HMO pushing for risk-based capitalization

MANILA, Philippines - The health maintenance organization (HMO) industry is inclined to adopt the risk-based capital (RBC) formula rather than the sweeping minimum paid-up capital environment.

An HMO is a financial institution that arranges for coverage of designated managed care services needed by a client (member) for fixed prepaid membership fees, and for a specified period of time.

According to Carlos Da Silva, executive director of the Association of Health Maintenance Organizations of the Philippine Inc. (AHMOPI), the industry is composed of small and big players putting at a disadvantage the former if the fixed capital requirement is huge.

“Why should the smaller HMOs put up with the same paid-in capital as those of the bigger players?” Da Silva said.

When the HMO industry was regulated by the Department of Health (DOH), the minimum capital requirement was a mere P10,000.

The industry was transferred to the Insurance Commission (IC) last November, and the initial discussions centered around a minimum paid-up capital requirement or an RBC, or both.

The fixed capital ranged from P20 to P40 million, escalating every year for the next three years.

The RBC formula is simply capital (and/or reserves) against the amount of risk (products) offered. Or for every product offered, there is a equivalent amount needed to cover the risk of selling such product when claims occur.

“This time around we will push for a risk-based capitalization given the fact that some of our association members have membership base ranging from 7,000 to one million,” the executive director said.

Discussions are presently ongoing on understanding the industry, the kind of regulatory and development environment required of the IC, and the like. The commission has reportedly tapped the services of an expert on HMO to assist government, while consulting with the industry.

The IC wants to finish consultations and start regulating the industry within the year.

Like the pre-need industry, the use of actuarial services and the adoption of international accounting standards are among the tricky issues. Both industries were loosely regulated, especially from the financial aspect of its operations.

Da Silva believes the IC is the most appropriate government agency to regulate the HMO industry, and that the AHMOPI is in the best position to assist government in regulating and promoting the industry.

AHMOPI is the only HMO trade organization with nine members.

The DOH reported that there are 23 SEC-registered HMOs while the IC initially reports 15 players.

HMOs are different from health insurance, which are generally offered by life insurance companies.

The AHMOPI explains that an HMO is both an “arranger” and a “financier” of health care services. It offers pre-paid, comprehensive health coverage to their members by contracting with hospitals, physicians, and other health professionals for their services.  Members are required to choose among these providers in a network for all health services and membership is contracted for a specified period, usually for one year, yearly renewable.

Health care, or health maintenance, is a system providing total health care to subscribers and their dependents in exchange of pre-determined fees.   The pre-paid fees, otherwise known as “membership fees”, cover treatment inside and outside health institutions.  Additionally, the system stresses preventive medical care, thus reducing the incidence of more serious health consequences in the future.

The HMO operates on the basis of risk-sharing, not unlike the traditional health insurance scheme.  The overriding objective is to minimize the economic loss suffered by a member on the occasion of a health crisis by defraying the cost of medical treatment, both curative and preventive. 

Thus, if a large number of people contribute to a common fund, then the economic loss that shall be borne by an individual can be significantly reduced.

“The backbone of an HMO is managed care,” Da Silva said.