Guy Barnett (Tasmania, Liberal Party) Share this | Hansard source

I stand tonight to speak to the merits of selling Medibank Private. I refer to the recent government decision to progress towards a sale of Medibank Private. I am advised that a sale could take place prior to 30 June 2007 by a share float, trade sale or other means. In his media release of 25 April, my colleague the Minister for Finance and Administration, Senator the Hon. Nick Minchin, said, ‘The government has yet to decide whether Medibank Private will be sold through share market float, trade sale’ or by other means and said that this would, in part, depend on whether the government proceeded with the sale of Telstra in 2006-07—although I note that the minister has said that the government plans to proceed with the sale of Medibank Private notwithstanding.

The minister went on to say, ‘The government will shortly call for tenders for advisers to the sale, although the sale cannot take place until the parliament passes the sale legislation,’ which, I am advised, will be introduced in the winter session of parliament this year. It is legislation which I intend to strongly support. I believe it is in the best interests of this country and members of the community. I commend the minister and the Howard government for pursuing a sale which I believe to be entirely appropriate and one which I am sure my colleagues opposite in the Labor Party would also happily embrace if they were in government. Such is the nature of politics, they have so far to date poured scorn on the government’s decision.

It makes no sense for the Australian government to own Australia’s largest private health fund. Why would the government want to own a billion dollar-plus business enterprise with a $2.8 billion annual turnover that performs no universal service obligation to taxpayers, trades in the black, has never returned a dividend and occasionally requires a taxpayer contribution to bolster its capital backing? I believe the government has no business being a player in the private health insurance market, while being the regulator of private health funds and their premiums. This ensures either a perceived or a real conflict of interest. For this reason alone, I find Labor’s opposition to the policy puzzling. Truly, I believe the party opposite has adopted a policy of seeking relevance by blanket opposition to any significant proposal.

There has been much comment on how a sale would reduce competition, but I say a sale can strengthen the market and boost competition. For Labor to oppose the sale is pure ideological autopilot and opposing for opposing’s sake. Since 1988 both major parties have sold or share floated $50 billion worth of public assets, with the Labor Party being responsible for the Commonwealth Bank, Australian Airlines and part of Qantas. In addition, state governments in the past 20 years or so have sold off their government business enterprises, including their own insurance companies. What reason is there for Medibank Private to remain in public ownership? How is it that such a large government funded asset is able to draw on taxpayers’ funds to bolster its own dominant position, while being of no benefit to a large number of taxpayers who, I might add, either have no private health insurance or have membership with other private health insurers? Such a distortion of the market cannot be and should not be tolerated. It is entirely unfair on other health funds and their members.

Established in 1976 and made an autonomous government business enterprise in 1998, Medibank Private made an operating profit of $130.8 million in 2004-05—a massive 192 per cent turnaround on the profit level in 2002. In 2003-04 the company made a profit of $44.8 million, following a special taxpayer injection of $85 million in the form of 85 million $1 shares. The fund operates on a not-for-profit basis and has a membership base covering three million people, or thereabouts, or just under one-third of Australians who have private health insurance cover. Government ownership of Medibank Private, in my view, is one humongous distortion of the market.

Amazingly, this dominant player in the private health insurance industry has not returned one cracker in dividends to taxpayers—ever. The fact that from time to time taxpayers are asked to contribute funds to Medibank Private creates an unfair playing field for other private health insurers, given that this fund is the country’s biggest player. To sell it would strengthen the private health insurance market, not weaken it. A privately owned entity could reduce management and administration expenses and also expand into new areas of doing business. For example, the privately owned BUPA has a management expense ratio of 7.7 per cent compared to 9.3 per cent for Medibank Private and 10 per cent for the mutualised MBF.

The Australian government’s ownership of Medibank Private has no positive influence or bearing on private health insurance premiums or the increasing take-up of private health insurance. It provides no identifiable universal service obligation. All health funds are strictly regulated, no matter who owns them. The government’s 30 per cent private health insurance rebate benefits more than 10 million Australians—or well over 40 per cent of the population—and this includes both hospital and ancillary cover. Medibank Private members receive this rebate, and the additional rebate of up to 35 per cent for those aged 65 or 40 per cent for those aged 70 and over. In theory, government policy could be designed to provide particular benefits for Medibank Private members. This possibility, of course, can be avoided altogether by its sale.

According to its annual report, Medibank Private’s profit has improved by more than $306 million over the past three years, while it says that 88.4 per cent of contributions by members are returned as benefits paid. The insurer matches this return on membership equity against what it says is an industry average of 87.2 per cent. However, as a government owned and funded asset with no requirement to pay a dividend, it is no wonder that Medibank Private holds a dominant market position. It should be sold in order to free up the marketplace not constrain and hinder it. It is one of 38 private health insurance funds, and consumers have many choices about whom they insure with. Also, the government is retaining the ministerial premium approval process, so any unjustifiable increase can be rejected.

The method of sale of Medibank Private via the stock market, by tender, trade sale or other means is very important to ensure the maximum return for taxpayers and to maintain competition. Using some of the sale proceeds to increase funding for medical research is an excellent decision. The government’s decision in the federal budget last night to substantially increase funding for medical research is certainly applauded by me and, I know, by many others.

I want to add that the current board, CEO George Savvides and the management of Medibank Private have done an excellent job turning around the company’s finances and putting it in a position where there is significant interest from potential buyers. The industry generally will benefit from the largest health fund being privately owned and competing on a level playing field. Competition for members between funds is the best way to limit premium increases.

Studies have shown that a privately owned fund would be able to be more efficient through lower management expenses and through scope for expansion into new business areas. It is the latter part that has been missed or misunderstood by the opposition and, indeed, some in the public arena. If it is privately owned the options are there, in the spirit of entrepreneurialism that is fundamental to the success of our economy and particularly the small business community in Australia. These greater efficiencies mean a privately owned fund does not put upward pressure on premiums. There are already five for-profit private health insurance funds, and there is no evidence that these for-profit insurers charge higher premiums than any other health funds. History supports the decision to sell Medibank Private. The evidence is there to support its sale.