’s impossible for hospitals to buy affordable insurance coverage for medical malpractice, cyberattacks and other needs on the commercial insurance market, and that creating captive insurance companies is a “regularly used tool.”
“The hospitals have nothing to hide when it comes to this issue,” Nicklas told lawmakers.
Jake Whitaker, an assistant vice president of the hospital association, said if the tax is applied there would be “massive unintended financial consequences” for hospitals. But neither hospital representative quantified how much might be owed.
Some lawmakers on the House of Delegates Health Committee appeared firmly on the side of the hospitals.
Del. April Miller, a Frederick County Republican, gave a spirited defense of hospitals, asking one opponent: “Can you show me an unpaid invoice, an unpaid tax bill — either to any of the hospitals or to the Cayman subsidiary — where they said ... they’re not going to pay this bill?"
Miller posed her question to Jason Schupp, a former insurance executive from Frederick County, who alerted the state to the lost tax revenue under a state whistleblower law. His identity was previously protected, but he testified in public to underscore his concerns.
Schupp has done exhaustive research identifying the captive insurance companies and reporting them to the state. He estimates the state has lost at least $20 million in tax revenue over the past five years.
He said the state insurance administration has successfully collected back taxes from for-profit corporations that have captive insurance companies.
“As soon as they got the letter, they just paid,” he said. “Hospitals are the only ones that have fabricated some sort of an excuse for not paying.”
Schupp wasn’t the only opponent — a change from earlier hearings. This time, a consumer advocate, a representative of a progressive think tank and a union official testified that hospital insurance companies should pay their share of taxes like everyone else.
For the bill to advance, it would need sign-off from the House Ways and Means Committee and the Health Committee, before going to the full House of Delegates. If the House changes the bill, it would go to another vote in the Senate.
The General Assembly session ends at midnight Monday.
Comments
Welcome to The Banner's subscriber-only commenting community. Please review our community guidelines.