MANILA, Philippines – An ad interim commissioner of the Commission on Audit (COA) was flagged for “defending” the Department of Finance (DOF) on its order to government-owned and controlled corporations — including the Philippine Health Insurance Corporation (PhilHealth) — to remit money back to the National Treasury.
The Supreme Court (SC) is tackling petitions questioning the constitutionality of the transfer of PhilHealth funds back to the National Treasury.
The DOF had ordered the state insurer to remit P89.9 billion back in four tranches. However, only P60 billion was transmitted after the High Court issued a temporary restraining order after the third tranche was sent.
COA Commissioner Douglas Michael Mallillin was tapped when the Court was looking into the status of PhilHealth’s finances. However, he was flagged after his answers during the interpellation sounded defensive of the DOF and PhilHealth.
Mallillin, appointed ad interim commissioner of COA in February 2025, was tapped for his “expert opinion” on Tuesday, February 25. However, he was later excused by SC Associate Justice Amy Lazaro-Javier as he “might be charged with partiality or bias” when the case reaches COA.
“Is that correct? You’re a sitting COA commissioner,” Associate Justice Alfredo Benjamin Caguioa raised.
“We are going through the records as a witness for the records of COA, Your Honor,” Mallillin said.
However, Caguiao expressed concern that there may be a conflict of interest after Mallillin presented himself to the court. “The way I’m listening to your arguments, you are defending the position of the DOF.”
Mallillin said the PhilHealth fund transfer was also being reviewed by state auditors. He clarified that he was not speaking in his capacity to represent COA but rather only as a resource person invited to the hearing.
“You’re espousing views, the contending views are to be decided by this court, and now a sitting COA commissioner stands before the Court? I don’t get it, I really don’t get it,” said Caguioa.
The COA is an independent constitutional body in charge of checking accounts of government agencies and GOCCs. It traces where the government’s money is being spent and if it is being used responsibly.
This means that the COA audits both the DOF and PhilHealth.
Expressing opinions?
Under the 2024 General Appropriations Act (GAA), a special provision was introduced directing GOCCs to remit their remaining fund balance “resulting from the review and reduction of their reserve funds to reasonable levels taking into account the disbursement from prior years.” The DOF issued a circular in February 24, instructing the transfer of funds.
Javier sought to clarify, “In doing that, does PhilHealth have to reopen its books and renege on some obligations that it has already incurred?”
Mallillin explained that PhilHealth’s financial books do not need to be reopened. “The amount or the review would mean simply to use the prior years as a basis but not exactly to open the books,” he said.
However, Javier pointed out that this would be “fiction,” since the GAA requires GOCCs to deduct from their reserve funds. “When PhilHealth opened the books in 2021, 2022, and 2023 to review and reduce, was not PhilHealth encroaching on the exclusive constitutional mandate of COA to examine and audit the public records, financial public records of [the] government?”
“When COA says we ‘reopen’ the books, we subject it to a re-audit,” Mallillin said.
“But in this case, Your Honor, what happens is the books we deem to be final because we published the financial reports. The review matter is simply a matter of taking a look at the historical expenditures in order to validate the possible funds or the possible reserves as it stands at a certain point in time.”
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Javier, however, pointed out that under Section 11 of the Universal Health Care (UHC) law, reserve funds are “sacred” and “untouchable.”
Mallillin said accumulated revenues and reserve funds are different. Accumulated revenues are what’s left after expenses are paid for, while he said reserve funds are set by PhilHealth’s board of directors to cover enough for at least two years of PhilHealth’s programs and will be sourced from the accumulated revenues.
This means that it is possible for PhilHealth to still have excess funds even if reserve funds have been set. However, Javier pointed out that Mallillin’s explanation still could not excuse PhilHealth.
“To say that a portion of accumulated revenues may be considered a free portion or a surplus is possible only if all the programs mandated to fulfill have been set up,” Javier said. “PhilHealth is required to set up certain programs.”
Under Section 11 of the UHC law, excess funds should be used to increase PhilHealth members’ benefits and lower premium contributions for paying members. The same law also prohibits the transfer of the fund back to the national government.
During the oral arguments, PhilHealth officials admitted that some programs are still in the process of implementation and it still had payment claims that needed to be settled. Mallillin, in defense of PhilHealth, noted that one of the programs — the provision for lifetime members — have already been set up.
While COA is not conducting a special audit of PhilHealth, Mallillin said that the 2024 audit of PhilHealth will already cover the controversial fund transfer.
“If there is no audit, then you are already expressing your opinions now, which we did not call you [for]. You were offered by the respondents, and you did mention your opinion, and our fear is for you and for our co-equal constitutional body called the Commission on Audit [is] that it may affect the partiality,” Senior Associate Justice Marvic Leonen said.
In the first day of oral arguments on February 4, Solicitor General Menardo Guevarra defended the DOF circular and the special provision in the 2024 GAA, saying it was the government using its “common sense” to tap into available funds for other projects.
PhilHealth ‘cannot be insolvent’
Meanwhile, Javier questioned PhilHealth officials over its financial statements in 2021, 2022, and 2023. COA had issued the state insurer an adverse opinion in 2022 and had previously noted in one of its PhilHealth audits that the state insurer’s “ability to continue is an ongoing concern.”
Part of what affected PhilHealth’s liabilities are its insurance contract liabilities (ICLs), which represent funds set aside for future claims covered by the state insurer. PhilHealth’s ICLs made its liabilities balloon to more than its reserve funds, prompting concern.
However, Government Corporate Counsel Solomon Hermosura explained that there are no current ICL claims against PhilHealth and it has no existing insurance contract that needs to be settled.
“PhilHealth is not an ordinary insurance company, Your Honor. It is the state insurance company, it cannot be insolvent,” Hermosura said, adding that under the National Insurance Act, the government is responsible to ensure that PhilHealth has enough to cover the national health program.
The Marcos administration said that it will make sure that PhilHealth’s programs and benefit packages will continue to expand. The state insurer still has a P284-billion corporate operating budget for 2025.
But independent health reform advocate Tony Leachon had said it was not enough.
“The cost of top killer diseases of the country in terms of benefit packages is P756 billion and 4.8% of our GDP,” Leachon previously told Rappler.
The SC will continue the oral arguments on Tuesday, March 4. – Rappler.com