Political will is the key to social protection

Dr. Eduardo Gonzalez
Social Watch Philippines

There has been a consistent decline in real per capita spending on social services, while coverage is incomplete and delivery diffused. The country’s social insurance programme is a benefit for the better-off, paid for in part by the poor. Merging the national programmes with community-based health care and improved physical access would immensely contribute to economic development.Onthe face of it, the Philippines’ commitment to the right of people to live indignity with secure livelihood makes it one of the most socially progressivecountries in Asia. The Philippine Constitution guarantees full respect forsocial, economic and cultural rights, and gives special attention to the rightsof women and workers, which it sees as a primary economic force whose welfare isin need of advancement. The country has ratified key human rights internationaltreaties and has acceded to 33 international labour conventions, which bind itto respect, protect and fulfil these rights.


Natural and human-made hazards

But political and economic – even geographic – realities suggest that thePhilippines has a long way to go in providing full social entitlements to allits citizens, and in equal ways. Part of the country’s recent history is aseries of political crises, a record of economic growth that is prone toboom-and-bust cycles, and an onslaught of calamities – both natural andhuman-made. To begin with, the country is already geographically at risk, beingsituated right in Asia’s ‘ring of fire’ (a zone of high volcanic andearthquake activity) and tropical cyclone belt. Exogenous factors alsocontribute to the country’s vulnerability. An increasing proportion of thepopulation, mostly poor, are vulnerable to the shocks of an outward-orientedeconomy (e.g., volatile capital market, globalization of production lines thatrequire job informalization/flexibilization of labour, displacement of localenterprises due to uncontrolled entry of tariff-free goods); high reliance onoverseas employment (which keeps the GNP buoyant but exacts a high social costdue to the break-up of families); and structural adjustments (that interruptservice delivery and lead to labour displacements). At the same time, thePhilippine government is so saddled by a budget deficit and its owninstitutional weaknesses and governance vulnerabilities that little constructivereform is taking place.

Of late, the economy has somewhat breached its own mediocre growth (largely dueto remittances of overseas workers and private consumption) but had littleimpact in lifting the poor out of misery. According to 2003 figures from the
NationalStatistical Office and the National Statistical Coordination Board (NSCB), at least three out ofevery ten Filipinos are still trapped in poverty.[1]

Indeed, more than half of the population have consistently rated themselves as mahirap(the Tagalog word for poor) in the last two decades. The official unemploymentrate hovers between 8% to 10%, but underemployment – people who want to workmore – can be as high as 22% (Altman, 2006), suggesting the persistence ofjobless growth.

The Philippines is unlikely to achieve the Millennium Development Goals (MDGtarget of halving poverty by 2015 given the country’s current rate ofprogress. In fact, average household income has declined and the incidence ofhunger has risen. Even if the Philippines manages to catch up on its MDGcommitments, the other half (almost a quarter of the population) will remainpoor. Moreover, the reduction of hunger and child malnutrition will stay belowthe MDG target. A recent study indicates huge resource gaps, suggesting that thegovernment may not be serious in its MDG commitments, particularly given theconsistent decline in real per capita spending on social services (Manasan,2006).

The Philippines has an array of social security programmes which have existedfor decades. These programmes are categorized into social insurance, pensionsand other forms of long-term savings, social safety nets, welfare and socialpayments, and labour market interventions. But coverage is incomplete anddelivery is diffused. Financing remains uncertain and is vulnerable tocorruption.


Regressive contribution and benefit structure

The cost of socialsecurity in thePhilippines is paid for by proportional contributions ofearnings from employers and employees within a public social insurancesystem that is centrally managed and anchored on two programmes: social securityand industrial injury-related services. The Social Security System (SSS)administers the programme for private sector employees; the Government ServiceInsurance System (GSIS) handles it for government workers. The contributionstructure is generally regressive. Coverage is not strongly correlated withlevel of development.

By and large, the country’s social insurance programme is a benefit for thebetter-off, paid for in part by the poor. Gonzalez and Manasan (2002) find thatamong those covered – about 28.2 million workers, or 84.5% of the employedpopulation – the poor workers benefit disproportionately little from socialsecurity services. Indeed, the better-off have greater access to socialinsurance because they live in urban areas where most services are accessible,and they know how to use the system. The cross-subsidization pattern points to anumber of cases where poorer groups and regions, women and older workers are thesources, rather than the recipients, of subsidy.

Non-enrolment and evasion are commonplace in the private sector, leavingcoverage ratios wanting. The value of benefits is low compared to cost ofpremiums, and sorry experiences such as the inability of contributing workers toobtain benefits when needed (due to non-remittance or underpayment by employers)hound the programme.

Repeatedly, the actuarial health of the social security system has been marredwith issues of leakage and financial sustainability, owing to bad investments,poor management, internal inefficiencies, overly high administrative costs,corruption and unreasonably high salaries and perks for top managers. Moreover,the government has ignored calls to merge SSS and GSIS as a way of injectingmore efficiency and liquidity into the system.

The pension system, which is an adjunct of the public insurance system, usuallyprovides lump sum benefits, but may offer an annuity purchase. Contributionsalready do not cover current outflows. Yet short-term fiscal pressures are notmotivating a major reform. The country’s pension insolvency problems tracemore to issues on the proper investment of retirement funds, and politicizationof the management of benefits and contributions (Habito, n.d.).

The security package offered by the social insurance system does not includeunemployment insurance. Such a safety net to cushion against temporaryjoblessness is often sidestepped because of the huge benefit funding required;however, the economy has not been generating enough jobs for the growingworkforce either, compounding the problem.


Social health insurance: the poorsubsidize the rich

The national health insurance programme, which grants Filipinos access toinpatient and outpatient services in accredited medical facilities nationwide,is run by the Philippine Health Insurance Corporation, or PhilHealth.Alternatively called Medicare, the PhilHealth programme covers a wide expanse:the employed sector, indigents, individually paying entrepreneurs, self-earningprofessionals and farmers, paying elderly members, and overseas workers.

PhilHealth has an estimated 16.26 million members or 68.4 million beneficiaries,including indigents. For the moment, the programme for indigents seems to bewell-funded, receiving 2.5% of the expected government revenues from taxes on‘sin products’ (alcohol and tobacco) for the next five years and 10% of thelocal government share in the expanded value-added tax.


WhilePhilHealth has been quite successful in enrolment, it lags behind in otherareas, such as quality and price control (Wagstaff, 2007). The health insurancescheme does not necessarily deliver good quality care at a low cost, partlybecause of poor regulation of its purchasers. The PhilHealth benefit package isfocused on hospital care and benefits the health care providers more. One study(Gertler and Solon, 2002) shows that Medicare fails to finance health carebecause health care providers capture the benefits through insurance-based pricediscrimination. In fact, hospitals extracted 84% of Medicare expenditures inincreased price-cost margins. As a consequence, expanding Medicare increasedrather than decreased the government’s financial burden for health care. Suchdistortion has made social health insurance vulnerable to fraudulent claims.PhilHealth has recorded about PHP 4 billion (USD 87.4 million) in losses since1995, ostensibly because of claims on unnecessary operations, overpricedmedicine, and even ghost patients. Although the issue is now the subject of aninvestigation, it raises questions on PhilHealth’s actuarial wellness.

Earlier studies suggest that not unlike social insurance, Medicare alsoexemplifies wide inequities: poor workers subsidizing well-off employees (whohave a higher incidence of catastrophic illnesses requiring more expensivetreatments), and poor regions subsidizing Metropolitan Manila.

Of late, the programme for indigents has become a political commodity. Therehave been claims that politicians have sought to use it to influence theoutcomes of elections by appointing allies to jobs within the agency and havingthem allocate free insurance cards to marginal voters (Wagstaff, 2007).


Informalworkers: neither poor nor well-off enough

Vendors, home workers, and self-employed agricultural, rural, and other informalsector workers are estimated to comprise about 49% of the labour force or 15.5million people. Many of them have no adequate social protection. Preciselybecause these workers are outside the formal economy, and operate outside thescope of regulations, the provision of health and other social protectionprogrammes has remained highly problematic.


Inthe Philippines, only 14% of this sector is voluntarily enrolled with PhilHealth(Nguyen, 2006). Low enrolment plagues public social insurance as well. Thisundoubtedly reflects the lack of attractiveness of the terms on which theinsurance schemes are framed. The contribution is flat-rate, and thereforerepresents a burden for the near-poor (Wagstaff, 2007). Gonzalez and Manasan(2002) also observed that the coverage gap occurs due to statutory exclusions.Domestic workers, day labourers, farmers, fisherfolk, and many urbanself-employed are often excluded from many of the provisions. According tohealth experts, a major gap exists in the social health insurance programme inthe case of beneficiaries who are neither poor enough to qualify as indigentsnor well-off enough to pay regular PhilHealth premium contributions.


Overseas workers: high contribution, too little protection

The total number of overseas Filipinos may be as high as eight million. Oftencalled OFWs (overseas Filipino workers), they sent USD 10.7 billion in earningsback to their families and friends in the Philippines in 2006 – a whopping 12%of GDP (Altman, 2006). Although overseas employment has led to significantreductions in national productivity – many of those abroad are the moreproductive elements of the population – there is little reason to expect anydramatic shift in the country’s overseas work policy because of the OFWs’huge contribution to the economy.

But are they at the very least receiving social protection? Recent governmentmeasures indicate some form of insurance coverage for OFWs – PhilHealth’sexpanded programme and SSS’ voluntary social security coverage, for example.However, it is the Overseas Workers Welfare Administration (OWWA) which has beenexpected to provide most of the social protection needed by OFWs and theirfamilies. Overseas workers have been contributing USD 25 every time they leavethe country. Since OWWA has been collecting this amount for over 25 years, itssum should be substantial. Yet, its welfare assistance has been too little andtoo selective, leaving most overseas workers virtually unprotected while abroadand when they eventually come back. A study done by the Centre for MigrantAdvocacy (CMA, 2005) showed that OWWA has been operating (and veryinefficiently) using these contributions. Commission on Audit reports show thatevery year, it spends over three times more for its personnel and operationscompared to the social benefits it gives out to overseas Filipinos.

Ironically, it is the remittances sent by overseas migrants that serve as socialinsurance for recipient households, shielding them from environmental risks. Ina study that focuses on income shocks driven by local weather changes (calledrainfall shocks), Yang and Chou (2007) discover that in Philippine householdswith overseas migrants, changes in income lead to changes in remittances in theopposite direction, consistent with an insurance motivation. That is, roughly60% of declines in income are replaced by remittance inflows from overseas thatserve as insurance in the face of aggregate shocks to local areas, which in turnmake it more difficult to access credit or inter-household assistance networksthat normally help households cope with risk.


Local civil society insurance

Social assistance ideally complements well-organized social security packages.Many government agencies provide social assistance to their sectoralconstituencies in line with their mandates. The government’s main deliveryvehicle for social assistance is the Comprehensive and Integrated Delivery ofSocial Services (CIDSS), a grant-giving,community-based development project programme. The majority of the projectscovered involve water systems, farm-to-market roads, post-harvest facilities,school buildings, and health centres, centred in the country’s 42 poorestprovinces.

Government social assistance programmes may be directed and focused – theyaddress a wide range of risks from human-made to natural, economic and politicalto social and health-related – but they may have foregone efficiency gains outof a broader scale of implementation and delivery (Torregosa, 2006). AsTorregosa notes, the number of beneficiaries reached is limited, and the levelof benefits low. The government also does not know exactly who or where the poorare, and is thus helpless in preventing leakages to the non-poor. Given thelimited resources of the government and the rising demand for social programmes,most of the programmes have become heavily reliant on foreign grants andfunding. Yet continued dependence does not imbibe stakeholdership amongbeneficiaries and creates the wrong incentives.

A saving grace is the fact that micro-insurance products, specifically designedwith the poor in mind, are gaining favour among the poor, albeit withoutgovernment involvement. Local-level life insurance and health insurance arethriving in some urban and rural localities, despite actuarial weaknesses, anddo help mitigate risks and reduce the vulnerability of poor households. Llanto etal (2007) have identified cooperatives, NGOs and mutual benefit associationsas vehicles of micro-insurance programmes in the country.


Final note

The long-term solution to poverty in the Philippines is robust,equitable and broad-based sustainable economic growth. Even if thePhilippine economy seems to be shifting to a rapid-growth track, there are fewsocial mechanisms in place that could pull the rest of the population out ofeconomic and social deprivation.
The reality for the vastmajority of poor people is that social services are unavailable, or are skewedtowards the needs of the rich, or are dauntingly expensive – and this drivesup social inequality.

Yet social protection contributes immensely to economic development, and thenice thing about it, according to Obermann etal (2006), is that it can be implemented independently of the currenteconomic situation. For starters, they suggest merging the national programmeswith community-based health care financing schemes, and creating the environmentfor high quality care and improved physical access. Aside from reforms incontribution and benefit structures to remove inequities and expand coverage tothe informal sector, tighter oversight in the management of social insurancefunds would be necessary.

As the Human Development Network observes, the government has a huge job to doin terms of facilitating reliable information, standard-setting andrationalization of involved government agencies, more vigorous encouragement ofprivate insurance and pension plans for overseas workers, and pushing forbilateral agreements that protect Filipino workers’ interests abroad (UNDP,2002).

Social protection for all Filipinos is well within grasp: money and know-how arenot what is lacking. Rather, the commitment to act is needed to challenge thestatus quo. The will to reform is key to making social protection work, and todo this the government must feel the heat. Civil society organizations andprivate companies can pick up some of the pieces, but only the government canreach the scale necessary to provide universal access to services that are freeor heavily subsidized for poor people and geared to the needs of all citizens– including women and minorities, and the very poorest. Sadly, it is failingto meet this essential need.


References

Altman, D. (2006). “Managing Globalization: Costs of Exporting Labor”. TheInternational Herald Tribune, 3 April.

Gertler, P. and Solon, O. (2002). “Who Benefits from Social Health Insurance?Evidence from the Philippines”. (n.p.).

Gonzalez, E. and Manasan, R. (2002). “Social Protection in the Philippines”. InAdam, E., von Huff, M. and John, M., Social Protection in Southeast and EastAsia. Singapore: Friedrich Ebert Stiftung, p. 180-229.

GSIS Annual Report.

Habito, C.F. (n.d.). “Comment on Hans Fehr, SabineJokisch and Laurence Kotlikoff’s Simulating the Demographic, Fiscal andEconomic Transition Paths of the US, EU, Japan and China”.

Llanto, G., Almario, J. and Llanto-Gamboa, M. (2007).
Microinsurancein the Philippines: Policy and Regulatory Issues and Challenges”. DiscussionPaper Series No. 2006-25 (Revised). Philippine Institute for DevelopmentStudies.

Manasan, R. (2006),
“Financing theMillennium Development Goals: The Philippines”. Report submitted to theNational Economic and Development Authority (NEDA).

Nguyen, T. K. P. (2006). “Extending Social Health Insurance to InformalEconomy Workers –The Case of Vietnam”. Presentation at Conference onExtending Social Health Insurance to Informal Economy Workers. Manila,Philippines 18-20 October.

Obermann, K., Jowett, M., Alcantara, M.O.,Banzon, E.P. and Bodart, C. (2006). “Social Health Insurance in aDeveloping Country: The Case of the Philippines”. Social Science & Medicine, Vol. 62, No. 12, p. 3177-3185.

PhilHealth Annual Reports 2001, 2002, 2003, 2004, 2005.

Piggott, J. (2007). “Pension Reform and the Development of Pension Systems: AnEvaluation of World Bank Assistance”. BackgroundPaper Regional Summary: Asia.
Independent Evaluation Group.Washington, D.C.: World Bank.

SSS Annual Report.

Torregosa, C.L. (2006). Looking intoSocial Protection Programs in the Philippines: Towards Building and Implementingan Operational Definition and a Convergent Framework. Philippines: NationalAnti-Poverty Commission.

UNDP (United Nations Development Programme) (2002). Philippines Human Development Report 2002. Work and Well-Being.

Wagstaff, A. (2007). “Social Health Insurance Reexamined”. World Bank PolicyResearch Working Paper 4111, January.

Yang, D. and Choi, H.J. (2007). “AreRemittances Insurance? Evidence from Rainfall Shocks in the Philippines”.
World Bank Economic Review (n.p.).


Note:

[1] This figure is based on PHP 34 a day which is below USD 1 a day. According tothe World Bank’s USD 2 a day poverty line, the poverty incidence was 43% in2003.

Dr. Eduardo Gonzalez wrote this report in consultation with Social Watch Philippines convenors and local and national network members. He is a professor at the Asian Centre, University of the Philippines. Gonzalez was the former president of the Development Academy of the Philippines (1998-2006) and executive director of the Presidential Task Force on the 20/20 Initiative (1999-2001).