Medical merger under the microscope
The Age
By SHARON KEMP, JOSH GORDON
Wednesday 6 February 2002
The Australian Competition and Consumer Competition has pledged to closely examine a possible merger of health insurance companies AXA and MBF to ensure consumers would not suffer from higher premiums.
The comment came as AXA yesterday committed itself to either expanding or selling its private health business in Australia and confirmed it had talked to Medical Benefits Fund about a possible merger.
The merger would mean the creation of a new health insurance giant snaring almost 30 per cent of the market - big enough to rival Medibank Private, which is under fire for a plan to increase its premiums by 13 per cent.
ACCC chairman Allan Fels said such a merger would be "closely examined" and possibly overruled under the Trade Practices Act if it gave the largest health insurance firms unfair market power. "The ACCC has a policy of looking closely at mergers where, following the merger, the market share of the top four firms makes up around 75 per cent or more of the market. In this case the share would be very close to 75 per cent and therefore would be closely examined," he said yesterday.
A merger would also require the approval of 778,000 members to demutualise the fund. AXA required two lots of prompting by the Australian Stock Exchange yesterday to disclose that it was talking to potential partners, including MBF.
The company said in its second statement that an announcement was not imminent and any further information in relation to MBF might mislead the market.
AXA spokesman Robin Burns said the company needed the economies of scale and negotiating power with hospitals it would achieve by merging. The company is also under pressure to compete with non-tax-paying mutuals.
"There is a lot of competition now between 40-odd health funds, most of which don't run for profit," Mr Burns said.
"We are one of only a few that pay tax and we certainly think we are one of best private health funds in Australia in many regards, but mutuals are not always rational competition.
"Our natural position is to be in the top three or five in any industry in which we participate and we are in that in health but we would like to be more substantial."
Industry analyst Trowbridge Consulting suggested MBF and AXA would create a company with strong national coverage. But a merger would not necessarily mean that members would see a difference in premiums.
AXA has a strong market position in Victoria and South Australia and MBF in New South Wales and Queensland.
"The position is that these two organisations are geographically complementary so you can understand if they see the benefits of talking to each other," Trowbridge Consulting chairman John Trowbridge said.
"You have seen (private health care provider) Mayne Nickless expand its number of hospitals and these health funds are on the one hand trying to compete for customers and at the same time maximise their bargaining power with the hospitals."
Opposition Leader Simon Crean said Labor would oppose the merger if it resulted in higher premiums, while demanding that the government honour a promise to keep premiums down.