PhilHealth fund case tests government's fiscal responsibility, limits

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MANILA, Philippines — The Philippine government has pledged to adhere to any Supreme Court ruling requiring the return of excess funds transferred from the Philippine Health Insurance Corp. (PhilHealth) to the national treasury.

Finance Secretary Ralph Recto made the statement on Wednesday during oral arguments in Baguio City, where the legality of the controversial fund transfer is being challenged.

Recto defended the transfer, calling it a "common-sense approach" to avoid borrowing from international sources for essential projects. He explained the move was made in light of the economic strain caused by the COVID-19 pandemic, which led to a 9.5% contraction in 2020—the steepest since World War II.

"First, we are still recovering from the pandemic that gave us the hardest economic blow," Recto said. He noted that by 2022, when President Ferdinand Marcos Jr. took office, national debt had surged by ?7.47 trillion, pushing the debt-to-GDP ratio from 39.6% in 2019 to 60.9% in 2022.

“It is our responsibility to repay these large borrowings. We inherited this debt, but we do not intend to simply pass this burden onto the next administration. We intend to try our best to reduce it,” he said.

Recto said fiscal responsibility requires repaying these borrowings and utilizing idle funds effectively. "Sleeping funds serve no one. Every idle peso is a disservice to every Filipino," he said.

This was the fourth round of oral arguments for the petition assailing the legality of the Philhealth fund transfer.

Behind the development. The Supreme Court halted the transfer of ?29.9 billion in unused PhilHealth funds on Oct. 29, 2024. Earlier tranches totaling ?60 billion were remitted to the treasury in May, August, and October of last year. These funds have been used for health and social services, including COVID-19 benefits for healthcare workers and medical assistance programs.

However, critics argue that the transfer violates Section 11 of the Universal Health Care Act, which mandates that excess PhilHealth funds should be used to enhance member benefits rather than finance government projects.

Solicitor General Menardo Guevarra defended the transfer as a necessary measure to fund critical services under unprogrammed appropriations in the General Appropriations Act of 2024.

Guevarra said all PhilHealth claims had been settled prior to the remittance—a claim contradicted by PhilHealth Senior Vice President Renato Limsiaco Jr., who admitted that some claims remained unpaid.

Potential impacts. Recto warned that if the Supreme Court orders a return of the funds, it could strain government finances and derail deficit targets.

The Philippine Deposit Insurance Corp. (PDIC) also remitted P104 billion to the national treasury, Recto pointed out. This remittance from the PDIC has also been assailed in the petition of former Bayan Muna Rep. Neri Colmenares.

Recto added that any court-ordered refund would be included in the National Expenditure Program for 2026 but he also acknowledged potential fiscal pressures if implemented earlier.

“That will add a fiscal pressure to our deficit and that will entail us not hitting our deficit targets this year. If we miss that, then we may not attain our coveted credit rating upgrade that we may foresee in the next 18 months,” he added.

What's next? The Supreme Court is set to resume oral arguments on April 3 and may extend proceedings into April 4 if necessary. A ruling on the constitutionality of the fund transfer is expected following these sessions.