The combined total liability of government social institutions (GSI)— Social Security System (SSS), the Government Service Insurance System (GSIS), and the Philippine Health Insurance Corporation (PhilHealth)—ballooned to P9.94 trillion in 2020 from only P154 billion in 2019 following their full compliance to proper accounting standards.
Finance Secretary Carlos G. Dominguez III said the combined total liability of these institutions in 2020 is now equivalent to more than half the size of the country’s total GDP for that year.
The finance chief pointed out that before these institutions’ full compliance with the Philippine Financial Reporting Standards (PFRS) 4, they had not been properly reporting their liabilities in their financial statements for 15 years.
“As a result, their incomes were overstated, while their liabilities were understated for several years. Since this has been the practice of these government institutions for over 15 years, the accounting implication of not booking the required reserve for future liabilities has a significant impact on their 2020 financials,” Dominguez told reporters on Friday.
Broken down, SSS’ liability is now at P6.77 trillion from P12.9 billion in 2019. Meanwhile, the total liability of GSIS is also now at P2.04 trillion, soaring from P29.35 billion in 2019. As for PhilHealth, its total liability in 2020 stood at P1.126 trillion, jumping from P111.34 billion in the previous year.
PFRS 4 is the current and interim accounting standard imposed on insurance entities in the Philippines. It was adopted from the International Financial Reporting Standards or IFRS, which provides guidance on the proper financial accounting of insurance contracts.
Under PFRS 4, when an insurance entity receives money from its members and enters into a contract with them to provide monetary obligations when certain events occur, it must set aside a reserve to cover its liabilities. Hence, the contributions/premiums/fees the government social institutions receive should be reflected in their financial reports both as income and liability.
Nonetheless, the finance chief pointed out that booking and reporting the social benefit liabilities in line with the generally accepted accounting principles do not affect the institutions’ cash flows and that they are still financially sound and are able to meet their obligations to their respective members.
Dominguez said PhilHealth, GSIS, and SSS’ fund lives are until 2027, 2053, and 2054, respectively.
He also stressed that full compliance with PFRS 4 will ensure stability and transparency throughout the reporting process of the government social institutions, bolster the credibility of their financial statements, and provide policy-makers with accurate and factual information to make sound economic decisions.
“With the audited 2020 financial reports of the SSS, the GSIS, and PhilHealth, we now have an accurate picture of the funding reality of these institutions,” he said.
To better manage the funds of SSS, GSIS, and PhilHealth, Dominguez said one of their recommendations is to pool the funds of these three institutions and constitute them as sovereign wealth fund.
“This will help us maximize returns on investments. Professional fund managers may be hired to manage these funds. This is the practice of many countries, including Singapore, Japan, and Indonesia,” he said.
Apart from this, Dominguez said, they are also looking at the possibility of having one agency collect all contributions instead of each institution being in charge of its own collection.
“We also have to maximize fund efficiency by improving contribution collection. Similar to the payroll tax in the United States, we are looking at the possibility of having one agency collect all the contributions instead of each institution doing its own. Like most countries imposing the payroll tax, we can have the Bureau of Internal Revenue, for instance, collect for these institutions,” he said.