Court allows Southern Cross access to Aetna

Thursday 22nd March 2001

By Jock Anderson

Southern Cross Healthcare won a protracted battle this week with the Commerce Commission for access to the policy holders of Aetna Health (NZ), which it acquired earlier last year.

Overturning Commerce Commission rulings that Southern Cross could not access Aetna policy holders, the High Court at Auckland found Southern Cross would not be dominant in the health insurance market (NBR, January 26).

If Southern Cross was dominant now, the court considered its dominance would not be strengthened.

When Southern Cross took over Aetna, the commission, while approving a third-time lucky acquisition bid, made the deal subject to Southern Cross divesting all of the medical insurance policies of insured members of Aetna.

An initial bid was knocked back by the commission because of concerns over market dominance.

In a second bid Southern Cross said it would divest some of Aetna's policies.

The third bid saw Southern Cross effectively lose access to Aetna policy holders, raising questions in the market about the usefulness of such an apparently toothless acquisition.

Sitting with Justice Hugh Williams, economics expert Ralph Lattimore said there would be significant restraints on the market power by existing or potential competitors if, following its acquisition of Aetna, it increased premium rates or reduced its level of cover or service to any significant degree.

Dr Lattimore considered both Southern Cross and Aetna had been losing market share to a range of new entrants and expanding incumbents who were still small in terms of overall market share.

"Changing government health policy, real or perceived, could be a barrier to entry in the same way other government policies are," Dr Lattimore said.

"However, Southern Cross and Aetna have both lost market share in recent years while other participants have grown.

"This implies that the competitive pressure of the new entrants is real and significant."

He said low profits with new entry were best interpreted in the circumstances as a sign of a healthy, competitive market

Justice Williams said Southern Cross co-existed with the public health system for many years, filling a niche of satisfying New Zealanders' perceptions of better or faster health care being available through insurance than through the public health system.

He said it seemed arguable that the entry of so many insurers into the health market from 1992 onwards was not merely coincidental with the changes affecting coverage by the public health system but was in part a result of those changes.

He said there was nothing to suggest Southern Cross' actual or potential competitors would find its substantial market share so daunting as to dissuade them from competing.

"Leaving aside the discussion on the public health system, all the factors discussed lead to the view that the commission's conclusion that future significant entry or expansion in the medical insurance market is unlikely and would be sustainable is unsound," Justice Williams said.

Comments from our readers

No comments yet