Health insurance giant's third is a first

By DANIEL RIORDAN

Southern Cross Healthcare has made history with its third application to the Commerce Commission for clearance to buy Aetna Health (NZ).

It is the first time any party has gone three times to the consumer watchdog, says commission spokesman Vince Cholewa.

Southern Cross first applied two months ago to take over all of Aetna. When the watchdog knocked that back because of concerns with market dominance, it applied a second time, saying it would divest some of Aetna's health insurance policies.

That didn't work either, prompting a third application.

This time, Southern Cross has promised to offload all Aetna's policies, making explicit what the market has understood to be its targets all along - Aetna's more advanced computer systems and its First Health primary care network, which provides specialised administrative services for doctors.

Southern Cross is by far the country's biggest health insurer with an estimated 63 per cent of the $500 million market by revenue.

Aetna is number two, with about 18 per cent, although Southern Cross disputes the relevance of these figures.

It has argued that low barriers to entry and low switching costs for consumers would lessen the impact of any increase in dominance.

Other health insurers will once again be on tenterhooks awaiting the commission's decision.

Some have talked of leaving the industry if Southern Cross gets approval.

AA Insurance has already noted that with Southern Cross' tax-free status, the parent companies of some insurers might conclude that they could make better returns on their assets elsewhere.

Dermot Martin, general manager of health insurer UniMed, welcomed the news that Southern Cross was prepared to divest Aetna policies.

But the latest application left a lot of questions unanswered.

"It will be interesting to see who, if anyone, acquires that book."

He said that incorporating the ex-Aetna policies into the different information technology systems of any acquirer wouldn't be easy.

UniMed, which has an estimated 3 per cent of the market, was not interested.

The Corporation of Insurance Brokers and the Consumer's Institute have opposed the takeover from the time it was first mooted, as has the New Zealand Private Hospitals Association.

That organisation represents the country's 32 private hospitals and clinics which compete with Southern Cross' 13 hospitals.

The new application hasn't changed its views.

President Andrew Blair says that even though Southern Cross wouldn't retain any Aetna policies, the move would still increase its dominance of the health insurance market by removing its closest rival.

He says Southern Cross already exploits its position at the top of two markets by cross-subsidising hospital patients with income from its health insurance business.

Eliminating Aetna would increase its ability to do that.

At the bottom of the pile are about 40,000 Aetna policyholders who must be wondering which health insurer they could end up with, and how those insurers will treat issues such as age of policies and any pre-existing conditions written into them.

Executives from Southern Cross and Aetna were unavailable for comment.