IC scraps higher capitalization for HMOs

MANILA, Philippines —  The government will no longer increase the minimum paid-up capital of existing health maintenance organization (HMOs), but they will undergo tiering based on net worth instead.

In an advisory, the Insurance Commission (IC) released a new draft circular on the proposed revision in the minimum capitalization, financial capacity and other regulatory requirements of HMOs.

The release of the circular comes on the heels of an IC decision to conduct a second round of public consultation on the matter. The IC announced in July last year its plan to raise the minimum paid-up capital of HMOs, which was  supposed to take effect by end-2024.

In November 2024, however, IC chief Reynaldo Regalado said the agency was still reviewing the plan and they have a “moving target.”

Based on the new draft, only new HMOs should have a paid-up capital of at least P100 million.

The original plan was to increase the prevailing minimum paid-up capital requirement to P50 million for existing HMOs and P100 million for new entrants. Further hikes were supposed to occur every three years to hit P500 million by 2034.

Currently, existing domestic HMOs must have a minimum paid-up capital of at least P10 million.

The new draft, instead, is pushing for HMOs to be classified into tiers based on their net worth. Tier A is for HMOs with net worth of over P500 million, B for P100 million to P500 million, C for P50 million to P100 million and D for P50 million and below.

All HMOs are also ordered to maintain a net worth that is not lower than their actual paid-up capital.

By end-2025, the IC said every HMO doing business shall at all times maintain a security deposit of at least 25 percent of the prevailing minimum net worth requirement.

The new draft also showed that HMOs maximum risk on membership fees is now based on the tiering. The previous draft simplified the risk-based capitalization.

Moving forward, HMOs belonging to Tier A will have no limit while those on Tier B will have maximum gross membership fees 10 times the net worth.

HMOs on Tier C should have five times the net worth and Tier D with three times the net worth.

Gross membership fees pertain to the total annual fees arising from full-risk HMO agreements of the pre-agreed set of health services.

Likewise, the tiering will determine the acid test ratio (ATR) that firms should maintain at all times. Tier A and B must have at least 1.0, C with at least 1.75 and D with at least 2.0.

The ATR is computed based on an HMO’s current assets and liabilities.

Further, only HMOs classified under tiers A, B and C are allowed to invest in real estate properties.

The proposed tiering will also impact the dividend distribution of HMOs as only those under tiers A and B may do so without IC approval.

Those under C and D must secure clearance and may be ordered shut if found to be declaring dividends without IC approval.

In addition to the disclosures required under the Philippine Financial Reporting Standards, HMOs shall present information on their compliance with the minimum capitalization and financial capacity requirements.

With this, the filing fee was retained at P20,000 upon submission of audited financial statements and the same penalty of P5,000 will be imposed for every calendar day of delayed submission.

The previous draft doubled the payment to P40,000 and the penalty to P10,000.

The annual supervision fees will also now be based on paid-up capital instead of gross membership fees.

The annual supervision fees will be P20,000 for paid-up capital of up to P20 million and P75,000 for those over P75 million.

Those between P20 million and P75 million will have a supervision fee of P50,000.

HMOs that fail to pay the required fee will now be subject to a basic fine of P5,000 plus an additional P500 for each calendar day the payment is delayed.

HMOs are juridical entities legally organized to provide or arrange for the provision of pre-agreed or designated health care services to their enrolled members for a fixed prepaid fee or a specific period of time.