Republic of the Philippines

Department of Finance
INSURANCE COMMISSION t-gr
1071 United Nations Avenue
1\4anila w
IAJA
m
I

CN: AJA1Gfi)61

Circular Letter (CL) No.: 2016-41

Date: 29 Julv 20fi
Supersedes: None

CIRCULAR LETTER

TO : ALL HEALTH MAINTENANCE ORGANIZATIONS (HMOs)

DOING BUSINESS IN THE PHILIPPINES

SUBJECT : MINIMUM CAPITALIZATION AND FINANCIAL CAPACITY

REQUIREMENTS FOR HMOs

WHEREAS, Section 3(8), Chapter 1, Title lX, Book lV of the Administrative Code
of 1987 mandates the Department of Health (DOH) to regulate the operations of
and issue licenses and permits to hospitals, clinics, dispensaries, and other
establishments, which include Health Maintenance Organizations (HMOs)1 ;

WHEREAS, an HMO refers to a juridical entity legally organized to provide or

arrange for the provision of pre-agreed or designated health care services to its
enrolled members for a fixed pre-paid fee or a specific period of timel;

WHEREAS, the President, under Article Vll, Section 17 of the Constitution, has
the power and control over executive departments, bureaus and offices, as well
as the continuing authority under existing laws to reorganize such executive
departments, bureaus, and agenciesl ;

WHEREAS, Section 1, Executive Order (EO) No. 192, s. 2015, mandates that
jurisdiction over Health Maintenance Organizations (HMO) shall be transferred
from the Department of Health (DOH) to the lnsurance Commission (lC) in order
to regulate and supervise the establishment, operations and financial activities of
HMOsl;

I Executive Order (EO) No. 1 92, s. 201 5

Head Office: P.O. Box 3589 Manila FAX No.522-14-34 Tel. Nos. 523-84-61 to 70 Website: www.insurance.gov.ph
WHEREAS, The lC shall have the authority to exercise the following functions2,
among others:

a. lssue rules and guidelines, with respect to the establishment of HMO

minimum capitalization, net worth, reserve funds and security deposit
requirements, as well as the criteria for qualification and
disqualification of directors, officers and marketing personnel, and the
procedure for the submission of reportorial and/or examination
requirements, registration of contracts and plans, adjudication of
claims, and other relevant matters, as necessary;

b. Fix, assess, collect, and utilize fees and/or charges as it may find
reasonable in the exercise of regulatory powers;

c. Regulate, supervise, and monitor the operations and management of

HMOs to ensure compliance with EO No. 192, s. 2015, existing laws,
rules, regulations and such other directives and circulars issued by the
lnsurance Commissioner;

d. Prepare, approve or amend, rules, regulations, orders, and circulars,

and issue opinions, provide guidance on and supervise compliance
with such rules, regulations, orders, and circulars; and

e. Exercise such other powers as may be provided by law as well as

those which may be implied from, or which are necessary or incidental
to carry out the express powers granted to the lC to achieve the
objectives and purposes of EO No. 192.

f. Pursuant to existing laws, rules, and regulations, impose sanctions,

and/or appropriate penalties;

NOW THEREFORE, by the power vested in me by the provisions of EO No. 192,

s. 2015, the lnsurance Commission (lC) do hereby order and direct:

Section 1. Financial Capacity Requirements

1.1.Paid-Up Gapital

a. All existing domestic HMOs must have a minimum Paid-Up Capital of

at least Ten Million Pesos (Php10,000,000.00).

b. 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 One
Hundred Million Pesos (Php100,000,000.00).

2
Section 4, Executive Order (EO) No. 192, s. 2015
 Community-based and cooperative HMOs shall maintain a Paid-Up
Capital equivalent to fifty percent (50%) of what is prescribed for
regular HMO.

d, ln case of foreign HMO applying for an HMO branch license, no

license shall be issued unless the branch has a statutory deposit of an
amount of at least One Hundred Million Pesos (Php100,000,000.00)
in cash and/or allowable securities approved by the lnsurance
Commissioner.

e. 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.

1.2. Deposit Requirements

a. Unless othenuise provided by law, HMOs shall deposit with the

Commission or, at the discretion of the Commissioner, trustee bank
acceptable to the Commissioner through which a custodial account is
utilized, cash, treasury bills, treasury bonds, or any combination of
these that are acceptable to the Commissioner which at all times shall
have a value of not less than twenty percent (20%) of HMO's actual
Paid-Up Capital as prescribed in this Circular.

b. The Deposit shall be considered asset of the HMOs in the

determination of its unimpaired Paid-Up Capital and/or Net Worth.

c. All income from Deposits shall be an asset of the HMOs. HMOs that
has made a deposit may withdraw the deposit or any part thereof after
making a substitute Deposit of cash, treasury bills, treasury bonds, or
any combination of these that are acceptable to the Commissioner of
equal amount and value.

d. Deposits, substitutions or withdrawals may be made only with the prior

written approval of the Commission.

e. The Deposit shall be used to protect the interests of the HMOs' enrolled
members and to assure continuation of health care services to them.

f. The lnsurance Commissioner may increase the Deposit Requirement

if, in his opinion, such increase would reasonably assure the safety and
the interests of the HMO members and the public.
1 .3. Risk-Based Gapitalization

The HMO's maximum risk on membership fees shall be determined by

the following.

Paid-Up Capital (PUC). Maximum Gross Membership Fees

Up to 50M 5 times of PUC
More than 50M up to 75M 10 times of PUC
More than 75M up to 200M 15 times of PUC
More than 200M up to 300M 25 times of PUC
More than 300M up to 400M 30 times of PUC
More than 400M up to 500M 50 times of PUC
More than 500M No Limit

For this purpose, Gross Membership Fees pertains to the total annual
fees arising from healthcare agreements of pre-agreed set of health
services.

lf upon examination/verification, it is found that the total annual risk on

membership fees exceed the above Maximum Gross Fees as required in
this Circular, the same shall be fully covered up by cash infusion within
thirty (30) days from receipt of notice from the lnsurance Commission.

Failure to comply within the prescribed period shall be subject to a penalty

amounting to two percent (2%) of the required cash infusion plus
Php500.00 for every calendar day of delay. Certificate of Authority (CA)
shall be suspended or no CA shall be issued until compliance with this
requirement.

Any cash infusion by the stockholders shall also be subject to examination

and verification in accordance with the provisions of Anti-Money
Laundering Act of 2001 (Republic Act No. 9160, as amended by Republic
Act No. 9194, Republic Act No.10167 and Republic Act No.10365) and
Circular Letter No. 24-20058 dated September 2, 2005 and other
pertinent laws and issuances.

The Commission may require the adoption of risk-based capital approach

and other internationally accepted solvency measures.

1.4. Net Worth Requirement

a. All HMOs must have a Net Worth which should be not less than its
Paid-Up Capital.

b. ln the examination of HMO's financial condition, assets of doubtful

economic value and/or unsupported shall not be considered. Liabilities
not set-up in the book as of a given accounting period shall be treated
as non-ledger liabilities.

lf it is found that the Net Worth is less than the amount as required in
this Circular, the same shall be fully covered up in cash to be
4
 contributed proportionately by the stockholders on record within thirty
(30) days from receipt of the advice from the lnsurance Commission.

Any cash infusion by the stockholders shall also be subject to

examination and verification in accordance with the provisions of Anti-
Money Laundering Act of 2001 (Republic Act No. 9160, as amended
by Republic Act No. 9194, Republic Act No.10167 and Republic Act
No.10365) and Circular Letter No. 24-20058 dated September2,2005
and other pertinent laws and issuances.

Likewise, when the cash is sourced from the parent company, either
locally or abroad, the concerned entity shall submit a certified true
copy of the board resolution authorizing the cash infusion from the
parent company, duly authenticated by the Philippine Consul if
applicable.

1.5. Liquidity Requirement

a. HMOs shall at all times maintain an acid test ratio of at least 1.0.

Acid Test Ratio (ATR) = Current Assefs/ Current Liabilities

Current assets are composed of cash and other assets that are
reasonably to be realized in cash or intended for sale or
consummation within 12 months after the reporting period (balance
sheet date), or the normal operating cycle of the business, unless it is
restricted from being exchanged to settle a liability for at least 12
months after the reporting perioda identified and verified by the lC as
current assets.

Current liabilities are composed of claims payables, health fund/

administrative services only (ASO), reserves, and "obligations
reasonably expected to be settled within the normal business
operating cycle, that (a) is due within 12 months after balance sheet
date, (b) is held primarily for the purpose of being traded, (c) does not
have an unconditional right to defer settlement of liability for at least
12 months after the balance sheet date"s.

lf upon examination of HMO's financial condition, it is found that the

ATR is less than the required ratio in this Circular, HMOs may collect
its long-term receivables and/or liquefy non-current assets within ten
(10) days from receipt of the advice from the lnsurance Commission.

Otherwise, any cash infusion by the stockholders shall also be subject

to examination and verification in accordance with the provisions of
Anti-Money Laundering Act of 2001 (Republic Act No. 9160, as
amended by Republic Act No. 9194, Republic Act No.10167 and

a
leas t, par.66)
s
lres r, PFRS p.397)
 Republic Act No.10365) and Circular Letter No. 24-20058 dated
September 2, 2005 and other pertinent laws and issuances.

1.6. Revaluation of Assets

The Commission accepts only appraisals from the acceptable independent

appraiser recognized by the Department of Trade and lndustry and/or any
competent government office.

For the purpose of determining the net worth requirement, appraisal

increment on property, plant and equipment (PPEs) is not allowed, unless
with prior written approval by the Commission.

1.7. Declaration of Dividends

No domestic HMO corporation shall declare or distribute any dividend on

its outstanding stocks unless it has met the minimum Paid-Up Capital and
net worth requirements under this circular and except from profits attested
in a sworn statements to the Commissioner by the president or treasurer
of the corporation to be remaining on hand after retaining unimpaired:

(a) The entire Paid-Up Capital stock;

(b) The Net Worth and Liquidity Requirements defined under this
Circular;

Any dividend declared or distributed under the preceding paragraph shall

be reported to the Commissioner within thirty (30) days after such
declaration or distribution. Othenruise, HMO shall be billed Php5,000.00
as basic fine plus Php500.00 for every calendar day of delay.

lf the Commissioner finds that any such HMO has declared or distributed
any such dividend in violation of this section, he may order such HMO to
cease and desist from doing business until the amount of such dividend
or the portion thereof in excess of the amount allowed under this section
has been restored to said HMO.

Section 2. Submission of Reportorial Requirements

2.1 Reportorial Requirements

All HMOs are required to submit the following on or before May 31 of

each year:

a. Copy of Audited Financial Statements filed with the BIR and Adjusted
Trial Balance.
b. Schedule of Total Gross Membership Fees

6
 c. Actuarial Studies
c. 1 Morbidity Study/Claims Experience
c.2 Expense Study
d. ActuarialValuation Report prepared by accredited actuary
e. Corporate Records:
e.1 Latest General lnformation Sheet filed with the SEC.
e.2 List of Current Members of Board of Directors and Officers, their
respective addresses and position.
e.3 Copy of the latest Articles of lncorporation and By-Laws.
e.4 Copy of Minutes of Meetings of the Board, including a copy of
the Board Resolutions made during the year
f . Any other reports the Commission may require.

2.2 Quarterly Reportorial Requirements for ATR and Net Worth

All HMOs are required to submit the following on or before the 1Sth day of
the month following the end of each quarter starting 15 October 2016.

a. lnterim Financial Statements (lFS)

b. Computation of ATR and Net Worth
Starting 2017, the lFS, ATR and Net Worth submission for each quarter
are due on or before the following dates:

Quarter Endinq Due Date

March 31 April 15
June 30 Julv 15
Seotember 30 October 15
December 31 Januarv 15

2.3 Filing Fee and Penalty

A filing fee of Php20,000.00 plus Php200.00 representing Legal Research

Fund (LRF) shall be imposed upon submission of items under 2.1 of this
Circular and Php5,000.00 for every calendar day of delayed submission.

HMOs who fail to submit items under 2.2 of this Circular based on the
respective deadlines shall be subjected to a basic fine of Php5,000.00
and Php500.00 for every calendar day of delayed submission.
 2.4 Supervision Fee

Annual supervision fee shall be due on or before 01 March of each year

and shall be collected based on the following:

Paid-Uo Caoital Fee LRF

l0Million - 20Million 20,000.00 200.00
Over 20Million- T5Million 50,000.00 500.00
Over TSMillion 75.000.00 750.00

HMOs that fail to pay such fee shall be subjected to a basic fine of
Php5,000.00 plus Php500.00 for every calendar day of delayed payment.

Section 3. Amendments, Supplements or Modifications

The Commission reserves the right to amend, supplement or modify this

Circular Letter as may be required.

Section 4. Separability Clause

lf, for any reason, any part or provision of this Circular is declared invalid or
unconstitutional, any part or provision not affected thereby shall remain in full
force.

Section 4. Effectivity

This Circular Letter shall be effective after fifteen (15) days from the date of
its issuance.

EMMANUE