By David Cagahastian, Jovee Marie N. dela Cruz, Rea Cu & Dennis D. Estopace
IT was his birthday when the insurance commissioner needed the service of a health maintenance organization (HMO): he totaled his car.
Miraculously, both Insurance Commission (IC) chief Emmanuel F. Dooc and the driver of the vehicle involved in the crash—an accident, he said—walked away with minor injuries from the crash site along the highway to Quezon. It was at a hospital in Alaminos that Dooc learned his HMO is not a member of the Association of HMOs of the Philippines Inc. (Ahmopi), an industry group composed of 14 companies.
While the revelation failed to dampen his day’s goal—a feeding program for students of an elementary school in Paracale, Camarines Norte, Dooc set his sights on how services by HMOs could become more robust.
It “helped” that the accident occurred a month after HMOs were transferred from the Department of Health to the IC’s purview via Executive Order 192 of President Aquino. Nearly five years into his term as insurance commissioner, Dooc said more changes are coming under his watch.
HMOs
FOR one, the Insurance Commission is preparing to assume the supervision and regulation of HMOs.
However, a new law that will make the regulations permanent is needed so it could not be changed on the mere whim of the regulator.
The passage of a law on the regulation of the HMO industry will not only make the rules more predictable, according to Dooc. Doing so will also be able to preserve the policies that work toward the ultimate goal of offering this service, which is to lower the costs of health services.
“I am certain that we need a law on HMOs, because the problem, if we just base the regulations on my issuances, there are aspects which can always be challenged, and it can always be revoked by my successor,” Dooc said during the BusinessMirror Coffee Club with editors and reporters this week.
Dooc, who will continue to head the IC until December 2019, said the proposed law on HMOs would have to be drafted again by the commission with consultations from the industry since the old version proposed since the 13th Congress appears to be unpalatable to some lawmakers.
Balancing of interests
IN its regulation of HMOs, the IC seeks to balance the interests of stakeholders—the HMOs, the hospitals, the doctors and the policyholders—toward the ultimate goal of lowering the costs of health services and helping the public maintain their health and prepare for possible medical emergencies, Dooc said.
According to the health department’s research on the costs of treatment and medical procedures, 60 percent to 70 percent of medical expenses still come from a Filipino household’s own savings, instead of being covered by health insurance.
An article that appeared in a 2011 journal, titled Health Systems in Transition, said HMOs, or private-health insurers, accounted less than 7 percent of total health spending by the government.
The Department of Health, which is the former regulator of HMOs, advocates the involvement of the private sector in ensuring public health through the services offered by HMOs.Dooc said there are many issues in the regulation of the HMO industry, which have to be resolved toward providing the public with better and cheaper health services.
“For instance, some of the hospitals have an accreditation system such that if an HMO policyholder comes to an unaccredited hospital, then he would not be provided any service,” Dooc said. He explained there are some hospitals that require fund deposits the HMO must maintain so that when a policyholder goes to that hospital, he or she can be provided health services.
“If the deposit is not enough it has to be replenished up to the sufficient amount,” Dooc said. “These things I have to look into.”
Current issues
DIVISION chief Dionesio Dimpas, the point person in the transition of regulation of HMOs from the DOH to the IC, cited some of the issues confronting the HMO industry to ensure the sustainability of HMOs in providing better and cheaper medical services.
The most contentious issues appear to be the giving of advance cash deposits by the HMOs to its partner-hospitals to cover cost of health services given to policyholders of that particular HMO.
On the part of the doctors, the most contentious issue is the rates that HMOs should give to its partner-doctors.
The differences of opinion over these two issues among the few HMOs operating in the Philippines have apparently caused some HMOs to bolt the Ahmopi. The IC, however, would like that all HMOs become Ahmopi members so that the negotiations regarding the rates and consultations regarding policies are facilitated between the government representing the public and Ahmopi representing the private sector.
“The advantage of becoming a member of Ahmopi is that the HMOs, which are members, can use their membership as leverage in negotiating the rates to be given to the doctors, because Ahmopi would like to give lower rates to the doctors,” Dimpas said in a phone interview with the BusinessMirror.
Also, Ahmopi’s position is that hospitals not require a deposit to provide the HMO service, he added. Dooc, who has an ophthalmologist as a son, said some doctors are complaining they only receive P250 as fee for every consultation from an HMO member. He admitted such amount as low.
“But HMOs counter that if the fee is increased, then the contributions of its policyholders would also have to increase,” he said.
Alfonso R. Sahagun Sr., president and COO of Fortune Medicare Inc., told the BusinessMirror, its sister company, the circular is welcome.
“That is good for the industry,” Sahagun said. “Mawawala ’yung mga fly-by-night HMOs and also better assurance cardholder [that] HMOs [can provide their] availments.”
Proposed regulations
AS part of the continuing process to transfer the regulation of HMOs from the DOH to the IC, Dooc has already issued a draft circular that outlines the regulations which will protect the interests of all stakeholders.
“I issued a draft, but some in the industry and some companies have asked for further time to comment,” Dooc said. “The guidelines will cover issues like solvency and capitalization requirements, and some aspects in administration like claims handling.” The IC chief said he is hopeful the IC would release the circular, a draft of which was issued in March, by July.
The proposed circular concerns the minimum capitalization, financial capacity and other requirements of HMOs. Dooc said the circular is stringent on new HMOs that would be required to have a paid-up capital of P100 million. All existing domestic HMOs must have a minimum paid-up capital of at least P10 million. Dooc added that all the existing HMOs that have valid licenses either from the IC or from the DOH have adequate net worth to meet their obligations to their policyholders.
The P100-million capital requirement applies to HMOs that stopped operating for at least a year and are branch offices of foreign entities.
Figures from the IC indicate that among the members of Ahmopi, the highest capitalized HMO has a paid-up capital of P351 million and total assets worth P1.6 billion. Of the total membership of Ahmopi, seven have a total net worth amounting to more than P100 million. The draft circular also protects the HMOs by mandating that life-insurance companies can no longer offer HMO products to their clients, but should create a subsidiary solely for the purpose of providing HMO services.
This is needed to level the playing field for the HMOs because premiums collected by life-insurance companies are taxed at only 2 percent while contributions to HMOs are taxed at a higher rate of 12-percent value-added tax (VAT).
Pending bills
SEVERAL measures have been filed in the 16th Congress seeking to protect all Filipinos through insurance coverage. There were at least 117 bills and resolutions requiring life and nonlife insurance for 102 million Filipinos filed in the recently adjourned Congress.
Among these is House Bill 72, introduced by Rep. Anthony del Rosario of Davao del Norte. Del Rosario’s bill wants the Philippine Charity Sweepstakes Office (PCSO) to earmark its entire charity fund for universal health care.
“The bill warrants a just and equitable distribution of this government’s money grounded on the needs of people,” del Rosario said. The bill proposes that the charity fund be earmarked for the National Health Insurance Program (NHIP) administered by the Philippine Health Insurance Corp. (PhilHealth) to ensure the achievement of universal health insurance coverage in line with the Aquino administration’s health agenda.
“It is putting the money into where it is most needed and useful,” he said.
Currently, 55 percent of PCSO’s income is allotted to the payment of lotto prizes. Thirty percent of the income goes to charity and social programs and 15 percent for PCSO’s operating expenses and capital expenditure.
Rail user’s protection
ANOTHER bill is HB 42 by Party-list Reps. Mariano U. Piamonte Jr. and Julieta R. Cortuna. The bill seeks to require accident and life-insurance coverage for railway transit passengers.
“With this huge figure of public-transportation users, which continues to rise because of the unceasing ascent of prices in diesel and gasoline, it is appropriate that the commuters, by way of assistance and protection when fortuitous events do occur while they are inside the premises of a particular public transportation,” the lawmakers said.
Device insurance
REP. Eric L. Olivarez of Parañaque filed House Bill (HB) 4303 mandating mobile-phone network-service providers to offer insurance for mobile phones.
“This act shall cover the mechanical breakdown, loss and theft, including snatching, robbery and any other act of unlawful taking, of all kinds of mobile phones, including tablets, iPads and any other device capable of making and receiving calls and text messages,” Olivarez said.
He added that a person who purchases a mobile device from any carrier must be informed and offered of the mobile-phone insurance policy.
Stronger GSIS
TO protect government employees, Rep. Rufus B. Rodriguez of Cagayan de Oro filed HB 1223 to strengthen the Government Service Insurance System (GSIS).
The bill seeks to give government employees who retired from public service the option to enjoy the benefits of their retirement either under Republic Act (RA) 1616, or the GSIS law.
Under RA 1616, a government retiree is entitled to gratuity, payable by the last employer, based on the total credible service converted into gratuity months, multiplied by the highest compensation received and refund of retirement premiums consisting of personal contributions of the employee, plus interest and government share without interest, payable by the GSIS.
Crop insurance
MEANWHILE, in HB 418, Rep. Arthur C. Yap of Bohol seeks to strengthen the Philippine Crop Insurance System by expanding its program coverage and increasing its funding source.
“The agricultural sector in the Philippines is highly vulnerable to the unpredictability of nature, which throughout the year brings about droughts and typhoons, leaving damages to crops, lives and properties of farmers and fishermen,” said Yap, Secretary of Agriculture under the administration of President Gloria Macapagal-Arroyo.
“Considering that a significant portion of the population depends on agricultural activities, the need to protect the welfare and interests of local farmers and fishermen must be addressed,” he added.
The bill aims to sustain the insurance coverage’s funding requirements by requiring the Philippine Amusement and Gaming Corp. (Pagcor) to earmark 0.5 percent of its net earnings to the program.
Dooc explained the crop insurance is provided by state-funded Philippine Crop Insurance Co. (PCIC) that subsidizes a premium up to 65 percent. However, he laments the PCIC’s finances.
“Luging-lugi; every year [they ask for a] budget.”
Dooc said the PCIC cannot compete with private insurers who can afford to provide coverage of as much as 65 percent. The PCIC, he added, can only afford to cover between 5 percent to 10 percent of the risks related to crop production.
Dooc said he has proposed to one insurer that holds government money from coconut levy to develop a crop insurance. He has yet to hear from the insurer on the fate of that proposal.
New taxes
ANOTHER source of change in the insurance industry could come from the tax structure.
In Congress, there is HB 3225 filed by Rep. Karlo B. Nograles of Davao City that seeks to rationalize the taxes imposed on the nonlife-insurance industry.
Prior to the enactment of RA 10001, or An Act Reducing on L ife Insurance Policies, Nograles said the percentage tax on premiums for both life and nonlife-insurance coverage was five percent.
However, RA 10001 reduced the tax rate for life-insurance premiums to 2 percent.
Under Nograles’s proposed bill, “there shall be collected from every person, company or corporations doing insurance business of any sort in the Philippine a tax of 2 percent of the total premium collected.”
This strikes a positive chord in Dooc. “As demonstrated by life, you lower the taxes from 5 percent to 2 percent in premium tax—look at the expansion of the industry.”
Dooc explained “the tax base expanded to an extent that even if the rate is lower it made up for the loss in rate.”
“Kung 5 percent ka, e kinikita mo naman is P1 million, eto 2 percent, but you get P100 million, bigger pa din ’yung 2 percent.”
Dooc based his views on a study conducted by a tax expert from the University of Asia & Pacific. That study, he said, revealed that for every 1-percent reduction in premium, there is a corresponding growth in the sales of the insurance policies.
There is a positive correlation that the lower the taxes the bigger the sales, he added.
Mergers and consolidation
ACCORDING to Dooc, the changes in the regulation of HMOs and insurers would lead to a consolidation of the industry.
“I want to create a climate within the industry where players are enjoying a level playing field,” Dooc said. “[This is why] we are very meticulous and strict in implementing capitalization and its minimum requirement.”
Dooc said the number of players in the sector went down from 130 more or less to 94.
“Mababawasan pa ’yan,” he added. Dooc said he sees the same among HMOs. However, he cautions insurance companies dealing or selling HMO products to have a spin-off corporation.
This would make a lot of business sense, he said, because a life insurance company pays only 2-percent premium, while HMOs pay 12-percent VAT. “Ano naman ilalaban mo premium to premium?”
Dooc said he is issuing such statement because of EO 192.
“Now that I am the regulator, bakit naman hindi ko sila poprotektahan.” Dooc said because of the capital and net worth build up requirements “that we are strictly implementing, we can see more consolidation and mergers.”
He cited for example the life and nonlife net-worth requirement will go up to P550 million, which is more than double the current existing requirement at P250 million.
“And we only have less than seven months to go, because that should have been implemented by the end of this year. So I am looking at consolidation.”
However, he advises companies that are already compliant with the P250-million net-worth requirement to defer mergers, but further build up net worth until it reaches P550 million.
Because the next jump is very difficult to handle: from P550 million, it will go up to P900 million in 2019.
That year would be the best to merge, according to Dooc, because companies that merge by this time would have a net worth totaling P1.1 billion.
“Lagpas ka na agad sa next build up na P900 million. And yet, malapit ka na sa maximum na P1.3 billion.”
Exuding optimism
NOTWITHSTANDING these changes, Dooc is very optimistic of the future of the country’s insurance industry.
He cited for example in the nonlife segment, the net premium last year was P36 billion.
Before it only played around P25 billion to P30 billion, “but last year medyo sumipa tayo at saka ’yung net income nila malaki, kasi we were spared from a big calamity.”
“Hopefully this year, kung ma spare pa tayo, maganda-ganda ang net income ng nonlife.”
Likewise, the industry’s penetration rate is P29 million because of microinsurance. Including the regular insurance that would be around 38 million Filipinos who are insured, Dooc said. He explained that is roughly 37 percent of the country’s total 102 million people. Dooc said the rate is far higher than the target 20-percent penetration rate by the year 2020.
“Wala pang 2020 pero nasa 37 percent na tayo, so we are now aiming for 50 percent in five years.” Dooc said this is achievable, especially since changes are coming.
Image credits: Nonie Reyes
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