Both the Commission on Audit (COA) and the Office of the Government Corporate Counsel (OGCC) have shed light on issues surrounding the financial standing of the Philippine Health Insurance Corporation (PhilHealth), clarifying that the agency is not bankrupt.
During the second round of oral arguments before the Supreme Court on February 25, 2025 regarding PhilHealth’s transfer of excess funds to the National Treasury, Associate Justice Amy C. Lazaro-Javier questioned why the agency was returning funds despite its financial statements indicating liabilities exceeding assets.
Government Corporate Counsel Solomon M. Hermosura clarified that misconceptions about PhilHealth’s financial health stem from its provision for Insurance Contract Liabilities (ICL)—an accounting estimate for future benefit payments and claim obligations rather than actual outstanding debts.
“What makes PhilHealth appear to have more liabilities than assets, Your Honors, is its provision for insurance contract liabilities. It is not a statement of liabilities. It is just a provision,” he explained.
Atty. Hermosura further clarified that no current claims exist against PhilHealth’s insurance contract liabilities, nor have there ever been, because the agency has not issued and has no outstanding insurance contracts.
He also stressed that PhilHealth cannot go bankrupt because the Philippine government guarantees its financial viability under the law.
“PhilHealth is not an ordinary insurance company, Your Honors. It is the state insurance provider. It cannot be insolvent because, by law—specifically Section 58 of the National Health Insurance Act—the Government of the Philippines guarantees the financial viability of the National Health Insurance Program administered by PhilHealth,” Atty. Hermosura said.
ICL application challenges to PhilHealth
Speaking as a resource person to shed light on the COA Philhealth reports, COA Ad Interim Commissioner Douglas Michael N. Mallillin explained that the Commission’s adverse opinions and disclaimers on PhilHealth’s financial statements stem from challenges in determining the appropriate ICL valuation, affecting the fair presentation of the agency’s financial position.
“The ICL is not simply a liability. It is the difference between the discounted value of inflows and the discounted value of outflows. The ICL takes into account future collections of premiums and also future disbursements for claims benefits and other expenses,” he said.
The requirement to establish ICLs was introduced in 2020 following the DOF directives based on an International Monetary Fund (IMF) assessment.
A standard in accounting practice worldwide, this measure aimed to evaluate contract risk exposures of social benefit agencies, including PhilHealth, the Social Security System (SSS), and the Government Service Insurance System (GSIS), to ensure compliance with their social benefit obligations.
“It was applied to PhilHealth, but the application to PhilHealth may have to take a bit of divergence,” Mallillin said.
He pointed out that the Universal Health Care (UHC) Act of 2019 created a hybrid system where PhilHealth covers both direct contributors who are paying members and indirect contributors such as indigents subsidized by the government.
The oral arguments on the transfer of PhilHealth funds will resume on March 4, 2025.
