PhilHealth given ‘shock treatment’

The country’s health insurance system is very sick. In fact, the Philippine Health Insurance Corp. (PhilHealth) that is supposed to pump blood into it appears to be hemorrhaging so badly that the reserve fund supporting its subsidies could run out by 2022.

On Monday, President Duterte gave PhilHealth a shock treatment by sending over to save it a former NBI director linked to alleged Davao killings who then confessed being scared of the tough job given him to rid the insurance firm of corruption and get it back on its feet.

Duterte replaced former PhilHealth president Ricardo Morales (who had resigned for health reasons) with Dante Gierran, former head of the National Bureau of Investigation who admitted in a TV interview Tuesday he had zero experience with public health.

Gierran was candid: “I’m very scared, because I don’t know the operations of PhilHealth. I knew the operations of NBI. But PhilHealth, wala… I don’t have experience with public health. What I know about is financial management, having been a certified public accountant, and insurance.”

The law says the PhilHealth president must have at least seven years of experience in public health, management, finance and health economics, or a combination of any of these expertise.

The immediate task of Gierran, who retired in February 2020 as NBI director, is to regain the public’s trust in PhilHealth and ensure the proper use of its funds, especially at this time of the coronavirus disease pandemic that has seen soaring claims for refunds.

In a Senate hearing in 2017, Gierran was implicated by an alleged member of the so-called Davao Death Squad in the 2007 killing of a man. He denied the allegation.

On the PhilHealth financial mess, the Senate reported the other day after its investigation that the national health insurer has P111 billion in liabilities and P109 billion in equities, which is a debt-to-equity ratio of 1-to-.99.

Senate President Vicente Sotto said: “How much is PhilHealth bleeding here? In terms of the reported debt-to-equity ratio, it appears that it is bleeding dry as it does not have enough money to pay its creditors in the event of liquidation.”

He noted the information given by PhilHealth board member Alejandro Cabading that financial statements had been manipulated to make it appear that the insurance company was in good shape when it was debt-ridden and almost bankrupt.

In her testimony, PhilHealth senior vice president Nerissa Santiago said that the company would have its reserve fund depleted by 2022 and need an additional subsidy from the government to stay afloat.

• Salceda says PhilHealth can be saved

In an analysis of what ails PhilHealth and what can rehabilitate it, Rep. Joey Salceda (2nd Dist., Albay) was not as alarmist. He said: “Much of its financial troubles arise out of its design.”

Salceda said: “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 systemically affect each other negatively. However, because these functions are all currently administered together, they do not benefit from the gifts of specialization.”

One problem, he said, is that the company is perceived as a health institution, when most of its operations have very little to do with medical science: “Rarely has the PhilHealth president been chosen from the insurance or the financial services industry. In fact, five of the past nine presidents since 2000, starting with now Health Secretary Francisco Duque, were doctors.”

To clean up Universal Health Care which was enacted in February 2019, Salceda said, “We’ll have to set up systems where its general operations, its reserve fund, its claims and benefits distribution, and its collection activities are separately optimized.”

Salceda, chair of the House ways and means committee, said: “Where administration is tainted, faultily commingled operations can yield to diseconomies of scope, or what we in the finance industry used to call ‘diworsification’.”

He said PhilHealth’s basic accounts show that: “For the most part, 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.

“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 fact, in 2018, a surge in surplus premiums (at around P11.5 billion) was seen. 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.”

The reserve fund, however, has been shrinking, even when PhilHealth has continuously posted a net income (except in 2017). Its shrinking has been more remarkable considering that PhilHealth’s net income has been steadily increasing, except in 2015-2017. Net income dramatically increased in 2018.

On claims of PhilHealth executives that, based on their actuarial projections, the firm will face a P90-billion shortfall in 2020 and a P110 shortfall in 2021, Salceda said this is “an exaggerated claim”.

He noted: “For the first half of the year, PhilHealth sustained only a P5.99-billion loss,” which he said was “acceptable given the dire circumstances”. He pointed out that 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.

“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.”

*      *      *

Nota Bene: All Postscripts are archived at manilamail.com. Author is on Twitter as @FDPascual. Feedback can be emailed to [email protected]