PhilHealth fund transfer: What to know

By: Cristina Eloisa Baclig - 4 months ago

PDIC, Philhealth composite image

MANILA, Philippines—The Department of Finance’s (DOF) order to transfer P89.9 billion of unused state subsidies from the Philippine Health Insurance Corporation (PhilHealth) to the national treasury has ignited a storm of controversy.

In his third State of the Nation Address (Sona), President Ferdinand Marcos Jr. highlighted several improvements in the benefits packages offered by PhilHealth.

Read more: Sona 2024 fact check

However, what wasn’t mentioned was the ongoing controversy over the diversion of billions of pesos in unused funds from the state insurer to the national treasury for “unprogrammed appropriations.”

The issue has sparked debate among lawmakers, health care professionals, and the public, raising concerns about the legality and ethical implications of redirecting funds earmarked for health care to other budgetary needs.

What happened?

The DOF issued Circular No. 003-2024, a directive to transfer unused subsidies from government-owned and controlled corporations (GOCCs), specifically PhilHealth, to the national treasury to bolster the government’s unprogrammed appropriations.

Unprogrammed appropriations are funds included in a government’s budget that serve as a financial reserve for projects, programs, or expenses that are not specifically itemized or detailed in the budget.

These appropriations act as a contingency fund, allowing the government to address unforeseen or emergency expenditures that arise during the fiscal year.

Finance Secretary Ralph G. Recto reported that two GOCCs, PhilHealth and the Philippine Deposit Insurance Corporation (PDIC), together held around P200 billion in unutilized funds. PhilHealth’s share was about P89.9 billion, while PDIC held the remainder.

Recto suggested that these idle funds could boost the country’s growth rate by 0.7 percent and generate an additional P23-24.4 billion in revenue, potentially creating 600,000 jobs.

The directive has been met with opposition from various sectors. Critics argue that PhilHealth funds should be used to expand health coverage and improve benefit packages for Filipinos, especially the poor and indigent.

Independent health reform advocate Dr. Tony Leachon, former Finance Undersecretary Cielo Magno and Filomeno Sta. Ana III, executive director and co-founder of the local think tank Action for Economic Reforms, warned that the DOF circular might be a new way for the government to misappropriate funds.

They argued that the move violated Republic Act No. 11223, also known as the Universal Health Care (UHC) Act of 2019.

According to Section 11 of this law, any excess in PhilHealth reserve fund at the end of the fiscal year should be used to enhance program benefits and reduce member contribution amounts.

The law explicitly states that no portion of the reserve fund or its income should be transferred to the general fund of the national government or any of its agencies, including government-owned or -controlled corporations.

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Additionally, they claimed that the DOF circular violated RA 11467 and RA 10963, which allocate portions of the revenue from excise taxes on alcohol, tobacco, e-cigarettes, and sweetened beverages to PhilHealth for the implementation of UHC programs.

“Excess funds should not be directed to unprogrammed appropriations within the national budget when PhilHealth has been ineffective at carrying out its mandate of ensuring affordable, acceptable, available and accessible health-care services for all citizens of the Philippines,” Leachon stressed.

Magno said the DOF circular essentially made all Filipinos, who are automatically members of PhilHealth under the UHC law, suffer the consequences of the government’s financial maneuvering, likening it to “being fried in one’s own fat.”

“We are diligently paying our monthly contributions so that we have a good and expanded health insurance system, not for these to be used as funding for your questionable insertions in the national budget. So utang na loob, do not touch the funds of PhilHealth,” she said in a TikTok video.

Prior to Marcos Jr.’s Sona last July 22, over 60 professional organizations from the health care sector signed a letter addressed to the President, urging him to issue a directive to return the P89.9 billion unused fund to PhilHealth.

They argued that the funds should have been allocated to provide health care support for individuals in financial need rather than being redirected to the national treasury.

DOF’s defense

Recto clarified that the move to transfer idle funds from GOCCs was in line with Republic Act No. 11975 or the General Appropriations Act (GAA) of 2024, which was approved by Congress.

The funds, he said, were unused government subsidies, not members’ premium.

“To fund the unprogrammed appropriations, Congress determined that there is another way aside from new taxes as well as debts,” he said before the Senate Committee on Health and Demography during the Inquiry on the Implementation of the Universal Health Care Act, Including the Utilization of PhilHealth Funds for Program Benefits on July 30, 2024.

“This alternative involves collecting the idle and unused funds of GOCCs, for which we are still paying interest. This is explicitly stated in the 2024 General Appropriations Act, which we are simply following,” Recto said in Filipino.

The DOF also consulted the Governance Commission for GOCCs (GCG) and sought the legal opinions of the Government Corporate Counsel (OGCC) and the Commission on Audit (COA) to ensure full compliance with the law.

Recto said the DOF received favorable legal opinions on the matter and was advised that PhilHealth’s P89.9 billion unutilized government subsidies are not part of its reserve funds, nor income that is being restricted by the [UHC] to be used by the national government as a general fund.

He also debunked claims that the excess funds would be transferred to the Maharlika Investment Fund (MIF).

PhilHealth assures members

During the committee hearing, Recto clarified that “[t]he contribution of PhilHealth members will not be affected because the fund is from PhilHealth’s surplus and unused government subsidies.”

This was echoed by PhilHealth vice president for corporate affairs Rey Baleña, who explained that no funds from contributions of paying members would be remitted to the national treasury.

“This will not affect in any way the agency’s financial stability. Its members — both the direct and indirect contributors (or indigents who are incapable of paying the monthly contributions) — can rest assured that their PhilHealth benefits will not be affected and will even continue to be expanded and enhanced following the PhilHealth board’s approved benefit plan which already started in 2023.”

“Partner hospitals of PhilHealth can likewise be assured of continuous payment of good and properly filed claims within the prescribed period,” he added.

PhilHealth initially requested a P101.5-billion subsidy from the national government for 2024 to support the National Health Insurance Program. However, this request was reduced to P61.45 billion in the 2024 GAA.

P20B remitted

A timeline presented by DOF during the Senate hearing showed that P20 billion has already been remitted as of May 10.

The same information was earlier shared by Assistant Health Secretary Albert Domingo, who told reporters that about P20 billion of the P89.9 billion of PhilHealth’s unused government subsidy was used to settle the unpaid health emergency allowance (HEA) of health care workers.

“We agree with our civil society organizations and individuals who say that health funds should be used for health purposes. As we understand it, and as stated by the [DOH], the funds taken from PhilHealth were used to fund the HEA for our health care workers. So, in a sense, the money just moved from the bank to the people,” Domingo explained.

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On July 5, Budget Secretary Amenah Pangandaman authorized a special allotment release order amounting to P27.453 billion to settle the remaining unpaid HEA, following President Marcos Jr.’s directive.

This amount matches the DOH’s request in its proposed 2025 budget to cover approximately five million validated unpaid HEA claims and 4,283 COVID-19 sickness and death compensation claims for eligible health care and non-health care workers who served during the peak of the pandemic

The finance chief assured the Senate that PhilHealth is more than sufficiently funded with a P500 billion benefit chest fund to pay for its members’ multi-year claims. Furthermore, the agency will continue to receive subsidies from the national government.

“PhilHealth itself has confirmed that not a single centavo will be deducted from the benefits that members receive under the current policy. In fact, the President mentioned in his Sona that PhilHealth benefits will be increased for outpatients, individuals with serious illnesses such as cancer, and children with disabilities,” he said.

Where will the funds go next?

According to DOF, the funds will be exclusively used for the list of projects identified under the unprogrammed appropriations as mandated by the 2024 GAA, which includes health-related projects.

The projects under the list of unprogrammed appropriations include but are not limited to the Davao City By-Pass Construction Project; Samal Island Davao City Connector Project; Panay-Guimaras-Negros Island Bridges; Bataan-Cavite Interlink Bridge Project; Metro Manila Subway Project; and the Salary Standardization VI for government employees.

Read more about the list of projects here: www.dof.gov.ph/unprogrammed-appropriations-projects/

He added that implementing these projects will help the government achieve its goal of 6 percent to 7 percent economic growth for the year, especially after Super Typhoon Carina battered Metro Manila, which contributes 31 percent of the country’s GDP.

Recto also warned that if the projects were to be funded with additional borrowings, it would increase the country’s deficit-to-GDP ratio from 5.6 percent to 6.4 percent in 2024, and also hike the debt-to-GDP ratio from 60.6 percent to 61.4 percent this year.

This means that the country will have to pay an additional PHP 12.7 billion in interest payments every year.

“In effect, we will not hit our Medium-Term Fiscal Program. And this may put pressure on our investment grade rating,” he said.

He added that a credit rating downgrade will raise borrowing rates by about one percentage point, costing at least PHP 15 billion in annual interest and potentially destabilizing the macroeconomic environment, hindering pandemic recovery.

‘Misguided’ policies

Leachon, who was also present during the Senate hearing, claimed that the DOF’s directive lacked public consultation.

“The very stakeholders, patients, medical practitioners, and legal experts who rely on these funds were excluded from the discussion, their rights trampled upon. The heartbreak and suffering caused by this decision are immeasurable. In short, voices have been silenced, and countless lives are endangered,” he said in a statement.

He also described the move as “a betrayal of the Filipino People” and a misappropriation of funds that blatantly violated PhilHealth’s mandate.

“This year, member contributions increased from 4% to 5%, which should have improved benefits and the health care system. Instead, this heartless misuse of funds has led to insufficient patient benefits, unnecessary premium hikes, and an unjustifiable ‘fund excess’,” he added.

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He further argued that while the government’s intent to support the economy by transferring the excess funds to the national budget may be well-meaning, the method of achieving this goal is clearly against the law, “especially if the health sector is being robbed of the rights due to it, including those who are prejudiced by the irrational move.”

‘Misuse of funds’

Leachon also stated that the DOF’s move to transfer funds meant for the UHC law is endangering lives and undermining the very essence of health care equality.

“In 2019, the UHC Act was a beacon of hope for every Filipino. It promised to provide high-quality, equitable healthcare services to all, ensuring that no one would be financially crippled by medical expenses. This legislation was a pledge to care for our most vulnerable, guaranteeing PhilHealth benefits, including comprehensive outpatient services,” Leachon said.

However, fulfilling this commitment requires massive funding: P2.34 trillion, P1.68 trillion, and P1.22 trillion for the fiscal years 2023-2026 under high, medium, and low scenarios, respectively.

Leachon explained that the DOH intended to source these funds from sin tax collections and revenues from the Philippine Amusement and Gaming Corporation (Pagcor) and the Philippine Charity Sweepstakes Office (PCSO). Unfortunately, these sources are inadequate, emphasizing the urgent need for substantial direct funding to fully implement the UHC law.

“Five years after the UHC Act’s enactment, the promise remains unfulfilled. With a high-cost estimate of P577 billion needed for 2024 to cover all barangays nationwide, there are no excess funds, only a gaping deficit,” Leachon stressed.

“More so, there clearly is a deficit of care and compassion from this administration. Redirecting these vital funds away from healthcare is a betrayal of the most vulnerable among us,” he added.

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