Breaking down PhilHealth’s legal issues

The Philippine Health Insurance Corp., otherwise known as PhilHealth, was created to administer and implement the aspiration stated in the Philippine Constitution “to make essential goods, health, and other social services to all the people at an affordable cost.” It is supposed to provide needed personal health services to all Filipinos, whether they are contributing to PhilHealth or not. It covers all Filipinos, either because we are contributing to PhilHealth as mandated by law, or for those who are unable to and/or are exempted from contributing, the government is supposed to fund the same. This is implemented through laws that earmark tax and/or government revenues to fund PhilHealth.

Recently, PhilHealth has been the center of controversies which can be broken down into two issues, namely, 1.) can the PhilHealth transfer funds to the National Government, and, 2.) can the National Government withhold funds from PhilHealth.

This article serves as a primer on the legal issues surrounding the PhilHealth funds.

The most current law that governs PhilHealth is Republic Act No. 11223, otherwise known as the Universal Health Care Act, which was passed on Feb. 20, 2019. Section 11 of Republic Act No. 11223 provides as follow:

Program Reserve Funds. PhilHealth shall set aside a portion of its accumulated revenues not needed to meet the cost of the current year’s expenditures as reserve funds: Provided, That the total amount of reserves shall not exceed a ceiling equivalent to the amount actuarially estimated for two years’ projected Program expenditures: Provided, further, That whenever actual reserves exceed the required ceiling at the end of the fiscal year, the excess of the PhilHealth reserve fund shall be used to increase the Program’s benefits and to decrease the amount of members’ contributions.

Any unused portion of the reserve fund that is not needed to meet the current expenditure obligations or support the abovementioned programs shall be placed in investments to earn an average annual income at prevailing rates of interest and shall be referred to as the Investment Reserve Fund. The Investment Reserve Fund shall be invested in any or all of the following:

x x x

No portion of the reserve fund or income thereof shall accrue to the general fund of the National Government or to any of its agencies or instrumentalities, including government owned or -controlled corporations.

What can PhilHealth therefore do with its funds aside from meeting its current expenditure obligations or support its program? Section 11 specifically sets out that PhilHealth should place said funds in investments and enumerates what kind of investments it can enter into. Moreover, if the reserve funds exceed its two years projected expenditure, the excess should be used to increase benefits and to decrease members’ contributions.

Can PhilHealth transfer funds to the National Government? By express provision of Section 11 of the Universal Health Care Act, it is prohibited to give any portion of its funds or income to the National Government or to any government agencies, its instrumentalities including government-owned or -controlled corporations. Furthermore, the Universal Health Care Act itself provides only two ways to deal with excess funds, including any subsidy made by the National Government as this is part of its sourced for funds as provided under Section 37 — to increase benefits and to lower members contributions.

Where does PhilHealth get its funds? Section 37 of the Universal Health Care Act provides as follow:

Appropriations. The amount necessary to implement this Act shall be sourced from the following:

a.) Total incremental sin tax collections as provided for in Republic Act No. 10351, otherwise known as the “Sin Tax Reform Law”: Provided, That the mandated earmarks as provided for in Republic Act Nos. 7171 and 8240 shall be retained;

b.) Fifty percent of the National Government share from the income of the Philippine Amusement Gaming Corp. (PAGCOR) as provided for in Presidential Decree No. 1869, as amended: Provided, That the funds raised for this purpose shall be transferred to PhilHealth at the end of each quarter subject to the usual budgeting, accounting and auditing rules and regulations: Provided, further, That the funds shall be used by PhilHealth to improve its benefit packages;

c.) Forty percent of the Charity Fund, net of Documentary Stamp Tax Payments, and mandatory contributions of the Philippine Charity Sweepstakes Office (PCSO) as provided for in Republic Act No. 1169, as amended: Provided, That the funds raised for this purpose shall be transferred to PhilHealth at the end of each quarter subject to the usual budgeting, accounting, and auditing rules and regulations: Provided, further, That the funds shall be used by PhilHealth to improve its benefit packages;

d.) Premium contributions of members;

e.) Annual appropriations of the DoH [Department of Health] included in the GAA [General Appropriations Act]; and

f.) National Government subsidy to PhilHealth included in the GAA.

The amount necessary to implement the provisions of this Act shall be included in the GAA and shall be appropriated under the DoH and National Government subsidy to PhilHealth. In addition, the DoH, in coordination with PhilHealth, may request Congress to appropriate supplemental funding to meet targeted milestones of this Act.

Republic Act No. 10351 (Sin Tax Reform Law) has had several amendments, the most recent of which is Republic Act No. 11467, passed on July 22, 2020. The latter amended Section 288-A of the National Internal Revenue Code. The relevant sections pertaining to PhilHealth are as follows:

Section 288-A. Disposition of Revenue from Excise Tax on Sugar-Sweetened Beverages, Alcohol, Tobacco Products, Heated Tobacco Products, and Vapor Product

(A) Revenues from Excise Tax on Sugar-Sweetened Beverages from Republic Act No. 10963 — The provisions of existing laws to the contrary notwithstanding, 50% of the total revenues collected from the excise tax on sweetened beverages shall be allocated and used exclusively in the following manner:

1.) Eighty percent to the PhilHealth for the implementation of Republic Act No. 11223, otherwise known as the “Universal Health Care Act” of 2019; and.

2.) xxx.

(B) Revenues from Excise Tax on Alcohol Products. The provisions of existing laws to the contrary notwithstanding, 100% of the total revenues collected from the excise tax on alcohol products shall be allocated and used exclusively in the following manner:

1.) Sixty percent for the implementation of Republic Act No. 11223, otherwise known as the “Universal Health Care Act” of 2019;…

C.) Revenues from Excise Tax on Tobacco Products. The provisions of existing laws to the contrary notwithstanding, the total revenues collected from the excise tax on tobacco products shall be distributed in the following manner:

1.) xxx

2.) Fifty percent of the total excise tax collection from tobacco products shall be allocated and used exclusively in the following manner:

a.) Eighty percent to PhilHealth for the implementation of Republic Act No. 11223, otherwise known as the “Universal Health Care Act” of 2019; and

b.) …

D.) Revenues from Excise Tax on Heated Tobacco Products and Vapor Products. The provisions of existing laws to the contrary notwithstanding, the total revenues collected from the excise tax on heated tobacco products and vapor products shall be allocated and used exclusively in the following manner:

1.) Eighty percent to PhilHealth for the implementation of Republic Act No. 11223, otherwise known as the “Universal Health Care Act” of 2019; and

2.) xxx

xxx

“Provided, further, That the allocation for Universal Health Care shall be based on the collection of the second fiscal year preceding the current fiscal year.”

Reading the amendment made under Republic Act No. 11467 into the Sin Tax Law into Section 37(a), the earmark made under Sin Tax Law as amended is earmarked for PhilHealth and should, like the Internal Revenue Allotment for the Local Government Units, be automatically appropriated and given to PhilHealth. This is supported by the last paragraph of Section 37 which states that the amount appropriated by virtue of subsections (a.) to (c.) must be appropriated in the GAA or otherwise known as the General Appropriation Act.

As a matter of fact, the law itself provides how the amount should be computed, and it is merely ministerial for the government to compute the same and include it in the GAA. The earmarked amount is mandated by law, and not a mere subsidy as used in its ordinary sense.

As a matter of fact, the law itself allows PhilHealth and/or the Department of Health to ask for more money; the supplemental amount is rightfully a subsidy which the government may or may not appropriate to support PhilHealth.

Kim S. Jacinto-Henares is the former commissioner of the Bureau of Internal Revenue. She has extensive experience in commercial/corporate, securities and tax law, governance, international dispute resolution, and digital transformation. Currently she is a commissioner with the international think tank, Independent Commission for Reforming International Corporate Taxation.