Jimulacrum
Full House
I'd say this is potentially collusion IF this is the case. If it's an option open to everyone, though, it's merely silly IMO. Looks like OP has had it offered and has turned it down, so host doesn't really offer anymore. But I bet he'd do it if OP were to ask again.This is the part that's collusion. Pots get magically "capped" before all in if it's between his friends. Where as other players are putting their whole stacks in. If this description is correct, what the host is doing is extremely unethical and @BadCardHaver should be avoiding this game.
I've been in games where people sometimes want to end the hand and run it out for a fixed fee. Just because it caps the pot size doesn't mean it isn't gambling. They're choosing to forgo all the other betting—i.e., the skill element of the remaining rounds—and just see what the cards do. Let chance decide. Gamble. It's like a partial flip.
I get if this isn't your cup of tea, but in general it's best to indulge players like this—who, for example, 3-bet ragged trash in Super Hold'em. It doesn't really cost you anything to just run a hand out for a fixed fee, and if they allow you to do it selectively, you may even find some advantage in it.