Revised Minimum Capitalization, Financial Capacity, and Other Regulatory Requirements for HMOs

Accounting Alert

Revised Minimum Capitalization, Financial Capacity, and Other Regulatory Requirements for HMOs

21 Apr 2025

Background

The Health Maintenance Organization (HMO) industry has experienced significant growth in membership and services and is expected to play a larger role in the national healthcare system, necessitating updates to the regulatory framework to ensure financial stability, operational efficiency, and inclusivity in delivering healthcare to a broader population.

In recognition of the Insurance Commission's (IC) objective to establish progressive regulatory and supervisory policies over the HMO industry, the IC sees the need to revise the rules and regulations that govern the minimum capitalization and financial capacity requirements for HMOs.

In view of the foregoing,  following revised minimum capitalization, financial capacity, and other regulatory requirements for HMOs are hereby promulgated by the IC:

Section 1: Coverage

This Circular Letter (CL) covers the revised rules and regulation regarding HMO's minimum capitalization and financial capacity requirements.

Section 2: Minimum Capitalization and Financial Capacity

Paid-up Capital

• All existing domestic HMOs must have a minimum paid-up capital of at least P10,000,000.
• 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 P100,000,000.
• Community-based and cooperative HMOs shall maintain a paid-up capital equivalent to 50% of what is prescribed for a regular HMO.
• In case of a foreign HMO applying for an HMO branch license, no license shall be issued unless the branch has a statutory deposit of an amount equal to the prevailing minimum paid-up capital for domestic HMOs in cash and/ or allowable securities approved by the IC.

Net Worth

• All HMOs must maintain a net worth that is not lower than their actual paid-up capital. Additionally, HMOs shall be classified into the following categories based on their net worth:

• In the examination of HMO's financial condition, assets of doubtful economic value and/or unsupported shall be considered unaccounted. Liabilities not set up in the books as of a given accounting period shall be treated as non-ledger liabilities.
• If it is found that the net worth is less than the amount as required in this CL, the same shall be fully covered with a cash infusion to be contributed proportionately by the stockholders on record within fifteen (15) days of receipt of the advice from the IC.

Security Deposit

• Every HMO doing business in the Philippines shall at all times maintain a security deposit of at least 25% of the actual paid-up capital or P5,000,000, whichever is higher.
• The security deposit shall be invested only in bonds or other debt instruments of the Government of the Philippines, its political subdivisions or instrumentalities, or government-owned or -controlled corporations and entities, including the Bangko Sentral ng Pilipinas (BSP), with a maturity of at least 1 year from the date of transfer to the IC.
• The investment shall at all times be maintained free from any lien or encumbrance.
• The government securities must be lodged as regulatory compliance under the lC's NRoSS account, ICRCPHMM999.

Risk-based Capitalization

• All HMOs must maintain a net worth that is not lower than their actual paid-up capital. Additionally, HMOs shall be classified into the following categories based on their net worth:

For this purpose, gross membership fees pertain to the total annual fees arising from full-risk HMO agreements of the pre-agreed set of health services.

• If upon examination, it is found that the total risk on membership fees exceeds the above Maximum Gross Membership Fees as required in this CL, the same shall be fully covered by cash infusion to be contributed proportionately by the stockholders on record within 15 days from receipt of notice from the IC.

Liquidity

• Depending on the tier, HMOs shall at all times maintain an Acid Test Ratio (ATR) based on the following:

ATR shall be computed using the following formula: ATR = Quick Assets / Current Liabilities

• If upon examination of the HMO's financial condition, it is found that the ATR is less than the required ratio in this CL, HMOs may collect its long-term receivables and/or liquefy non-current assets or infuse cash to be contributed proportionately by the stockholders on record within 15 days from receipt of notice from the IC.

Investment in Real Estate Properties

• HMOs classified under Tiers A, B, and C are allowed to invest in real estate properties.
• Valuation of real estate properties requires prior approval from the IC and shall be conducted by an accredited appraiser of the Securities and Exchange Commission (SEC).
• For examination purposes, any investment in real properties by an HMO under Tier D shall be considered unaccounted. Further, revaluation increments for real estate properties with no lC-approved valuation shall be considered unaccounted.

Cash Infusion

• Any cash infusion by the stockholders to cover any impairment or deficiency in net worth, liquidity, and RBC may be recorded as "Contingency Surplus" in the HMO's equity accounts. This account can be withdrawn only upon prior written approval by the IC. (Annex A of CL No. 2018-68 shall be amended to include "Contingency Surplus" in the net worth accounts of the Statement of Financial Position)
• HMOs that infused cash to cover any deficiency resulting from the IC's examination of the 2023 Audited Financial Statements (AFS) and Interim Financial Statements may be allowed to reclassify the cash infusion to Contingency Surplus, subject to the approval of the IC.

Dividend Distribution

• HMOs classified under Tiers C and D must secure prior approval or clearance from the IC before declaring dividends. If the IC finds that any HMO under these tiers has declared or distributed dividends without the IC's approval, it may order such HMO to cease and desist from doing business until the amount of such dividend, or the portion thereof, has been restored to said HMO.
• HMOs under Tiers A and B may declare dividends without such approval subject to the Post-Distribution Reportorial Requirements.

Section 3: Prudential Reporting and Disclosure

Disclosure Requirement

• ln addition to the disclosures required under PFRS Accounting Standards, HMOs shall present information on their compliance with the minimum capitalization and financial capacity requirements specified in Section 2 of this CL in a separate supplemental report to the annual financial statements, following the lC-prescribed template.

Reportorial Requirements

• Audited Financial Statements
  • All HMOs are required to submit their AFS for the year ending December 31 and other required documents or attachments on or before May 31 of the following year, in accordance with lC CL No. 2025-08.
  • A filing fee of P20,000 plus P200 representing Legal Research Fund (LRF) shall be imposed upon submission of the AFS and P5,000 for every calendar day of delayed submission.
• Interim Financial Statements
  • Additionally, all HMOs must submit their IFS in accordance with lC CL No 2019-43, following the schedule below:

HMOs that fail to submit their IFS based on the respective deadlines shall be subject to a basic fine of P5,000 and P500 for every calendar day of delayed submission.

• Documentary Requirements for Security Deposit
  • HMOs that have purchased government securities in compliance with security deposit requirements shall report the same to the IC through the Investment Services Division within the day of transfer of securities. The report shall be accompanied by:

i. Certified True Copy of Confirmation of Sale of securities from the bank

ii. Notarized Affidavit of Undertaking

iii. Notarized Deed of Assignment with Special Power of Attorney

iv. Certification on Compliance with the Security Deposit Requirement

Section 4: Supervision Fee

HMOs are required to pay the annual supervision fee, which is due on or before March 1 of each year and shall be collected based on the following:

HMOs that fail to pay the required fee will be subject to a basic fine of P5,000, plus an additional P500 for each calendar day the payment is delayed.

Effectivity

Unless otherwise provided, the provisions of this CL shall take effect immediately.

Please see attached circular for further guidance.