The Finance of Healthcare (Part 1): PhilHealth

PhilHealth Logo

Last week, I was hospitalised due to a lung infection. Hospitalisation is one of the things that scare me the most because of its impact on my health and finances. Not only was I worried about getting treated and recovering, I was worried about the income lost with every day that I spent in the hospital. Aside from that, I was also worried about the costs of hospitalisation.

In this series of articles, I will be talking about the financial aspect of healthcare. I already mentioned the two ways through which health problems impact our finances: 1) cost of healthcare and 2) lost income. In Part 1, I will be talking about the cost of healthcare and how PhilHealth covers this, protecting us from the financial burden of hospitalisation.

About PhilHealth

PhilHealth, or the Philippine Health Insurance Corporation, is a government-owned and controlled corporation that administers the National Health Insurance Program, the government’s universal healthcare insurance program. Its mandate is to provide socialised healthcare for all Filipinos, including the employed, self-employed, indigents, overseas workers, and retirees.

Changing categories

For financial consultants/insurance agents like me, healthcare is a considerable cost. Unlike employees, most of the people in our industry are considered “self-employed” individuals. This means that we have to pay for our own PhilHealth premiums. I was in the middle of transitioning from the “Employed” to the “Individually Paying” category when I got sick. Luckily, this is something that can now be done online at http://www.philhealth.gov.ph/services. By electronically registering as an “Individually Paying” member, I was able to generate a new member data record form and a PhilHealth Identification Card.

If you have recently resigned from your employment for whatever reason (to start your own business, to become a freelancer, to pursue further studies) and you want to continue your PhilHealth coverage, or if you have never been employed and want to be covered by PhilHealth, you may apply to become a PhilHealth member through their website.

Premium

After registering, the next step is to pay for your premium. For Individually Paying members, the premium computation for the first year is simple. If the average monthly salary for the last 12 months prior to changing categories is 25,000 and below, the quarterly premium is 300. If this is above 25,000, the quarterly premium is 600.

You can pay your premiums at any PhilHealth branch or you can pay through any of their accredited collecting agents. Many banks are authorised to collect premiums on behalf of PhilHealth, including major banks such as BPI, BDO, Metrobank, PNB, and RCBC. You can also pay at some LBC branches. For a full list of collecting agents, check http://www.philhealth.gov.ph/partners/collecting/

Benefits

What are the benefits of being a PhilHealth member? PhilHealth members get a considerable reduction in hospitalisation costs. Even if you don’t have a private health maintenance organisation (HMO), the savings that you will achieve with a PhilHealth membership are considerable. Additionally, private HMOs require that you first be a PhilHealth membership before they can accept your application for coverage.

I enumerate below some of the inpatient benefits up to the maximum ceiling per category:

  • Up to 1,100 per day for room and board (maximum of 45 days per hospitalisation)
  • Up to 40,000 in dugs and medicine per single period of confinement
  • Up to 30,000 in laboratory and X-ray fees
  • Up to 8,000 in doctor’s (specialists) fees

For some illnesses, PhilHealth pays benefits on a case rate (lump sum) basis. For example, for the treatment of moderate-risk pneumonia, PhilHealth will pay the healthcare provider 15,000 in lump sum, with the balance shouldered by the member or the private HMO. This means there is no need to compute how much of each hospitalisation cost category will be subsidised by PhilHealth.

For a comprehensive list of benefits, visit http://www.philhealth.gov.ph/members/individually_paying/coverage.html.

I cannot emphasise enough how important it is to get a PhilHealth membership. For those who are employed, this is already a mandatory salary deduction but for those of us who are self-employed, this is only voluntary. But I think the savings are worth the effort. Had I paid 600 of my quarterly dues on time, I would have save 15,000 from my medical bill of around 33,000. That’s a lot! Sayang. Hindsight is always 20/20, but then again better late than never. Today, I paid my quarterly dues. Just in case.

In Part 2, I will be talking about some of the health maintenance organisations or HMOs that I have been looking into, those private health insurance companies that supplement the benefits provided by PhilHealth.

The Philippine economy grew 6.6% in 2012; how did you perform?

It’s all over the news yesterday: the Philippines government exceeding its own targets and hitting a growth of 6.6% in 2012, probably one of the highest GDP growth rates in the post-Marcos era. The government-set target was between 4% and 5% in the beginning of the year, and was later revised upwards to between 5% and 6%. The final outcome still beat the revised expectations.

The Philippine stock exchange has also broken so many record new highs (38 new highs in 2012) that it has become the new normal, with new highs coming within days of each other. Just this month, the PSE index breached the 6,000-, 6,100-, 6,200, and 6,300-marks. Can you imagine that just a little over 10 years ago, during the late-Erap and post-Erap period, the index couldn’t even breach 1,000 points?

So this is great news for our country’s economy and for public companies and those who invest in the stock market. But is it good news for you? How did YOU perform in 2012, financially. Did your income also grow 6.6%? Did you savings go up 33% like the stock market? Were also able to protect yourself from financial losses due to injury, disease, or calamity? If you weren’t able to do this, then maybe you were doing something wrong… Or maybe there was something that you weren’t doing.

Maybe this year in 2013, it’s time for you to start investing and be part of the Philippine economy’s and the stock market’s growth. If you’re interested on getting started, send me an email at manilafinanceguy@gmail.com.

Rappler.com also discusses credit ratings upgrade

I’m glad that mainstream media has picked up the topic of credit ratings upgrade and discussed its impact on individual Filipinos. I have previously written about this topic last week and I was delighted to see Rappler.com’s infographic on what a credit ratings upgrade means for Filipinos.

I have included the infographic in this blog post. All credit goes to Rappler.com.

Credit Rating Upgrade: What it Means for Filipinos

Rappler.com picks up the topic of credit ratings upgrade and discusses its impact on Filipinos.

How will a ratings upgrade for the Philippines affect you?

Ratings Upgrade

Ratings Upgrade. The Philippines is expected to receive a credit ratings upgrade from the big three ratings agencies. But how will it affect you?

Talk is rife about an impending credit ratings upgrade for the Philippines. The next round of upgrade will be the most significant one because it will bring Philippine debt to investment grade status, which basically means that ratings agencies think that credit risks are significantly reduced compared to before, when Philippine debt is considered “speculative” or below investment grade.

But how will this affect our personal finances? And what are ratings anyways?

First to answer the basic question of what ratings are. Credit ratings are opinions that are given by independent ratings agencies on the likelihood of a corporate or a government entity to default on its debt. There are three large global independent ratings agencies, and these are Standard & Poor’s, Moody’s and Fitch’s. These ratings firms started more than a century ago, to provide an independent risk analysis on large government and corporate projects that are looking for investments. Founders of ratings firm S&P saw that information is not freely and widely available to those who wish to invest in government and corporate capital expenditure projects. The solution that they come up with was to establish a credit rating firm that is independent of investors and corporations/governments to provide unbiased opinion on whether lending to an entity is risky or not.

Ratings on governments are referred to as sovereign ratings and each ratings agency has its own methodology of coming up with an opinion. There are many factors considered beyond economic numbers as risk is not always monetary in nature. This opinion is not a recommendation to invest or not but is rather an assessment of perceived risk relating to lending to a specific government. The ratings are often summarised into a letter grade ranging from AAA to D, AAA being the highest investment grade. The Philippines is currently one notch below investment grade and is expected to leave “speculative” status this year.

What does this mean for average Juan? The simplest answer is that it may mean easier, cheaper credit. I say may because the effect will not be felt directly by everyone, at least in the short-term. The ratings will affect directly the investors – those who invest in Philippine government bonds, and the borrower, i.e. the government of the Philippines. It is expected that a credit upgrade from speculative to investment-grade will mean that it will be a lot easier for the government to borrow money. Not that this is not already happening. An “investment-grade” status helps convince more institutional investors to purchase government bonds. As it is, bond issuances of the government has always been oversubscribed, which means that there is higher demand than what the government intended to borrow. At the same time, it will make borrowing cheaper by way of lower interest rates. Interest rates take into account the risks associated with an investment. Since the upgrade basically means that risks are reduced, then the government can reduce the interest rates of its debt, making borrowing a lot cheaper. Also, with the expected increase in the demand, the government will be in the position to lower interest rates even more.

If you’re planning to invest in government securities such as bonds, this means that returns from interest will be lower, but your investment will be much more liquid as there will be a bigger market for it. This is a good thing, as you don’t want to get stuck with a certificate that no one would buy. In the long term, it is expected that business loans and personal loans will be a lot more cheaper, as there will be an increase in funding liquidity. Although all of this will be dependent on the monetary policy that will be adopted by the Bangko Sentral ng Pilipinas (BSP). In short we’ll have to wait and see.

In summary, a credit ratings upgrade will be good in general, and will benefit everyone in the long-term, as long as it is coupled with sound monetary policy as implemented by our financial regulators.

For more information on credit ratings, visit http://www.understandingratings.com

The Return of the Manila Finance Guy

I’m back!

After two years of hiatus while I am pursuing my masters degree, I’m glad to announce my return to the blogosphere, still dedicated to promoting good personal finance among readers lucky (or unfortunate!) enough to chance upon this blog.

I have completely transitioned from a career in the world of financial research to one that is closer to my heart – development work. But I think that the two are not necessarily worlds apart. In fact, successful development means that we are able to create financially independent individuals who need not depend on government dole outs or the charity of others. In development work, we talk a lot about “aid fatigue” or “charity” fatigue” – a point at which donors would feel that they have given enough but they still haven’t seen any improvement or any step toward individual developmental independence.

My return to the blogosphere will also chronicle my return to financial independence. At this point, I must admit that a career change – and a move to another country – can be very detrimental to your financial position. However, I see graduate education as a very important investment and I believe that the financial decisions that I have made in relation to my career shift will eventually bear fruit. It also doesn’t help that I am happier, career-wise.

In any case, watch out for this space regularly as I create more content for our mutual continuing education in the field of personal finance.

I’m very happy to be back!

BSP Governor urges PSE to widen reach

In this Inquirer article, BSP governor Amando Tetangco, Jr. urges the PSE to install the necessary technological infrastructure that will allow Filipinos outside of Metro Manila to participate in the capital markets: http://business.inquirer.net/56647/bourse-urged-to-go-nationwide

I agree with Governor Tetangco wholeheartedly. I think this move will be beneficial, not only for the investing public but also to companies seeking capital for their entrepreneurial venture. I have read in some analysis that Philippine stocks are deemed “expensive” relative to other stocks in the Asian region. I take this to mean that the investing public has an appetite for equities and this should encourage more companies to go public. Imagine how much more capital will be available if the PSE will be able to successfully rollout a mechanism that will allow Filipinos outside Metro Manila to directly participate in the local bourse. The article cites a survey that says that less than one percent of Metro Manileños invest in the capital markets while the number for people surveyed outside Metro Manila is almost zero.

Aside from this increased participation from the investing public, such technological infrastructure will also bring public equity closer to companies in the provinces, making them more productive. I would even go as far as suggesting that a second independent stock exchange be opened in Cebu to cater to the equity financing needs of Visayas-Mindanao businesses. Of course, this goes against the grain of the trend of consolidation among exchanges all over the world. PSE needs to do a better job at promoting investment into equities and using the equity market to raise capital.

The last item on my wish list would probably be an alternative exchange for emerging companies/small caps. This will be a great way to support our small- and medium-sized enterprises/small- and medium-sized industries who might find it hard to comply with the requirements of the PSE’s main board but are in need of capital that bank loans will not be able to provide. Once we bridge that crucial funding gap, I am optimistic that we will see a lot of our industries succeed.

Another all-time high; it’s time to buy!

In the days leading up to the 45th Asian Development Bank Board of Governors Meeting (Manila 2012), the Philippines was featured on CNN’s Eye On program. For one week, all eyes were on the Philippines – from governance to business, to food and culture, to traveling. It was a fitting opening to Manila 2012 and that week ended with an all-time high for the PSEi, ending at past the 5,300-point mark. When I was still trading, 3,500 was the all-time high. The stock market has come so far.

A lot of you have been asking me how I picked my stocks. I have a simple, fundamental criteria for choosing stocks on the PSE and it boils down to these two:

P/E ratio of 9x-15x

The stock price of the company should be around 9x to 15x of its earnings per share. I have based this criteria by studying the consistently performing stocks over a period of time and I’ve seen that these companies have a price to earnings ratio of 9x or 15x their earnings per share. This means that the stock is not too overvalued (unlike some mining share prices that can be as much as 50x their earnings per share) that there’s too much risk of price drop or too undervalued that it doesn’t appreciate. This is the optimal P/E ratio for me that I think will appreciate in value over time.

Share Price of P20-P100

I make it a point to invest only in shares that are priced between P20 and P100 because there is a psychological room for price appreciation. I would rarely invest in centavo stocks and I’ve always stayed away from blue-chip because, well, everyone’s buying them. They’re too liquid. Everyone wants to have an Ayala Corporation, a Globe Telecom, a Manila Water, a PLDT or a San Miguel Corporation stock. I’d rather go for hidden gems in the emerging middle-market companies.

Here’s where I will put my money in:

ICTSI, Aboitiz Equity Ventures, DMCI Holdings, Union Bank of the Philippines, Aboitiz Power, Universal Robina Corporation.

Happy investing!

INQUIRER.net: PSE readies online trading platform

More good news for local retail stock investors.

PSE readies online trading platform

MANILA, Philippines—The Philippine Stock Exchange plans to roll out an online trading platform for participants in the second semester, in a bid to widen investor base without the broker-dealers having to shell out a lot of money to develop their own solutions.

In a briefing on Friday, PSE president Hans Sicat said the PSE was now in the process of soliciting proposals from local and international solution providers to set up the platform. There are about 15 providers invited to submit proposals to the exchange, he said.

To date, most trades in the country are still done via phone calls or physical interaction with stockbrokers or agents. The program, called Online Service Bureau, seeks to take advantage of the Internet and the continuous growth of online transactions by allowing investors to place their orders to their brokers online.

Sicat said the OSB would effectively serve as facilitator/aggregator for a technology provider. “The idea is for them to provide the broker-dealer and their own subscribers an online platform that they can get from theirs PC, iPad or their phones.”

The rollout will take place about six months from the time a contract is awarded, Sicat said. The launch, he said, would likely be held by the third or fourth quarter of the year.

The PSE chief said it would be up to the trading participants whether or not they would subscribe to this service.

To date, 10 to 15 trading participants out of the 133 active brokerage houses have developed their proprietary online trading platform. These include CitisecOnline.com and First Metro Securities.—Doris C. Dumlao

Cashing in on the equity boom

When we talk about equity, we mean stocks or shares, essentially the ownership of companies.

The Philippines is currently experiencing an equity boom, mainly because of robust and sustainable growth in domestic consumption, coupled with reforms in the local bourse (PSE) and the macroeconomic regulatory framework (more transparency and accountability in agencies dealing with business, trade, and the economy), which has resulted in the improvement of the Philippine credit outlook. In summary, the local market is upbeat and optimistic and it has valid reasons to be. The old theory of the market behaviour’s dependency on the performance of global stock markets is exactly that – old – and needs to be retired. Yes, it MAY have some influence but the Philippine economy has been able to develop a degree of independence and insulation from foreign shocks, added to that the confidence that we gained after seeing remittances surge in spite of the global financial crisis.

What does this all mean? Basically, it means that the equity boom is sustainable and promising, and it’s about time that new retail investors cash in. When we talk about retail investors, that’s you and me, the individual investors who have some money to spare to invest in financial instruments other than savings accounts. The good thing about this is that an increase in retail investment increases confidence in the stock market because investment risk becomes dispersed over a huge pool of investors instead of being concentrated on a small group of the usual suspects (institutional investors such as investing arms of universal banks, insurance companies, mutual funds, pension funds, and the like). The increase in available capital also encourages other companies to take advantage of the stock market to raise funds, thereby increasing the value of the entire market. The key here is sustainable creation of value and the strict regulation of speculative activities. The reason why the Philippines has been spared from the global financial crisis is because of its relatively stricter financial regulatory frameworks that did not allow the proliferation of quick-buck mechanism that were doomed to fail, such as those securities created in New York and London.

Again, this simply means that that more we invest soundly and sustainably, the less likely a bust would happen. Learning from the Asian Financial Crisis of 1997 and the Global Financial Crisis of 2006 to the present, we should already be able to pickup telltale signs of a bust. I’ll discuss one in a later post but for now, I’ll enumerate the ways through which retail investors like you and me can cash in on the equity boom.

The most difficult part of investing, I would say, is to find inroads into your desired investment. Here are the three main ways through which you can invest in the stock market, in order of risk.

  1. Variable Unit Life Insurance Products: This is undeniably my favorite investment product of all time because it combines the features of three financial products in one: long-term savings, investment, and insurance. Variable unit life insurance products, commonly referred to as VUL’s are slowly but surely replacing traditional life insurance products, and all because their benefits are extremely popular with clients. The good thing about VULs is that you only need to pay your insurance company and you get a policy that has features of different products offered by different financial institutions. You have a life insurance like those offered by insurance companies, an investment fund similar to mutual funds, and a withdrawal option, as many time/term deposit products would have. To top this all off, your earnings from investments is tax-free, because this is an insurance product! You also get to professional service of an institutional fund manager, which will make investment decisions for you. So don’t need to think about it everyday.
  2. Mutual Funds: You can also invest in equity or stock mutual funds. These funds are offered by financial investment companies, such as those attached to insurance companies and universal banks. These funds are financially managed by professional fund managers so you don’t need to make decision on which individual stock to invest in. You just need to decide how much you want to invest in the fund. Mutual funds also allow for more frequent and earlier withdrawals as opposed to a VUL insurance product. In VULs, you can usually withdraw after 3-5 years and only four times per year. Some mutual funds only require a holding period of 30 days. So you can decide to withdraw you investment or roll it over for another 30-day period. Mutual fund earnings, however, are considered as income and are subject to a withholding tax of 20 percent.
  3. Online Retail Stock Investing: Thanks to advances in information technology, you don’t need to physically go to the stock exchange and talk to a stock broker to invest in the stock market. And thanks to the PSE’s policy of encouraging small investors to participate in the stock market, you don’t need hundreds of thousands of pesos to invest in stocks. Many online stock brokers have developed platforms that will allow small investors to participate in the stock market for as little as 5,000. The difference with this option and the two above is that the online portals provide basic brokerage services and you are completely in control of your investment choices, including when to buy or sell and at what price. This services are for people who really want to experience stock investing in person and is not for the fainthearted. Earnings from what you invest in these stock market are subjected to fees and taxes on a per transaction basis, which in total is a little bit less than what you will be charged with a mutual fund. You also don’t need to pay for a fund manager’s management fee as you manage your fund yourself.

If you have specific questions about investing in the stock market, do let me know through the comments.

PSEi breaches 5,000-point mark

Last week, the Philippine Stock Exchange index breached the 5,000-point mark.

But first let me explain what that statement means. What is an index and what does breaching the 5,000-point mark mean?

If we make an analogy between the stock exchange and school marks, the index would be your average. Generally, a stock exchange index is a weighted average. In some schools, average grade are also weighted, depending on the thrust of the school. For example, a science high school may give more weight to science and mathematics than to literature. In universities, a lecture class may have more units than a laboratory class. This is the same in the stock exchange, some stocks have more weight than others, and this is true in the case of the Philippine Stock Exchange Composite index or PSEi.

The PSEi, formerly known as the Phisix, is composed of a basket of 30 stocks, representing different business sectors or entreprise categories. Each of the thirty stocks has an equivalent weight to the index. The criteria for the weight is determined by the board of the Philippine Stock Exchange. I can’t remember if it’s the stock price of each component stock or if it’s the market capitalisation (which is a function of the stock price) that is multiplied by the weight then added together to form the index. The index is measured by points precisely because it’s not an absolute monetary value but a relative value. So when you say that the PSEi breached the 5,000-point mark, it means that the stock price of these component companies, relative to their weight to the basket, altogether went beyond the 5,000-point level.

So what?

In the stock market, as with school marking, this milestones are often regarded as psychological barriers. For many of us who go to school that grades us in as scale of 0-100, an 86 is as good as an 89, but a 90 is a whole lot better that 89, even if it’s just one point more than 90. That psychological barrier between 89 and 90 is the same psychological barrier that retail companies use when selling you clothes that are “Under 200″, i.e. 199.99. It’s just 0.01 away from 200 but you still think it’s a lot cheaper, until you reach the cash register. In the PSE, 100-point levels are know to be psychological levels, and you can see stock market watchers saying that market players are testing the levels when within the day, the index goes up to the next 100-point mark and then go down, meaning, players don’t think that the market can sustain the gains and will start selling stocks once they believe that the highest index price has been reached. You will also read about the market riding on a momentum, when players keep on buying despite the market going past psychological levels.

Within the last year, the market has gone from a low of 3,000 points to as much as 5,000 points. Is that a good thing? Yes! Since the PSEi was created, the index has gone to a low of 900 or so points, while barely moving in other years. A 2,000-point increase in  one year is remarkable.

I have read in another post how indices are used in investing in the stock market. I say it’s time to invest in the stock market. In my next post, I will talk about how you can take part in this winning streak without losing your hair in the process.

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