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

The Medibank Private Sale Bill 2006, as we know, empowers the government to initiate a sale of the government’s holding in Medibank Private at a time of its choosing, which it says is sometime in 2008. The bill also sets out a number of other conditions for the conduct of the sale. In preparation for the sell-off, the bill provides for changing the status of the fund from a not-for-profit organisation to a for-profit organisation. It limits individual share ownership to 15 per cent of the company for five years. It places foreign ownership and Australian identity restrictions on directors and its national office for a period of five years and it allows pre-privatisation profits to be redistributed.

We all know that the Howard government has for a very long time wanted to sell Medibank Private. The fund has in fact been on the asset sale program since 2002, when the first scoping study was commissioned. Now, of course, with the control of the Senate the Howard government is pressing forward on the sale even though it is clearly unpopular with the majority of the public and, equally importantly, even though the government cannot provide a convincing argument for how this sale will benefit the public.

The Democrats are not automatically opposed to privatisation of government assets, as you yourself, Mr Acting Deputy President Murray, have pointed out. We assess each case of privatisation on its merits and with the community benefit and the public interest as the ultimate test. Just because you own one government asset it does not mean that you should own them all. Just because you sell one government asset it does not mean that you should sell them all. Just because the Democrats have consistently opposed the massive 30 per cent rebate that is provided for those in private health insurance on the basis that it is both inequitable and inflationary it does not mean that we are happy to sell off Medibank Private for those reasons.

The test of privatisation must always be: does the asset serve a particular public purpose and provide a benefit to the community such that it should be retained in public ownership? Of course it is on that last question that the sale of Medicare Private falls down, in my view. There are a number of arguments that support maintained government ownership, but the government has been unable to provide us with any of those convincing arguments on how the public interest would be advanced by its sale.

It is true to say that the proposed sell-off has not been as controversial as some of the government’s other privatisations over time. There is not the same community outrage that we saw with selling Telstra or the Snowy River hydro scheme. But I think we should still not underestimate the impact of the sale. Medibank Private is Australia’s largest private health insurance provider. It is our largest not-for-profit fund and our only truly national private health insurer. It is the largest private health insurer in New South Wales, the ACT, Victoria and the Northern Territory, and it is the second largest insurer in other states.

Medibank Private has around a third of the market, covering three million Australians—that is, three million Australians who will have a direct interest in the sale of this insurer. But, of course, it is not just the current members of Medibank Private who will be affected; more than 10 million Australians—that is, 43 per cent of the population—hold private health insurance. Those 10 million Australians and future members of health insurance funds will be affected by the changes that this sale will bring about.

Standard and Poor’s, an organisation widely considered to be a leading provider of independent financial analysis, say the privatisation of Medibank Private is likely to ‘materially affect the competitive dynamics of the industry’—not that you need to be an economics genius to see that. It stands to reason that that would be the case when the largest provider of a particular service changes ownership in such a dramatic way, going from a not-for-profit organisation to a for-profit company. The explanatory memorandum to the bill says:

When Medibank Private Limited becomes a ‘for profit’ company, it will be able to pay dividends or return capital to its shareholders. This includes using the surpluses already built up in the Medibank Private Fund.

A not-for-profit organisation, by its very nature, is not about distributing profits but about managing its assets in the interests of its members, and it uses surpluses to the benefit of those policy holders. A for-profit organisation will inevitably have the profit motive as its primary consideration—profits that will not go towards lower premiums for members or more benefits being paid out to members but towards meeting shareholders’ demands for dividends.

And we are not simply talking about changing the nature of this one private health fund; we are talking about changing the whole sector. At the moment roughly 80 to 85 per cent of Australia’s health insurance funds are run as not-for-profit organisations. With this bill the balance of the industry will change from a predominantly not-for-profit sector to a sector that is pretty much equally split between companies that are for profit and those that are not. There is no doubt that a sector dominated by for-profit organisations will be very different from the one we currently have. If the largest insurance provider, the market leader, becomes beholden to the interests of private shareholders and starts acting to meet those interests, this will have a flow-on effect for other funds. At the very least it is likely to force the not-for-profit organisations to become more commercially driven in order to compete. For starters, it will also presumably have to deliver dividends on the $2 billion or so required to purchase the company.

It is true to say that we do not know what the exact effects of a more commercially oriented sector will be, but the government’s assertion that it will result in downward pressure on premiums seems to be the least credible possibility. Medibank Private itself, in its 1996 submission to the Productivity Commission’s inquiry into private health insurance, argued that increasing the number of for-profit health funds potentially means an additional layer of costs—that is, to the shareholder—to the financing of health care. Medibank Private stated that this additional layer ‘will unnecessarily escalate the premium (price) for private health insurance’.

Each of Australia’s for-profit health funds has higher premiums than Medibank Private. The simple reality is that a for-profit company has to return a dividend to its shareholders and therefore it will need to generate a profit margin. There are only a few options as to where this will come from: it will be a surplus income, a reduction in payouts to members or a reduction in administration costs. Or, of course, it could come from policy holders having to make a higher contribution.

The government would have us believe that the sale of Medibank Private will enable the fund to be more efficient through reduced management costs and more private sector efficiency, but in fact there is no evidence to support that assertion. The management expenses for Medibank Private as a percentage of member contributions are 9.2 per cent, and the average for the industry is 9.5 per cent. The relevant figure for HBF is 10 per cent; for NIB, 11.8 per cent; and, for MBF, 9.3 per cent. It is true that the relevant figure for Australia’s largest for-profit medical insurer, BUPA, is 7.7 per cent; however, BUPA has also had less success in retaining members, has received more complaints about services and has a lower level of benefits paid to members as a percentage of contributions than Medibank Private does. So it is very easy to get your management costs down if you provide an organisation or service of lower quality.

Reducing benefits paid to private health insurance policy holders or limiting the amount or scope of care that an insurer offers can also offset pressure on premiums—but surely the government is not suggesting that higher gap payments for policy holders or some form of managed care to fund dividends to shareholders is an acceptable trade-off. The government would probably argue that if standards fall then members can simply switch to another provider. That, of course, ignores the reality of low portability and mobility between insurers currently, and there is nothing in the bill that will improve that situation. As was pointed out in evidence to the inquiry, it is hard to see private health insurance as a true market. Government policy coerces people into buying the product and then subsidises the industry to the tune of $2.5 billion a year.

Privatising Medibank Private will not mean an unleashing of the organisation and participation in unfettered free-market operations with enormous benefits to consumers, even if you do subscribe to the highly questionable proposition that such a framework is a good one for the health sector. There is no evidence that changing Medibank Private from a publicly owned not-for-profit organisation to a shareholder for-profit organisation will make it more efficient or more competitive, or keep premiums down. The government continues to refer to a scoping study by Carnegie Wiley to support its position, but it is not good enough when the government refuses to release the details of that study.

Medibank Private as a publicly owned company has introduced competition into private health insurance and driven down premiums. When Medibank Private first entered the market as a government owned organisation, the existing private funds waited to see what their premiums were and then, in almost all cases, they undercut them. As a publicly owned company Medibank Private has also been able to use its buying power to reduce hospital charges. Payments to hospitals constitute more than 70 per cent of Medibank Private’s costs, and Medibank Private has been increasingly aggressive in taking on private hospitals and medical specialists and in negotiating to reduce the costs that they charge. These savings can then be passed onto the members through reduced premiums or other services. Indeed, the success of competitive tendering allowed Medibank Private to hold cost rises to only 6.2 per cent. I seek leave to continue my remarks later.

Leave granted; debate adjourned.