1. DR IAN MCPHERSON Group Chief Executive Southern Cross Healthcare New Zealand

2. 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

3. KIA ORA

4. 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

5. 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

6. PRIVATE FUNDING IS GROWING Total health funding (%) in 1979/80 and 2001/02 10.416.1 1979/802001/02 1.16.70.40.3 77.988.1 Publicly funded 11.922.1 Privately funded Private household Health Insurance Not-for-profit organisations

7. ROLE OF PRIVATE HEALTH SECTOR Meets individual needs by: –Providing quicker access –Giving choice of specialist –Comfortable hospital facilities –Access to additional health services

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. IMPACT OF PHARMAC STRATEGY CPI trends Sept 1999 to Dec 2003

15. PHARMAC IMPACT ON DRUG EXPENDITURE

16. PHARMAC METHODS Reference pricing Generics Bundling Negotiated deals with the Pharmaceutical industry Tendering

17. 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

18. 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

19. 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

20. 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

21. 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)

22. ACTIVA ACCOUNT Health Management Account – also known as a Medical Savings Account A new way of paying and managing health and wellbeing needs

23. ACTIVA 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

24. ACTIVA PARTNERS Household Spending

25. HEALTH INSURANCE Must add value Get you better health care than you can get yourself Our competition is: –Self insurance - Not the competition