In 2019, Republic Act No. 11223, or the Universal Health Care (UHC) Act, was signed into law, with the aim of protecting and promoting the right to health of all Filipinos, and instilling health consciousness among them. This landmark legislation seeks to progressively realize universal healthcare through a systematic approach and by clearly delineating the roles of key agencies and stakeholders to ensure that all Filipinos get equitable access to quality and affordable healthcare services, and that they are protected against any financial risk. Every Filipino gets immediate eligibility and access to preventive, promotive, curative, rehabilitative, and palliative care for medical, dental, mental, and emergency health services, delivered either as population-based or individual-based health services. The UHC policy entails substantial investment, depending on available funds for the program’s maintenance; hence, the government must ensure that it has sufficient funding to provide everyone medical benefits regardless of whether or not the membership is contributory.
Under the UHC Act, the premium contributions are to be increased yearly, starting in 2020 at 3%, followed by 3.5% in 2021, 4% in 2022, 4.5% in 2023, until it hits a 5% maximum rate by 2024 to 2025. It may be recalled that PhilHealth postponed the premium hike last year from 3% to 3.5%, effective for an interim period, unless Congress passes a new law allowing further deferment.
After last year’s deferment, the Philippine Health Insurance Corporation (PhilHealth) announced the implementation of the scheduled premium contribution for all direct contributors beginning 2022. As prescribed in Section 10 of the UHC Act and by PhilHealth Circular No. 2020-0005 on the Premium Contribution Schedule in the National Health Insurance Program (Revision 1), the premium rate for CY 2022 is 4% for all Direct Contributors with an income floor of P10,000 and income ceiling of P80,000 effective January 2022.
Based on PhilHealth Circular No. 2020-0005, the basis for the contributions shall be the Monthly Basic Pay (MBS) or the fixed basic rate of an employee, which excludes sales commissions, overtime pay, allowances, 13th month pay, bonuses, or other gratuity payments. Furthermore, deductions from the employee’s wages, arising from undertime, tardiness, leave without pay, absences, or other similar circumstances, are also excluded from the computation. For monthly-paid and daily-paid employees, their MBS is to be computed based on the estimated Equivalent Monthly Rate (EMR) formula posted in the latest edition of the Department of Labor and Employment (DoLE)-Bureau of Working Condition’s Handbook on Worker’s Statutory Monetary Benefits.
Under the recent PhilHealth Advisory (2022-0010), the adjusted premium contribution rate of 4% took effect in January this year for employers and self-paying members. It takes effect in the Electronic Premium Reporting System (EPRS) and PhilHealth Member Portal (PMP) starting June 2022.
RETROACTIVE ADJUSTMENT
For January to May 2022, members and employers who have already paid their contributions are further advised to generate the corresponding Statement of Premium Account (SPA) for the paid periods to allow them to settle the 1% differential payments or remittances until Dec. 31. Since the payrolls for these periods had already been disbursed to the employees, the 1% differential payments or remittances can only be deducted prospectively in the coming payroll periods.
Employers will have to contend with additional administrative work in handling the amortization of the 1% differential payments or remittances from their employees’ payroll until these are fully paid within the timeframe prescribed by PhilHealth. To manage the employees’ expectations of their cash flows, the employers may offer a staggered deduction of the 1% differential payments or remittances for the remaining period of the calendar year, which is July to December 2022, instead of a lump sum deduction.
TAX IMPLICATION
Since PhilHealth premiums are statutory contributions classified as “Non-Taxable/Exempt Compensation Income,” the additional remittances deducted from the salary will reduce the employees’ taxable income and the withholding tax on compensation. Once the changes in the premium contributions have been implemented in the payroll systems, employers should check whether the calculated withholding taxes are correctly captured during their regular payroll processing.
But what about the period from January to May 2022, when payroll processing had been completed, and net pay had already been disbursed to employees? To correctly calculate the employees’ total tax due for the year and the amount of the tax to be withheld from the payroll at year-end, the employers have the option to include the employees’ share in the 1% differential payments or remittances in the current payroll process, where it will be deducted, or include the aggregate 1% differential payments as a year-end adjustment. Monitoring the additional premium contribution for payroll purposes and capturing the correct tax due and tax still due at year-end can be challenging, but the employers are obliged to conduct such additional administrative activities for payroll tax compliance purposes.
SEPARATED EMPLOYEES
The adjustment for the 1% differential payments or remittances seems to be straightforward and clearer in the case of active employees than for separated or resigned employees, where gray areas need clarification. If the adjustment in premium rate applies retroactively to January 2022, are former employers required to shoulder the 1% differential in remittances for separated employees? Do employers remit only their share of the remittance, or must they also remit the share of the separated employees? As of this writing, PhilHealth is expected to issue further guidance to address these matters.
While some direct contributors may not welcome the increase in PhilHealth premium contributions at this time of rising fuel and commodity prices, the policy objective of the UHC Act should give PhilHealth members the consolation of staying committed to the program. The ultimate goal is for every Filipino to enjoy universal health coverage — an achievable end through a robust and sustainable fund. As author, Rhonda Byrne said, “By all means ask for abundance and health for you, but also ask for it to be given to everyone.”
The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Marvin L. Madrigalejo senior manager at the Client Accounting Services Department of Isla Lipana & Co., the Philippine member firm of PwC network.
