Lyn Allison (Victoria, Australian Democrats) Share this | Hansard source

I rise to speak on the opposition’s motion, which calls on the government to abandon its proposals to sell Medibank Private. The Democrats do not have an ideological opposition to privatisation; we judge each case on its merits and according to the public interest. We also hold the view that pushing people into private health insurance, as this government has done since it came to office, is not in the long-term interests of the health system in this country.

We are not here arguing in great defence of Medibank Private or suggesting that it should have greater coverage—or, for that matter, that the rest of the sector should have greater coverage. In fact, if we ever needed reminding about the problems with private health care in this country, the Community Affairs Committee gynaecological cancer inquiry that is currently underway indicates that: woman after woman told us that in the private sector they received very inadequate care compared with the public sector, for which they had only praise. One of the main problems is that in the private sector there is not the expertise or the multidisciplinary approach, so women may find themselves having surgery conducted by someone with no special expertise in gynaecological oncology.

We get evidence in this place all the time about the very high cost of private health care, and frequently—twice a year—we are reminded about the high costs when premium rises are again agreed to by government. However, today I want to argue that the government has not substantiated its proposal. I foreshadow that I will move an amendment to this motion stating:

At the end of paragraph (b), add:

“, unless the Government is prepared to produce a white paper that substantiates and supports its proposal, to engage in a genuine period of public consultation, and to be able to confirm it has widespread public support for its sale”.

On the face of it, it appears that the government cannot do that. Medibank Private holds a unique place in the private health insurance landscape. It is our largest private health insurance fund, with around one-third of the market and around three million members. As such, it is a leader in the sector and influential in the way the sector as a whole operates.

Although the government is yet to make explicit what form the sale may take, one thing is certain: it intends to sell Medibank Private off regardless of the consequences for current members, regardless of the consequences for future members and regardless of the consequences for members of all other health insurance funds. It is not just current members who have an interest in the sale of Medibank Private. If the sale proceeds, it will fundamentally change the private health insurance industry. We say that that will have far-reaching and long-term consequences for the 43 per cent of Australians who have private health insurance and for anyone who may wish to take it out in future.

There are many unknowns about the sale of Medibank Private and many unknowns about its future, but what we do know is that the sale of Medibank Private will lead to changes for both members of the fund and the broader private health insurance sector. Roughly 85 per cent of Australia’s health insurance funds are run as not-for-profit organisations. These organisations act only in the interests of their members, but if the Howard government privatises Medibank Private, turning it into a profit company, the balance of the industry will change from a predominantly not-for-profit sector to a sector which is pretty much equally split, as far as we can see, between companies for profit and those that are not for profit.

Who knows whether that fifty-fifty arrangement will be maintained? We can expect mergers and takeovers in some states, and that might happen quite quickly. We may have a private health insurance industry that is the complete opposite of what we have now. As I said, the situation now is that 85 per cent of membership is with non-profit organisations.

For-profit organisations obviously have, as part of their motive, paying returns to investors and maximising share price. The new owner of Medibank Private would presumably need to get a return on its $3 billion-or-so investment in Medibank Private. As far as I can see, that will mean a number of options. The new owners could come in and strip the assets—and those assets are very substantial, including a very big share portfolio which assists Medibank Private to pay for the costs of private health insurance. They could come in and sack most of the workers and scale back the operation. No doubt the government would approve of that; that would be seen as some kind of efficiency. So we could have job losses. I am not sure what the impact of that would be on the organisation but it is hardly likely that it would thrive under that arrangement. There is no evidence, as I said earlier, that Medibank Private is a top-heavy organisation, has too many bureaucrats or is administratively inefficient. The other option is that, to pay back that investment of $3 billion, the fees could rise.

Those seem to be the only three possible outcomes of this sale. It is hard to see how going from a situation in which all returns have to be directed towards the benefits of the members to a situation where as well as members there is now a third party which has to be looked after—the shareholders—is going to be of benefit to members.

No doubt this government will try and sell this to the members of Medibank Private and urge them to buy shares in something they already effectively own. Again, it is hard to see who would be the winners out of that. Perhaps they will be encouraged to buy the shares at an inflated price and then we will have the very difficult situation—just like the situation of Telstra—where the government is reluctant to deny Medibank Private a premium increase because suddenly there are a lot of shareholders who also vote. So if the government thinks it has a conflict of interest now in owning Medibank Private—if ‘ownership’ is the right word to use in this case—then it most certainly would have a conflict of interest post sale.

Shareholders will want to see a return on their investment and that money will have to come from somewhere. It could well come from increases in premiums, reduction in benefits and the like, as I said earlier. But for all its talk the government cannot guarantee anyone in this place, or beyond it, that this will not happen. It is not only those people who might face higher Medibank Private premiums who will be affected. As I mentioned, changing Medibank Private’s status to for-profit changes the nature of the sector as a whole. A predominantly not-for-profit sector is very different from one where profits are earned, at least in this instance, by half the organisations in the sector.

So I am not talking here about a single for-profit organisation versus a single not-for-profit organisation but about how the sector operates. It is difficult to know if individual for-profit organisations provide a lesser service than individual not-for-profit organisations. That is because we only have four for-profit funds in the whole of Australia, and they are quite small funds compared with Medibank Private. They are also operating in a larger not-for-profit environment. The government—Senator Barnett did it this afternoon—has used BUPA as the example of a for-profit organisation and has argued that it is as efficient as Medibank Private, or more so. It is true that in 2005 BUPA had lower management costs and premiums than Medibank Private and the industry average. However, what the government did not point out is that it also has less success in retaining members, has received a higher proportion of total complaints compared to market share and, perhaps most importantly, has returned lower benefits to members as a percentage of contributions.

So, is the government now telling us that these things do not matter? We do not know what would happen if BUPA were operating in a predominantly for-profit environment, where profits are the driving force, and was not necessarily operating for the best interest of members. Medibank Private has argued for the maintenance of a not-for-profit sector. Medibank Private’s 1996 submission to the Productivity Commission’s inquiry into private health insurance states that the interests of members are best served when funds ‘viewed their members as “shareholders” for whom the delivery of lower prices is a dividend’.

Medibank Private also argued in its submission that, assuming insurers are supposed to act in the best interests of members, they would be ‘acting irresponsibly if they were to have as their motive the payment of a return to investors’. Medibank Private also argued—as is clear to everyone but the government, apparently—that increasing the number of for-profit health funds potentially adds an additional layer of costs to the financing of health care. The layer that they are talking about is the shareholder. Medibank Private stated that this additional layer ‘will unnecessarily escalate the premium price for private health insurance’.

We are all well aware of the debate around the most cost-effective method for delivering health care. There is a very strong argument that publicly funded and administered systems are the most efficient and equitable way to deliver health care to the population. The Democrats are strongly supportive of a publicly funded healthcare system that is available to all on the basis of need, not the ability to pay.

Administering complex private health insurance is a costly business, and in the US it adds 10 to 15 per cent to the cost of healthcare. As Australia’s health system moves backwards towards the US, with a greater dependence on private health insurance, the costs of administering healthcare financing will rise. It is possible that the privatisation of Medibank Private is another step along this path. It is another step in increasing the costs of health care overall.

The government repeatedly says that this is all about competition—that competition will keep down costs and put downward pressure on premiums. The Minister for Health and Ageing just yesterday in question time said:

The best guarantee of low premiums is competition, not government ownership. That is the best guarantee of low premiums.

Putting aside the issue of the inherent limits on competition that must be maintained in the area of health care, it is not clear that the sale of Medibank Private will necessarily increase competition in any case. Simply repeating it over and over, ad nauseam, does not make it so.

It has been pointed out that Standard and Poor’s has recently argued that any sale of Medibank Private is likely to ‘materially affect the competitive dynamics of the industry’. It would seem that Standard and Poor’s see the possibility that the sale of Medibank Private may lead to rationalisation and greater concentration within the industry as the major force for change. The industry is already very concentrated. It is already dominated by a few large funds which, when measured by premium income, share around 80 per cent of the national market. About 80 per cent of the market in each state is also controlled by the four biggest insurers in each state.

So, if the sale of Medibank Private leads to consolidation amongst these top funds, either through one of them gobbling up Medibank Private or through them merging with one another as a result, that will most certainly reduce competition, not increase it. In fact, MBF have actually indicated that, if they cannot participate in a break-up of Medibank Private, they may have to look at changes to their own structure and for consolidation opportunities. While there may be some argument that amalgamation of some of the smaller funds could be beneficial, if the other top funds are merging with one another it is very hard, I have to say, to see how that is going to be a good thing. The ACCC is on the record as having expressed concerns about merger possibilities between any of the top health funds.

We have to remember that it may be good for competition in one state but very bad for competition in another. The private health insurance market in Australia is for the most part state based and there are state by state differences in the age of the insured population, the number of funds operating, the services provided by funds and the percentage of the insured using public versus private hospitals. More consolidation could lead to further domination by a single fund in some states. Unfortunately, we have heard very little from the government about this issue.

In all the talk of how selling off Medibank Private will increase competition, the government has also conveniently ignored the fact that when Medibank Private first entered the market as a government owned organisation, back in 1976, it brought premiums down. The existing private funds at the time waited for Medibank Private to introduce its contribution rates, and in almost all cases they undercut the fund. So Medibank Private has played a role in competition as a publicly owned entity. It obviously does not have to be privately owned to play this role.

Medibank Private, as a publicly owned fund, has also been able to negotiate competitive price deals with the private hospitals, again showing the way for other funds. Payments to hospitals constitute more than 70 per cent of Medibank Private’s costs and Medibank Private has been increasingly aggressive in its buying power to negotiate with the hospitals. This is in part a factor of its size. Larger funds are much better able to take on private hospitals and medical specialists and to negotiate to reduce the costs they charge. These savings can then be passed on to the members, either through reduced premiums or more services—or at least they would be passed on to members in a not-for-profit private health insurance fund.

In a for-profit organisation, that might not necessarily be the case, especially if the fund is operating in a sector dominated by for-profit companies. In this situation, it might be that the savings that a big fund makes in its negotiations with hospitals and specialists will be passed on to the shareholders, not the members—or, if it is feeling a little generous, the savings might be split between shareholders and members. So it is not just the size of the fund that has to be taken into consideration; it is also the fund’s primary motivation for its very existence.

The government seems to have forgotten that health care is not like any other industry and private health insurance is not like any other insurance product. We expect healthcare providers to act in the interests of their patients, in the interests of the sick and the vulnerable, even when it may not be in their own self-interest. We do not expect, nor do we want, a system in which the people providing the care are motivated by what they can get out of it. Nor do we want a system where the insurers are motivated by the profits they can make, not the quality of the services that patients receive.

This means competition is a meaningless catchcry. There must be constraints on the free market in health care. Yes, there is an important role for competition—it can improve efficiency and it can make services more responsive—but it does need to have limits. Costs are not the only consideration. After all, we do not want to see hospitals competing on the grounds of costs while they ignore patient safety, and there are limits to the efficiency gains that can be made from competing funds.

The government has yet to make a convincing case for selling Medibank Private to improve competition, let alone that it will improve services or quality of care for members. Neither has the government outlined what it will do to tackle some of the other problems that beset private health insurance. One of these is the high level of regulation in the industry. Many commentators point out that a change of owners will not automatically create the opportunity for more innovation or more aggressive negotiating with healthcare providers. This will depend on the wider regulatory environment.

Yes, the government is talking about making changes industry wide, but we do not know what effect they may have on the industry. There certainly are some questions about whether they are of the right type to achieve the outcomes the government says it wants. But, rather than waiting to see what impact these regulations might have on containing costs and improving efficiency, the government is still pushing ahead with the flogging-off of Medibank Private, just to add something else to what is acknowledged as a volatile industry.

The government has not engaged in public debate on this issue. It did not campaign about selling Medibank Private at the last election. It has not released any documentation or reports that provide the public or the Senate with any convincing information that this would be useful to current members of Medibank Private, to the people who have private health insurance generally, to the sustainability or efficiency of the industry or to maintaining the best balance between private and public health care in a broader healthcare sector. It would seem that the government is just hell bent on getting its hands on the $1.5 billion to $2 billion that will come from the sale and it does not really care about any of those issues. That is, of course, to say nothing about whether it has the moral right to sell off an asset that has been built up by contributions from members. I move:

At the end of paragraph (b), add:

“, unless the Government is prepared to produce a white paper that substantiates and supports its proposal, to engage in a genuine period of public consultation, and to be able to confirm it has widespread public support for its sale”.