TITLE
"Employee Protection and Tax Deductibility Issues when Insuring Employee Benefits through a Captive Insurance Company," Journal of Insurance Issues, Gene C. Lai and Michael J. McNamara, Fall 2004, Vol. 27, No. 2, pp. 87-103. Full-text articles soon will be available through ABI/INFORM and EBSCO; click here for article PDF.

ABSTRACT
Two recent Department of Labor (DOL) decisions have cleared the way for captive insurance subsidiaries to insure the employee benefits of their parent firms. This paper examines whether using captives for this purpose is beneficial for employees and whether employee benefit premiums should be tax deductible in this case. We conclude that under the DOL’s conditions, the practice is advantageous for employees. Furthermore, we conclude that unless outside risk and outside premiums are added to the pooling arrangement, there’s no basis for permitting premiums to be tax deductible. The analysis suggests the Internal Revenue Service’s treatment of employee benefit risk as “outside risk” when insured by the parent company’s captive insurer is incorrect.
[Key words: captive insurance company, employee benefits, tax deduction]