DR IAN MCPHERSON

Group Chief Executive

Southern Cross Healthcare

New Zealand

DR IAN MCPHERSON

• Degree in Medicine and Diploma in Obstetrics

• Worked predominantly as a GP in New Zealand

• Held a range of different positions:

– Red Cross, Department of Health, Aetna, Allianz based in Singapore

• Started with Southern Cross Healthcare in 2002

KIA ORA

WHAT MAKES UP NEW ZEALAND

• Four million New Zealanders

• Rugby

• The country has a GDP of $NZ 138 billion – $AUD 128.73 billion

• Primary industries are farming, forestry, tourism

• Political environment is MMP – Recent election resulted in slim majority for Labour led

coalition

NEW ZEALAND HEALTH SYSTEM

• NZ has a mixed health system like the UK

• Public and private health care systems are complimentary

• Primary primarily covers elective conditions

• Total health spend $NZ 10.69 billion – 8.7% of GDP

• 78% of total health spend is publicly funded

• Expenditure is increasing rapidly

• Predicted to reach 63% of GDP by 2050

PRIVATE FUNDING IS GROWING

Total health funding (%) in 1979/80 and 2001/02

10.4 16.1

1979/80 2001/02

1.1 6.7 0.4 0.3

77.988.1

Publiclyfunded

11.9 22.1

Privatelyfunded

Privatehousehold

HealthInsurance

Not-for-profitorganisations

ROLE OF PRIVATE HEALTH SECTOR

Meets individual needs by:

– Providing quicker access

– Giving choice of specialist

– Comfortable hospital facilities

– Access to additional health services

HEALTH SYSTEMS ARE BALANCED

• Health systems are like a mobile in the children's bedroom

• Alter one component – it impacts another– Private - Public– Funder - Provider– For Profit - Not For Profit– Primary - Secondary

ROLE OF PUBLIC HEALTH SECTOR

• Funding and provision are different matters

• Publicly funded & publicly delivered – acute hospital treatment

• Publicly funded & privately delivered – doctor visits, medicines, elective surgery overflow

• Privately funded and privately delivered – Elective surgery, $2 billion mostly primary care

ROLE OF PRIVATE HEALTH SECTOR

• Funding:– 1.3 million New Zealanders with health insurance

– 32% of the population

– Out-of-pocket expenditure of $NZ 2 billion

• Delivery:– Primary care (GPs, pharmacies, etc)

– Allied health professionals (physios, dentists, etc)

– Radiology (x-ray, CT scans, MRI scans)

– Specialist treatment (primarily surgical)

– Elective surgical hospitals

SOUTHERN CROSS HEALTHCARE

• Not-for-profit organisation established in 1961

• The Group an extensive range of health care products and services

• New Zealand’s largest private health care organisation

• Employs 1,500 people

• Southern Cross Insurance has 60% market share – 800,000 members

OVERVIEW OF INSURED POPULATION

• During the 1990s health insurance membership declined

• Affordability has been the major issue

• In recent years the market has been declining but now stable

• Traditional indemnity insurance will continue to lose attractiveness

• A further decrease in health insurance will increase pressure on the public system

PHARMACEUTICAL MANAGEMENT

• Government run, central funding agency for all pharmaceuticals

• Determine which drugs will be funded and the subsidy level that applies

• Health insurers fund the shortfall for PHARMAC drugs only

• Patients pay the full cost for non-Pharmac drugs

IMPACT OF PHARMAC STRATEGY

CPI trends Sept 1999 to Dec 2003

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Dec-93

Apr-94

Aug-94

Dec-94

Apr-95

Aug-95

Dec-95

Apr-96

Aug-96

Dec-96

Apr-97

Aug-97

Dec-97

Apr-98

Aug-98

Dec-98

Apr-99

Aug-99

Dec-99

Apr-00

Aug-00

Dec-00

Apr-01

Aug-01

Dec-01

Apr-02

Aug-02

Dec-02

Apr-03

Aug-03

Dec-03

All Groups

GPs

Specialists

Hospital Room

Health Insurance

Prescriptions

PharmacueticalsPharmacueticals

PHARMAC IMPACT ON DRUG EXPENDITURE

PHARMAC METHODS

• Reference pricing

• Generics

• Bundling

• Negotiated deals with the Pharmaceutical industry

• Tendering

WHAT’S REQUIRED

• Clear definition of what the New Zealand public sector does or does not pay for

• Respect for the other components of the system

• Increased use of private hospitals for public funded elective surgery

• Innovative new products– e.g. Health Management Accounts

• Incentives for private health insurance– Removal of FBT– 30% tax rebate or ‘defined’ contribution

WHY SUPPORT THE REBATE

• Choice: health insurance provides insured people with a choice about how they access health services

• Fairness: insured people pay twice – through tax and insurance

• Coverage: a subsidy would boost coverage, making the viability of the health insurance industry more certain

• Cost: for every $1 the Government spent on the rebate for insured people it would be spending $2.76 on the same health services for an uninsured person

PRIVATE v PUBLIC

• If the health insurance market halved in the next ten years, net cost to the Government would be $230 million

• Three times the cost of the rebate

• Australian experience used to not justify it:– Public workload still increasing– Had to be increased again– Money could have been better spent

• NZ should retain a pure tax system

AN ALTERNATIVE TO THE 30% SUBSIDY

• Defined contribution

– e.g. $200 tax rebate per person, annually

– Applied through a health insurance plan or health management account

– Could target certain age groups such as families or the elderly

– Limits Government exposure to premium increases

INNOVATIVE NEW PRODUCTS

• Health today is more than sickness – it’s about being and keeping well

• We are spending:– $700 million on health insurance (Industry data)

– $1.75 billion out-of-pocket on health goods and services (Ministry of Health);

– More than $350 million on sports goods and fitness (industry data)

• Many people spend more on gym memberships and the related sports gear and clothes than they do on health insurance (Research conducted by TNS)

ACTIVA ACCOUNT

• Health Management Account – also known as a Medical Savings Account

• A new way of paying and managing health and wellbeing needs

ACTIVA

Information Tools

• Health spend calculator

• Health management tools

• Directories

• Information on common procedures

• Self-help reference for day-to-day health needs

Information Tools

• Health spend calculator

• Health management tools

• Directories

• Information on common procedures

• Self-help reference for day-to-day health needs

activa Network

• Partners

• Merchants

• Activa providers

activa Account

• Card and web accessed

• Used to pay for day-to-day health related expenses and low cost diagnostic and surgical expenses

• Operates in debit and credit

• Healthy interest rates

activa Plan

• Health insurance which helps pay for high cost surgical and medical treatment

• Lump sum for serious health events

• Excess options $1,000 or $2,500

ACTIVA PARTNERS

Household Spending

HEALTH INSURANCE

• Must add value

• Get you better health care than you can get yourself

• Our competition is:– Self insurance - Not the competition