PHIL. HEALTH CARE PROVIDERS, INC vs. COMMISSIONER OF
Respondent is ordered to pay the deficiency
INTERNAL REVENUE
July 2, 2014 § Leave a comment
GR. NO. 1677330 September 18, 2009, SPECIAL FIRST DIVISION
(CORONA, J.)
FACTS:
Petitioner is a domestic corporation whose primary purpose is to establish,
maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization. On
January 27, 2000, respondent CIR sent petitioner a formal deman letter and
the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997
in the total amount of P224,702,641.18. The deficiency assessment was
imposed on petitioner’s health care agreement with the members of its health
care program pursuant to Section 185 of the 1997 Tax Code. Petitioner
protested the assessment in a letter dated February 23, 2000. As respondent
did not act on the protest, petitioner filed a petition for review in the Court of
Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments. On April 5, 2002, the CTA rendered a decision, ordering the
petitioner to PAY the deficiency VAT amounting to P22,054,831.75
inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until fully paid for the
1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared
void and without force and effect. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the said DST
deficiency tax. Respondent appealed the CTA decision to the (CA) insofar as
it cancelled the DST assessment. He claimed that petitioner’s health care
agreement was a contract of insurance subject to DST under Section 185 of
the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision which held that
petitioner’s health care agreement was in the nature of a non-life insurance
contract subject to DST.
Documentary Stamp Tax. Petitioner moved for reconsideration but the CA
denied it.
ISSUES:
(1) Whether or not Philippine Health Care Providers, Inc. engaged in
insurance business.
(2) Whether or not the agreements between petitioner and its members
possess all elements necessary in the insurance contract.
HELD:
NO. Health Maintenance Organizations are not engaged in the insurance
business. The SC said in June 12, 2008 decision that it is irrelevant that
petitioner is an HMO and not an insurer because its agreements are treated as
insurance contracts and the DST is not a tax on the business but an excise on
the privilege, opportunity or facility used in the transaction of the business.
Petitioner, however, submits that it is of critical importance to characterize
the business it is engaged in, that is, to determine whether it is an HMO or an
insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements. Petitioner is
admittedly an HMO. Under RA 7878 an HMO is “an entity that provides,
offers or arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium. The payments do not vary with the
extent, frequency or type of services provided. Section 2 (2) of PD 1460
enumerates what constitutes “doing an insurance business” or “transacting an
insurance business”which are making or proposing to make, as insurer, any
insurance contract; making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety; doing any kind of business, including a
reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code; doing or proposing to do
any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
Overall, petitioner appears to provide insurance-type benefits to its members
(with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. The “insurance-like”
aspect of petitioner’s business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather
than insurance services, it cannot be considered as being in the insurance
business.
Philamcare v CA G.R. No. 125678. March 18, 2002
J. Ynares-Santiago
Facts:
Ernani Trinos applied for a health care coverage with Philam. He answered
no to a question asking if he or his family members were treated to heart
trouble, asthma, diabetes, etc.
The application was approved for 1 year. He was also given hospitalization
benefits and out-patient benefits. After the period expired, he was given an
expanded coverage for Php 75,000. During the period, he suffered from heart
attack and was confined at MMC. The wife tried to claim the benefits but the
petitioner denied it saying that he concealed his medical history by answering
no to the aforementioned question. She had to pay for the hospital bills
amounting to 76,000. Her husband subsequently passed away. She filed a
case in the trial court for the collection of the amount plus damages. She was
awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but
deleted awards for damages. Hence, this appeal.
Issue: WON a health care agreement is not an insurance contract; hence the
“incontestability clause” under the Insurance Code does not apply.
Held: No. Petition dismissed.
Ratio:
Petitioner claimed that it granted benefits only when the insured is alive
during the one-year duration. It contended that there was no indemnification
unlike in insurance contracts. It supported this claim by saying that it is a
health maintenance organization covered by the DOH and not the Insurance
Commission. Lastly, it claimed that the Incontestability clause didn’t apply
because two-year and not one-year effectivity periods were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent
event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care 4. Must state the grounds relied upon provided in Section 64 of the
agreement was in the nature of non-life insurance, which is primarily a Insurance Code and upon request of insured, to furnish facts on which
contract of indemnity. The provider must pay for the medical expenses cancellation is based
resulting from sickness or injury. None were fulfilled by the provider.
While petitioner contended that the husband concealed materialfact of his As to incontestability- The trial court said that “under the title Claim
sickness, the contract stated that: procedures of expenses, the defendant Philamcare Health Systems Inc. had
“that any physician is, by these presents, expressly authorized to disclose or twelve months from the date of issuance of the Agreement within which to
give testimony at anytime relative to any information acquired by him in his contest the membership of the patient if he had previous ailment of asthma,
professional capacity upon any question affecting the eligibility for health and six months from the issuance of the agreement if the patient was sick of
care coverage of the Proposed Members.” diabetes or hypertension. The periods having expired, the defense of
This meant that the petitioners required him to sign authorization to furnish concealment or misrepresentation no longer lie.”
reports about his medical condition. The contract also authorized Philam to
inquire directly to his medical history.
Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure
of the insured to disclose information was a grounds for revocation simply
because the answer assailed by the company was the heart condition question
based on the insured’s opinion. He wasn’t a medical doctor, so he can’t
accurately gauge his condition.
Henrick v Fire- “in such case the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent
upon the provider.
“Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the
health care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party
to rescind a contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;