By Imee Charlee C. Delavin, Reporter

IC sets capitalization standards for HMOs

Posted on July 30, 2016

THE INSURANCE Commission (IC) issued on Friday the guidelines to implement an executive order (EO) that transferred to it the authority to oversee health maintenance organizations (HMOs).

In a circular letter dated July 29, the IC set the minimum capitalization and financial capacity requirements for HMOs, the first among the the many circulars that it will issue as part of the implementing rules and regulations. It earlier said that further circulars will determine capital and actuarial requirements, investments, and adoption of international accounting and risk-weighting standards, among others.

On the minimum capitalization, the IC, in its circular said “all existing HMOs must have a minimum paid-up capital of at least P10 million.” New HMOs seeking to do business in the country should have a paid-up capital of at least P100 million.

“No new HMO shall, in a stock corporation, engage in the business of HMO in the Philippines unless it has a paid-up capital of at least P100 million.”

Previously, the Department of Health (DoH) required a minimum capital of P10,000 for HMOs.

The IC said in circular 2016-41 that community-based and cooperative HMOs shall maintain a paid-up capital equivalent to 50% of what is prescribed for regular HMOs. Meanwhile, in case of a foreign HMO applying for an HMO branch license, no license shall be issued unless the branch has a statutory deposit of at least P100 million in cash and/or allowable securities approved by the Insurance Commissioner.

Former President Benigno S. C. Aquino III signed on Nov. 12 last year EO 192, transferring the supervision of HMOs to the insurance regulator from the DoH “in order to regulate and supervise the establishment, operations and financial activities of HMOs.”

The EO requires all HMOs to comply with the regulatory requirements of procuring a license to operate from IC, although it earlier noted that clearances to operate previously issued by the DoH to these firms will be honored by IC, subject to modifications.

“The Commission may increase such minimum paid up capital and net worth requirement to an amount which in its opinion would reasonably assure the safety and the interests of the HMO members and the public,” the regulator said in its latest issuance.

Insurance Commissioner Emmanuel F. Dooc said in a briefing on Friday that there are currently 29 licensed HMOs in the country of which 14 have renewed their licenses with the IC having been established as their regulator.

He noted that at the time jurisdiction were transferred to the IC, capitalization of HMOs ranged from P2 million to up to P500 million, averaging about P75 million. Seven of the 13 members of the Association of Health Maintenance Organizations of the Philippines, Inc. (AHMOPI) have at least P100 million in paid-up capital, Mr. Dooc said.

“We want to make sure that every HMO company can service their obligations. The industry was earlier plagued by many fly-by-night players so we wanted to put up stronger financial regulations,” the Insurance chief added.

On deposit requirements, the IC said “unless otherwise provided by law, HMOs shall deposit with the Commission or at the discretion of the Commissioner trustee bank acceptable to Commissioner through which a custodial account is utilized, cash, treasury bills, treasury bonds, or any combination of these that are acceptable which at all times shall have a value of “not less than 20% of HMOs actual paid-up capital” as prescribed in the circular.

The deposits, it said, are to be used to protect the interest of the HMOs’ enrolled members and to assure continuation of health care services to them.

The IC also said it may require the adoption of a risk-based capital management approach and other internationally-accepted solvency measures.

On the net worth requirement, the Circular said “all HMOs must have a net worth which should be not less than paid-up capital.”

“In the examination of HMO’s financial condition, assets of doubtful economic value and/or unsupported shall not be considered,” it added.

HMOs are also required to maintain an acid-test ratio -- defined as the proportion of the most liquid current assets to current liabilities -- of at least 1.0 at all times, the IC said. Current assets are composed of cash, cash equivalents, investments classified as current assets, and receivables identified and verified by IC as current assets.

The circular is set to take effect 15 days after its issuance.

The IC had earlier set a June target to release the guidelines for the HMOs, but issues on capitalization and complaints of unfair competition from life insurance companies offering health insurance had prompted the regulator to consult industry further.

Mr. Dooc said in the IC is also batting for a proposal in Congress to legislate such regulations for the sector to make them more permanent and binding.

“... what is critical is there must be a law to make it more binding ... because my issuance is administrative in nature, it may later on be disregarded or rebuild by any new Commissioner. There’s an EO, but only transferring the jurisdiction, but it did not touch on the particulars like how we should administer the business, capitalization, the solvency requirements, it’s not included ... I feel that the EO should be supplied by a law. I think we need a law,” Mr. Dooc added.

He said the Commission has yet to tap a legislator to file a proposal in Congress. Nonetheless, he said he is set to discuss the matter with Finance Secretary Carlos G. Dominguez III.

An HMO is a prepaid health care service provider offering comprehensive coverage to its members through partnerships with hospitals and other health professionals.

It operates on the idea of risk-sharing, with the objective of minimizing a member’s financial burden of by covering the costs of medical services availed from partners through the HMO’s common fund.