Watchdog OKs the MBF takeover
Monday, November 12, 2007
The competition watchdog has given the green light to BUPA Australia's $2 billion takeover offer for MBF, the country's second-biggest health insurer.
The Australian Competition and Consumer Commission said it would not intervene in the merger of BUPA, the country's third-biggest health insurer, and MBF.
BUPA and MBF are both registered providers of private health insurance which have a presence in every Australian state and territory. In South Australia and the Northern Territory BUPA operates under the name Mutual Community and in all other states and territories BUPA operates under the name HBA.
ACCC chairman Graeme Samuel said: "The ACCC conducted a comprehensive review of the proposed merger, including extensive market inquiries with interested parties.
"The ACCC carefully considered the likely effects of the proposed merger on the supply of private health insurance to consumers and on the acquisition of services from private hospitals.
"The ACCC paid particular attention to potential effects in the supply of private health insurance to South Australian consumers due to BUPA's strong position in that state.
The ACCC also investigated concerns that the proposed merger might enhance BUPA's bargaining position in negotiations with private hospitals in South Australia.
"In reaching its decision, the ACCC found that competition from a number of competing private health insurance providers in South Australia would be likely to continue to constrain BUPA in the foreseeable future."
(Source: The Australian, Teresa Ooi 8/11/07)
ADA Inc’s Response to ACCC’s Decision
The ADA is disappointed with this outcome. ADA Inc made a submission to the ACCC opposing the proposed merger in September.
The ADA’s objections were based on the following:
Based on the State of the Health Funds Report 2006, published by the Private Health Insurance Ombudsman the result of the proposed merger between BUPA and MBF would mean that the new entity and its key competitor would have a combined market share of between 45% and 88% in each of the respective States/Territory.
If such a merger were to proceed, it was and remains our view that it would be inevitable that with the combined strength of the merged entity and its major competitor some smaller funds would be squeezed out by these larger players working together either through market forces, collusion (informally or otherwise) or just by virtue of them trying to compete against each other for market share.
Health funds generally have made little or no effort to match rebates to increases in the health CPI over the last 15 years or so. As a consequence, rebates to consumers have fallen in relative terms and the 'gap' payments by consumers have risen. The recurring issue is that premiums have increased, but it is apparent many health funds have not passed this increase on to their customers by way of increased payments. Removal of competition by the creation of the combined entity will only entrench this form of behaviour.
There is a need for funds to compete for business in the marketplace to ensure the public gets a choice and the best possible health insurance cover.
BUPA and MBF are both large funds within their respective main state operating areas (MBF in Queensland and BUPA in South Australia) and any merger creating a larger nationally recognised fund would only work to lessen this competition, and therefore not be in the public interest.
A large national profile carries with it a false assumption on the part of many consumers of better service and economies of scale. In fact, it was said that if behaviour of funds to date is indicative of their future intentions a larger company will invariably have larger overheads through projection of corporate identity and a need for widespread accessibility e.g. more and bigger offices, larger and decentralised staff and national marketing campaigns.
The net result would be even less competition into the future.
Health funds are not about the health of the public. They exist to conduct commercial business which piggybacks on the health sector and is often propped up by government initiatives such as the 30% rebate.
The fact that large players like MBF and BUPA have already diversified into financial services and other forms of insurance (car, home, travel, life etc) illustrates that their principal concern is generating additional business for profit. Merger of the entities must have the objective of the creation of increased profits and not the creation of a better service delivery of health.
It remains the ADA’s view that on any realistic assessment the merger between BUPA and MBF, must fail to meet the public benefit test pass mark and therefore should not have proceeded.
Greater market share will lead to an exercise of greater power over the nature and extent of benefits that the Fund will provide. It will not necessarily give rise to improved health service delivery. This impact of the merger seems to have been ignored by the ACCC. The report has not analysed in any depth the impact on ancillary health care cover as distinct from hospital cover.