Private health awaits key High Court ruling

By Deborah Hill Cone

Friday 26th October 2001

JIM MINTO: Private insurance could alleviate problem area

The Commerce Commission's challenge to a High Court ruling allowing Southern Cross Healthcare to buy Aetna's policy book is to be heard next month.

The outcome of the case will have a profound effect on the shape of the private health sector.

If the court allows Southern Cross to take over the policyholders it will make the major player even more dominant.

But listed insurer Tower's health subsidiary, Tower Health & Life, is still waiting in the wings and keen to buy the asset if Southern Cross is forced to sell.

In the meantime it is repositioning itself to take on Southern Cross as the "number two" player after Aetna disappears.

Tower Health managing director Jim Minto said his company's merger with Axa Health had been very successful and now both operated under the Tower Health & Life banner.

The merger was completed last December.

Tower has also become more active in pushing for the government to bring in some tax incentives to encourage people to get health insurance.

Mr Minto said New Zealand was one of only three countries that did not have any form of encouragement for people to cover their health.

Health is brewing as a potential problem area for the government in the run-up to the election with increased pressure on the $5.5 billion public health bill.

Private insurance could be a way to alleviate some of that pressure.

"'It makes sense to have some form of encouragement for people to have private provision because they are saving money for the taxpayer," Mr Minto said.

The total health spend breaks down to about 80% public, 20% private. Of the private health spend, only one quarter is paid by health insurance companies - the rest comes out of individuals' pockets.

The Court of Appeal said the Southern Cross case was set down for a day-long hearing on November 27.

The case was meant to be heard earlier but Jim Farmer QC, representing Southern Cross, was tied up with the Air New Zealand problems.

Central to the case is whether Aetna policyholders are free to move to other insurers. Tower, which is not a party to the dispute, argues the policyholders are stuck because if they transfer to another insurer they may lose cover for pre-existing conditions.

"We would respectfully say in the High Court judgment failed to take account of the locked-in nature of the customer base. This has proved in practice to be the case," Mr Minto said.

Mr Minto said the value of the Aetna book and its customer base had been eroded through the uncertainty and time of the sale process.

The Aetna purchase has been uncertain since the middle of last year.

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