Insurance sector: Changes

are coming
By
BusinessMirror
-
JUNE 8, 2016

In Photo: This June 8 photo shows a woman passing by a billboard

displayed in a building of an insurance provider in Makati City.
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.”

http://www.businessmirror.com.ph/insurance-sector-changes-are-
coming/