"Here are Rep. Joey Salceda's ideas about the state insurer."
The House of Representatives’ top analyst and finance whiz in residence, Albay Second District Congressman Joey Salceda, does not believe the Philippine Health Insurance Corp. (PhilHealth) should be privatized, despite claims of near-bankruptcy (a claim by PhilHealth itself) and corruption amounting to P153 billion (a claim by Presidential Anti-Corruption Commissioner Grego Belgica).
Salceda thinks PhilHealth remains a viable operation and can be made more profitable, just like the present state-run Government Service Insurance System (GSIS), one of the Philippines’ largest and most profitable companies today.
“The cleaning up of the GSIS from one of the most reviled public agencies, to a reliable and well-managed insurance operation with a very broad range of services to its constituent market, has been a remarkable success story. A mix of transparency mechanisms on procurement, beneficiary status, and service delivery has significantly improved GSIS governance and financial performance,” gushes Joey, in a special paper on PhilHealth.
To rehab or clean up PhilHealth, Salceda says, “we will have to set up systems where PhilHealth’s general operations, its reserve fund, its claims and benefits distribution, and its collection activities are separately optimized. Where administration is tainted, faultily commingled operations can yield to dis-economies of scope, or what we in the finance industry used to call ‘diworsification.’”
PhilHealth, the Albay congressman notes, is badly designed, which is the source of its financial troubles.
“PhilHealth is not a medical institution. It is not an administrative agency. It is an insurance company, with government subsidy, a collection aspect, a claims and benefits distribution operation, and a reserve fund to administer. These are specialties that all ought to be optimized, or they will systematically affect each other negatively,” Salceda explains. “The vices of its administrators are emboldened and emphasized by PhilHealth’s own systemic faults.”
Also, “the company is perceived as a ‘health institution’, when most of its operations have very little to do with medical science. Rarely has the president of PhilHealth been chosen from the insurance or the financial services industry. Five of the past nine PhilHealth presidents since 2000, starting with now Health Secretary Francisco T. Duque, were doctors.”
A basic reform Joey wants is to uncap premium payments (the cap favors the rich) and instead be calibrated to one’s income. He explains:
“The capped contribution scheme means that those earning more than P1.2 million a year are effectively paying less and less premiums as a share of their income. This makes for a bizarre health premium regime where the very poor pay effectively no direct premiums (but pay indirectly through their consumption of excised products), the poor and middle working class pay the same percentage on premiums, and the rich and very rich pay less and less as a share of their income, the richer they get.”
Under the present setup, the poor do not pay any direct premiums and instead are covered by government subsidy. The self-employed (like migrant workers) pay voluntary contributions. The bulk of PhilHealth’s non-subsidy revenue comes from those formally employed or have employers.
Salceda points out: “This income scheme effectively means that, those earning an annual income of P120,000 a year will, by 2025, already be paying 5 percent of their income for PhilHealth benefits, when the same income segment is exempt from personal income taxes (PIT) for the simple reason that the country considers them too poor to pay these taxes.”
He suggests a fix, which is just tie the premium contributions to the PIT or the amount of tax one pays on one’s income.
In 2018, the formal sector paid P65.9 billion in premiums, implying around P32.95 billion in employee share.
A simpler collection matches the progressiveness of the recently reformed personal income tax scheme.
Salceda suggests a 3-percent levy on individual tax dues and a minimum P100/month employee share. “This would have saved the minimum wage earner at least P4,800 a year in premiums, and would also have made the premium structure more attuned to changes in income.”
“A 5-percent levy on individual taxes, plus the minimum premium, would have yielded around P46 billion in employee share, or around P92 billion in formal sector premiums. Considering the same expenses in 2018, this scheme would have also made enough surpluses to cover almost 60 percent of the government subsidy to PhilHealth.”
“Premiums more closely tied to income are also more sustainable than the floor-and-ceiling approach in the UHC (Universal Health Care law), as health expenditures tend to rise with national income,” Salceda argues.
Outside the corruption and obvious mismanagement, the Albay congressman sees many positive things about PhilHealth. “The financial health of the company has been relatively in good shape, with premiums more or less matching benefits, and with the reserve fund consistently yielding a reliable flow of interest income,” he observes.
Salceda notes that PhilHealth premiums and benefits have more or less been on track with each other, giving little reason for the decline in reserve fund over recent years. In 2018, there was even a surge in surplus premiums (at around P11.5 billion). “The fund should be expected to manage its finances well and fortify its reserves during good years such as these, so that the health insurer can be prepared for bad years, such as COVID-19,” he says.
He finds claims of PhilHealth going bankrupt in two years an exaggeration. PhilHealth executives have claimed that the GOCC will be facing a P90 billion shortfall in 2020 and a P110 shortfall in 2021.
Salceda reckons in the first half of 2020 alone, PhilHealth sustained only a P5.99-billion loss-- acceptable given the dire circumstances. Further, the reserve fund has already hit P105.8 billion as of June 2020, an increase of P8.88 billion compared to the same period last year, “meaning a strong fallback position is in place should the health insurer face more unpredicted costs due to COVID-19 claims.”
Salceda argues: If the P90 billion claim is correct, the DOH will have to sustain a shortfall of P84 billion in the second half, “a loss never before seen in the health insurer’s entire corporate life. The actuarial accuracy of this projection is at best, suspect.”
One problem with PhilHealth’s reserve fund mismanagement is its design. While most corporations would fill their “reserves” with accumulated equity, PhilHealth’s reserve fund comes from funds set aside from current-year revenues.
Says Salceda: “Taking current-year revenues to set aside as reserves places operations in the financially awkward position of drawing from reserves (part of which has probably already been invested) if current-year claims are actuarially underestimated. This exposes operations to actuarial miscalculation, and, given the oddness of PhilHealth’s actuarial projections, such miscalculations are very probable risks.”
He says the UHC Law’s provisions on reserve fund management could still be improved.
Under UHC, PhilHealth sets aside “a portion of its accumulated revenues not needed to meet the cost of the current year’s expenditures as reserve funds.”
This, says Salceda, is prone to several layers of risks: actuarial miscalculation for current-year expenses, the moral hazards of having a fund that can be used for expenditures, the risks of unfavorably influencing market prices, downward, when PhilHealth sells its equity holdings (which should be the most liquid among the investment reserve fund), among others.
The solution: “A simpler, more rational approach, to ensure that profits during good years are used to cover losses in bad years is to simply accumulate all net income in the investment reserve fund, to be managed by the Bureau of Treasury, or a designate of the Monetary Board, to ensure that the best macroprudential standards are upheld. This would also ensure that regular operations and reserve fund operations are not unduly commingled.”
Finally, Salceda wants better oversight of PhilHealth by a board composed of the secretaries of Finance, Labor, and Health, the head of the SSS (or GSIS), and two private sector representatives named by the President but confirmed by the Commission on Appointments.