In the Philippine corporate landscape, Health Maintenance Organization (HMO) benefits are among the most sought-after non-wage incentives. While the Labor Code of the Philippines does not strictly mandate HMO coverage, it has become a standard practice governed by contractual agreements, Collective Bargaining Agreements (CBAs), and company policies.
When coverage extends to family members (dependents), legal and financial complexities arise regarding eligibility and the mechanics of salary deductions.
1. The Legal Nature of HMO Benefits
HMO coverage is generally classified as a de minimis benefit or a supplemental fringe benefit. Since it is not a statutory requirement (unlike PhilHealth, SSS, and Pag-IBIG), the terms of coverage are primarily dictated by the Contract of Services between the employer and the HMO provider, and the Employment Contract between the employer and the employee.
- Management Prerogative: Employers have the right to define the scope of HMO coverage, including who qualifies as a dependent.
- Non-Diminution of Benefits: Under Article 100 of the Labor Code, if an employer has a long-standing practice of providing free HMO coverage for dependents, they cannot unilaterally withdraw or reduce this benefit if it has ripened into a company policy.
2. Defining "Qualified Dependents"
In the Philippine context, HMO providers typically follow a hierarchy of dependency. While specific definitions vary by provider (e.g., Maxicare, Intellicare, Medicard), the general legal standard for dependency includes:
- For Married Employees: Legal spouse and legitimate, legitimated, or legally adopted children (usually up to age 21 or 23, provided they are unmarried and unemployed).
- For Single Employees: Parents (usually up to age 60 or 65) and occasionally siblings (unmarried and unemployed).
- Same-Sex Partners: While the Philippine state does not legally recognize same-sex marriage, some progressive companies now allow the enrollment of domestic partners as "extended dependents," subject to specific affidavit requirements.
3. Salary Deductions for Dependent Premiums
One of the most frequent points of contention is the deduction from an employee's salary to cover the cost of enrolling family members.
Legal Requirements for Deductions
Under Article 113 of the Labor Code, deductions from an employee’s wages are prohibited except in specific cases. For HMO premiums of dependents, the following must apply:
- Written Authorization: The employer must obtain a written and signed authorization from the employee specifically allowing the deduction for the HMO premium of the dependent.
- Voluntary Enrollment: Enrollment of dependents is generally optional. If an employee chooses to enroll a family member, they implicitly agree to the financial terms set by the company.
Cost-Sharing Models
- Fully Subsidized: The employer pays 100% of the premium for a limited number of dependents (common in high-value industries like BPO or Tech).
- Partial Subsidy (Cost-Sharing): The employer pays a percentage, and the employee pays the balance via monthly payroll deduction.
- Full Employee Shouldering: The employer allows the employee to use the company’s corporate rate (which is cheaper than individual plans), but the employee pays the full premium for the dependent.
4. Tax Implications (Bureau of Internal Revenue)
The taxation of HMO premiums is governed by the National Internal Revenue Code (NIRC) and various BIR Revenue Regulations (RR):
- For Rank-and-File Employees: HMO premiums paid by the employer for the employee and their dependents are generally considered exempt from income tax and withholding tax, provided they are part of a broad-based health plan.
- For Managerial/Supervisory Employees: Premiums paid for dependents are often treated as Fringe Benefits, subject to the Fringe Benefit Tax (FBT) of 35%, unless specifically categorized as de minimis or required by the nature of the business.
5. Key Considerations and Compliance
To avoid labor disputes, both employers and employees should be mindful of the following:
- Termination of Employment: Upon resignation or termination, HMO coverage for both the employee and dependents usually ceases on the last day of work or the end of the month. Any "advanced" premiums paid by the employer for the remainder of the year are often deducted from the employee's Final Pay.
- The "No-Double Recovery" Rule: Most HMO contracts in the Philippines operate on a "coordination of benefits" basis. If a dependent is covered by two different HMOs (e.g., their own employer and their spouse's employer), the primary HMO must be exhausted before the secondary HMO covers the excess.
- PhilHealth Integration: Most HMOs require that the "PhilHealth portion" of a hospital bill be filed first. If the dependent is not an active PhilHealth member, the employee may be required to pay the equivalent PhilHealth share out-of-pocket before the HMO settles the balance.
Summary Table: HMO Dependent Coverage
| Feature | Legal/Standard Practice |
|---|---|
| Statutory Requirement | Not mandated by law; governed by contract. |
| Deduction Authority | Requires written consent (Art. 113, Labor Code). |
| Standard Dependents | Spouse, Children, or Parents (hierarchy applies). |
| Tax Status | Generally tax-exempt for rank-and-file. |
| Resignation | Remaining premiums usually deducted from final pay. |