Caritas Health Shield in Trouble?

A recent development about a financial trouble brewing in Caritas Health Shield arrived in my inbox last night. It reports that Caritas Health Shield has a deficiency of 7Billion in cash reserves. As you might know, I have reported this here but I didn't know the extent of their fund deficiency. I thought it was at only 1 or 2 billion.

In simple terms, si Caritas Health Shield pabagsak po according sa report. This will be another version of the College Assurance Plan and Pacific Plans fiasco. Considering that Mr. Geoffrey Martinez and most of the executives of Caritas Health Shield are from Pacific Plans, hindi ito malabong mangyari.

Some issues raised here are the following:

Caritas Health Shield was Asked to Raise Fresh Capital

Caritas Health Shield—reportedly the biggest health maintenance organization (HMO) and preneed firm “hybrid” in the Philippines—has been asked by the Insurance Commission to raise fresh capital amid allegations by former managers that the firm has a deficiency of as much as P7 billion in its actuarial reserves.

Caritas Health Shield is a health maintenance organization registered under the Insurance Commission. The fact that it is "hybrid" is because it's products have similar characteristics with that of pre-need products. For example, 5 years payment then additional 5 years of availing the service. At the end of 10 years, the member will receive 70% of the payments made.

This is really a product similar to a pyramiding scam. It's hard to be profitable using this method. Again, parang Pacific Plans dati and we know what happened to Pacific Plans.

"Intracorporate Dispute" Between Jumamil and Caritas Health Shield

At the same time, however, the insurance regulator has downplayed the issues facing the company, whose 600,000 policyholders nationwide rely on it for their healthcare needs, calling it an “intracorporate dispute” between Caritas’ current management and the camp of its former president, Teodoro Jumamil.
Jumamil was removed by Caritas’ board in December 2016 after the lawyer and San Beda law professor got into a dispute with the firm’s other shareholders about its finances.

Atty. Jumamil was asked to step down from Caritas Health Shield only after a year at Caritas. That is why the Insurance Commission might have downplayed this because he is hostile towards the company. At the same time Atty. Jumamil may not be the credible person to accuse the company because he is now a president of Medocare. There is clearly a conflict of interest here.

The Financial Condition of Caritas Health

Jumamil, who became president of the firm in 2015, said he was “surprised” by the financial condition of the firm when he assumed office, noting that, although sales were robust, Caritas’ products were, from a financial standpoint, poorly designed from the outset.
“The products were too good to be true,” he told the Inquirer, noting that its flagship “gold plan” offered policy holders health care coverage for 10 years and, on top of that, would grant these clients a rebate of up to 70 percent of their payments at the end of the policy.
“There was no way this could be sustained, so the first thing I did when I became president was to stop the sale of this product,” he said.

Caritas had 8 billion in trust fund on the year 2011-2014 then today, it's about 6 billion. That's clearly something. Caritas products was poorly designed. I wish I can create a financial model about this but if you read the Ponzi scheme by Bernie Madoff, you will clearly see the resemblance.

Caritas is addressing the product problem today and it was even the reason why Mr. Martinez was asked to step down from the company.

When Jumamil became president, he did the following:

Cancelled questionable contracts with the previous administration.

Fired employees and replaced them with his own because "Caritas Health Shield was suffering financially".

Closed several offices.

Did it seem that Jumamil was the one driving the company to the ground?

Jumamil Filed Conservatorship Against Own Company

Jumamil, his wife (who is also a former Caritas official) and Palma have all written insurance regulators multiple times warning about the financial condition of the firm and asking that action be taken against the current management.
Insurance Commission chief Dennis Funa told the Inquirer that Jumamil has also filed a petition for conservatorship with regulators, asking that the assets of Caritas be frozen to prevent their dissipation by the current management. The petition is pending and Caritas has been asked to reply to the petition.

If my hunch is right, he wants to pummel the company to its knees so he can buy the shares at the lowest price possible, take ownership and become the CEO again to satisfy his damaged ego. (yay!) He already bought shares from different owners who wanted to divest before.

Aside from the battle in the newspapers, they might also be battling in the marketplace. Jumamil is the President of Medocare. It might be that he is already pirating agents from Caritas, or outbidding them in corporate contracts.

Bonus:

If you can see, we at HMO Karma doesn't take side in this controversy. If you check out our posts here, you will have an idea where we stand. As a bonus, if things turns out the way it's going, Caritas Health Shield may dangle this picture from Rappler. Hint: they are appointees of Duterte and they both came from San Beda.