The P89.9 billion taken from PhilHealth are member contributions, not government subsidies

Pickpockets? When the final deliberations on the 2024 General Appropriations Act (GAA) were made, no one noticed the provision that would allow Department of Finance (DoF) to take away “excess funds” from Government-Owned or -Controlled Corporations (GOCCs) to be put in a General Fund. But by including the Philippine Health Insurance Corp. (PHIC) or PhilHealth among the GOCCs with “excess funds,” the Government is taking member contributions, not government subsidies.

Congress and the DoF have conveniently mislabeled PhilHealth funds as government subsidies when these are contributions from the formal and informal sectors as well as contributions from taxes to cover premiums of indigents (the 4Ps or Pantawid Pamilyang Pilipino Program), senior citizens, and sponsored members.

In its last report in 2022, the PhilHealth President noted contributions of P216.799 billion, P80 billion of which came from taxes converted into membership contributions of the poor and senior citizens. So, when the PhilHealth Board agreed to follow the DoF Circular, they were actually giving away contributions of its 104,098,583 members, not a government subsidy.

The DoF and Congress, which approved the GAA provision, have a lot of explaining to do to the 23,721,597 indirectly contributing members and 15,322,860 dependents who will pay for their premiums this year, amounting to about P80 billion.

It is astounding that the PhilHealth Board completely misunderstood its role. As Department of Health (DoH) Secretary Ted Herbosa said in the 2022 annual report of PhilHealth: “Never forget: we at PhilHealth are stewards of the People’s money, funds that we must promptly and efficiently use to pay for health services that save lives.”

But then again, in the next sentence in the annual report, Secretary Herbosa showed that he was also unaware about the role that government has in providing premiums for the poor and senior citizens: “The premium payments of our direct contributors, as well as the subsidy provided by the National Government for our indirect contributors, are all meant to pay for benefits.”

That sentence completely negates the principle of solidarity in social health insurance that those who can pay should contribute to cover the benefits of the poor who cannot contribute, and that is done through general taxation, including taxes that Filipinos paid for under the Sin Tax laws.

To realize the grave implications of the transfer of P89.9 billion away from our healthcare system, let’s review the history of universal healthcare.

When former DoH Secretary Francisco Duque III signed the Implementing Rules and Regulations (IRR) of the Universal Health Care (UHC) Law in 2019, he stated that the UHC would require P1.5 trillion by 2025 to realize the original intent of Dr. Alberto “Quasi” del Gallego Romualdez, Jr., the father of health reform in the Philippines.

The P1.5 trillion would expand the spending of PhilHealth to about 30% of Current Health Expenditure. (In 2022, PhilHealth spending declined to 13.6% of Current Health Expenditure from a high of 19.4% in 2015.)

To date, despite the taxes used to cover the premiums of the 4Ps and others that have been provided since 2011 (thanks to the sin taxes), the goal of meeting the P1.5 trillion for UHC has not yet been fully achieved.

In 2011, PhilHealth launched the Kalusugang Pangkalahatan program. Then President Benigno “Noynoy” Aquino praised PhilHealth for an unprecedented 23% increase in its membership and 82% coverage of the population in 2011, simply by providing for the premiums of 10 million household heads covered by the 4Ps and the national household targeting system in one swoop, a record unmatched to date.

The UHC Law has the essential feature of the local and national governments providing complementary healthcare through the decentralized health system.

Quasi Romualdez launched health sector reform over a quarter century ago after taking the helm at the DoH in 1998. His vision was to cut the cost of healthcare of Filipino families so that government and health insurance would cover up to 70% of health costs (leaving 10% for private health costs). The Filipino would only pay P2 for every P10 spent on healthcare which would be widely available and of good quality.

During his 28 months in office, Quasi broke three restraints that the health sector needed to overcome to transform the traditional healthcare delivery system in the Philippines:

1. He obtained Presidential action through Executive Order (EO) 205, which directed National and Local government cooperation to set up local health systems, citing Section 33 of the Local Government Code (LGC), which allowed local government units (LGUs) to undertake cooperative undertakings among themselves for common benefit.

2. He took the first steps to achieve Universal Health Care by reducing by 10 percentage points the out-of-pocket spending of Filipinos from 50% in 1995 to 40.5% in 2000. This was an achievement that has not been repeated when health spending achieved the World Health Organization target of 5% of GDP.

3. Quasi opened the doors to a dialogue between national and local governments for health, increasing local government spending on health to 19.3% of per capita health expenditure by 2000 from 15.9% in 1995. Nationally, he increased DoH spending on health by two percentage points (19.2% in 1995 to 21.2% in 2000) and increased PhilHealth’s share in covering health costs by 2.6 percentage points, from 4.2% in 1995 to 6.8% in 2000.

Quasi got that all done without the benefit of a Sin Tax Law and the UHC Law. Let us break down what he had to overcome during his term.

Ending the myth of inviolable “Local Government Autonomy” or “Local Fiscal Autonomy.”

Whenever national agencies draft executive orders or memoranda to be issued by the President, the ultimate opinion on any executive issuance affecting local governments is usually left to the Department of Budget and Management (DBM) and the Department of the Interior and Local Government (DILG).

Once the agencies opine that any section might infringe on “local autonomy” (DILG) or “fiscal autonomy” (DBM), such recommendations are simply disapproved. The opinions of these agencies have led to unconstitutional lawmaking (Section 284 of the Local Government Code, amended by the Mandanas-Garcia ruling) and questionable Executive Orders.

In the Mandanas-Garcia ruling by the Supreme Court in 2019, the Court made the distinction between local fiscal autonomy and supervision by the National Government through the President:

“For sure, fiscal decentralization does not signify the absolute freedom of the LGUs to create their own sources of revenue and to spend their revenues unrestrictedly or upon their individual whims and caprices. Congress has subjected the LGUs’ power to tax to the guidelines set in Section 130 of the LGC and to the limitations stated in Section 133 of the LGC. The concept of local fiscal autonomy does not exclude any manner of intervention by the National Government in the form of supervision if only to ensure that the local programs, fiscal and otherwise, are consistent with the national goals.”

As long as the Chief Executive refuses to act because of fears of infringing on “local fiscal autonomy” the gridlock on the Mandanas-Garcia ruling and by extension, the UHC will remain.

The DoH continues to treat the UHC as a project, requiring pilot projects and mature LGUs to come up with policy recommendations. When former Secretary Duque signed the UHC’s (IRR) in 2019 he foresaw a five-year period of progressive implementation, requiring a budget of P1.5 trillion.

When COVID-19 hit the country four months later, the DoH leaders thought the time had come to implement the structural reform required by the UHC Law, but this remains unimplemented.

With COVID under control by 2022 and with a new administration, the gridlock has remained. Reforming the UHC is but a second priority.

It is probably time to consider reviving EO 205 of former President Joseph “Erap” Estrada to jumpstart the process of health sector reform.

Fostering a spirit of cooperation and trust between the DoH and local governments.

Many national health leaders lack the confidence and trust that then Health Secretary Romualdez had with local governments. The DoH has not given much attention to reforms to develop and strengthen local health systems as a prerequisite to improved health financing. The DoH continues to engage only a few LGUs in a “progressive” approach. And the private sector is ignored although it owns half of the health facilities registered under PhilHealth.

By re-invoking Section 33 of the LGC and the UHC itself in a revised EO 205, the DoH Secretary can make a clear appeal to the President to allow the DoH and LGUs to work cooperatively on health structure reform without amending the LGC.

In 2012, a review of the Health Sector Policy Support Project 1, which has been the foundation of health financing reform, was done. This review saw that the Inter-Local Health Zones or ILHZs (not much different from the local structure described in the UHC Law) could implement local health reform without amending the Local Government Code.

By working with mandatory ILHZs, the DoH can stop experimenting on sandbox theory and directly implement the UHC. It would only require an Executive Order and avoid amending the current law and even the Local Government Code.

The most important task of the leader of the health sector: Taking on the role of health reformer.

With four years remaining in his term, Secretary Herbosa has the opportunity to take on the mantle of health sector reform from his mentor, Quasi Romualdez. He has potentially more time than Mr. Romualdez had in his time as DoH Secretary.

Under his leadership he needs to lead the three actors in health reform to achieve UHC, namely a.) the National Government’s apex and tertiary end of the health sector, b.) the local government’s primary healthcare function and secondary level of care, and, c.) the facilitative role of PhilHealth as the single payor of a solidarity-based health insurance.

Secretary Ted, panahon na (it is time). The health sector needs to show up and stand out. The immediate step though is to stop the transfer of PhilHealth funds to the National Government. Before we all lose faith in the government’s ability to reform the health system through the UHC law.

Juan “Jeepy” A. Perez III, M.D. specializes in public health administration, primary healthcare, and has worked with nine Health Secretaries and three NEDA Secretaries since 1992. He occasionally writes for Action for Economic Reforms.