February 2, 2012; Source: WSBTV | Some of metropolitan Atlanta’s nonprofit hospitals do only a pittance of charity care. By their own numbers, charity care makes up two percent of total expenses for the hospitals run by Emory Healthcare, less than three percent for Piedmont Healthcare, and less than five percent for the hospitals owned by the Wellstar Health System. This does not surprise us.
But it was a surprise to Channel 2 in Atlanta, and to us at NPQ, to learn that these nonprofit hospitals own insurance companies based in the Cayman Islands. These Cayman companies are called “captives,” and they are set up and owned by the hospitals for the purposes of self-insurance, but are run by local Cayman business operations that manage the hospitals’ insurance premiums.
Channel 2 Action News tracked some of the expenses of the Wellstar captive and it seems found top executives of the nonprofit hospital using the captives’ credit cards extravagantly. All three hospitals refused to appear on the air, but they issued statements describing the captives as “reducing…[the hospitals’] overall costs” or operating per the “industry standard.”
Officials in the Cayman Islands say that there are more than 700 captive insurance companies in the country affiliated with nonprofit and for-profit hospitals in the U.S.
It isn’t just the nonprofit health sector with captive insurance companies for risk management purposes. Other nonprofits and public institutions are doing the same. For example, many Catholic dioceses are members of the National Catholic Risk Retention Group. And now, many U.S. states, such as Georgia and Nevada, are trying to make themselves into attractive domestic alternatives to setting up captives in the Caymans.
Self-insurance is not a bad idea. Many nonprofits are moving in that direction with workers’ compensation, for example. But we suspect that relatively few nonprofits have set up affiliates for self-insurance based in the Cayman Islands, where cash flows between the parents and the captives may be a bit too murky for U.S. authorities to track. —Rick Cohen