Steve Gibbons (Bendigo, Australian Labor Party) Share this | Hansard source

Before I start my contribution, I would like to indicate that I am a policy holder with Medibank Private. The purpose of the Medibank Private Sale Bill 2006 is to amend the National Health Act to allow the government to sell its shares in Medibank Private. The bill also puts into place foreign ownership and Australian identity restrictions on Medibank’s directors and national office for a period of five years. It changes the status of the fund from not-for-profit to for-profit, allows preprivatisation profits to be redistributed to shareholders following the privatisation and ensures the fund, not the Commonwealth, is liable for any compensation claims that arise from the sale.

Labor opposes the bill on the basis that the government’s decision to sell Medibank Private is based purely on an ideological agenda—an ideology that leads to a blinding belief that private ownership is better, that the free market is more efficient and that it will act in the community’s best interests even when there is conclusive evidence to the contrary; an ideology that means that government is unable or unwilling to see that the sale of Medibank will have adverse implications for existing members and for the affordability of private health insurance.

So, despite concerns being expressed publicly by health economists, former health insurance commissioners, business commentators, the AMA and the majority of the public, the government continues to push ahead because, to quote the Minister for Health and Ageing, ‘The government is instinctively in favour of privatisation.’ Clearly the general public does not swallow the government’s shallow arguments for selling Medibank. A Fairfax ACNielsen poll published in early September demonstrated that 63 per cent of those polled opposed the sale while just 17 per cent supported the government’s plan. Even 46 per cent of coalition voters do not support it. As for the government’s special adviser on various important policy issues, Mr Alan Jones, he described the sale on his radio program on 4 September as ‘financially unjust’ and ‘politically reckless’.

The government says that the sale will allow Medibank to be more competitive, therefore putting downward pressure on premiums. The economic modelling that supposedly supports this argument and was carried out as part of a scoping study has not been made available for public scrutiny. While a number of economists and business commentators have publicly debunked the government’s assertion, there appear to be no objective measures available to back the government’s claim.

For example, Professor Jeff Richardson, director of the Centre of Health Economics at Monash University, said on the ABC’s AM program earlier this year that ownership does not determine the cost of membership. Asked if he would expect Medibank Private to be more efficient if it were sold off, he responded:

No, there’s no evidence of that either. It really is almost totally irrelevant. Their expenses are comparable with the expenses of other health funds.

The Parliamentary Library research brief also found that there is little evidence to support assertions that a privatised Medibank Private would be more efficient, more competitive and less expensive for consumers. There is, in fact, a very logical argument that suggests the change from a non-profit to a for-profit organisation would add a cost or profit impost that will add to premium charges. The management of Medibank Private itself expressed it best to a 1996 Productivity Commission inquiry when it admitted that the interests of members are best served when the funds view their members as shareholders for whom the delivery of lower prices is a dividend.

The reality is that for-profit insurers need to provide a profit for investors. While it may be the intention of the government to encourage policy holders to become shareholders, many will not. We only need to look at what the effect on premiums has been as the government has fattened the cow in preparing Medibank Private for sale. In order to increase Medibank’s profit from $10 million in 2003 to $130 million in 2005, premiums were increased by 8.9 per cent in 2004 and by 7.94 per cent in 2005—over twice the rate of CPI increases.

A further reason Labor opposes this bill is that the legislative changes proposed by the government provide no assurance or protection for Medibank Private members against further significant premium increases. Premiums have increased by more than 40 per cent over the past five years—a rate double that of the consumer price index, higher than wages growth and higher than the indexation of grants to help fund services under the Commonwealth-state health care agreements. Respected economic commentator Terry McCrann rightfully asked in his Melbourne Herald Sun article of 6 October:

Why should we hand this sort of money-generation to the private sector? Should heath insurance make lush profits anyway? Aren’t they supposed to be non-profit?

And if Medibank is privatised, who would then keep the (private) bastards honest? As Medibank is claiming its higher profit came with a reduction in premium rate growth?

Terry McCrann, who is not renowned for his radical views, is asking these questions of this government’s proposal.

Medibank Private is Australia’s largest non-profit and only national private health insurer. It is the only private health fund to have a significant market share in every state and territory. Because of its size and market position, Medibank Private has been able to put downward pressure on costs by negotiating with private hospital owners and passing on these savings to its members.

There are at least three other factors which are likely to contribute to premium increases under the government’s proposal to privatise Medibank. Firstly, while there is no evidence to support the government’s assertion of downward pressure on premiums, let us look at one market-driven outcome which appears to be common to government-owned enterprises that have been privatised. The Australian Wheat Board—which could be a good or bad example—soon after privatisation moved to paying its various executive staff market based salaries and performance bonuses. The result was that, by 2005, the salary packages for AWB executives had rapidly adjusted to the market and ranged from $450,000 to $1.5 million per year. There are numerous other examples, including Qantas, the Commonwealth Bank and, of course, not forgetting Telstra’s $10 million man. That was a case even the Treasurer had difficulty defending—a case where there was clearly no evidence of the correlation between exorbitant salaries for executives and returns to shareholders, let alone customer value.

The second factor is that the government has argued that privatisation will lead to increased competition. Should privatisation proceed, on the day following privatisation, there will be exactly the same number of private health funds, which currently stands at 38. There is a real possibility, however, that the exact opposite will occur.

As noted in the Parliamentary Library’s research brief, ratings agency Standard & Poor’s have recently argued that any sale of Medibank Private is likely to materially affect the competitive dynamics of the industry. While Standard & Poor’s did not specify the precise nature of the effect on competitive dynamics, it appears to see the main impetus for change in the possibility that the sale may lead to rationalisation and greater concentration within the industry. That is not exactly a resounding endorsement of the government’s increased competition argument.

The third factor is that the government’s proposal will change Medibank Private’s objectives essentially from working in the best interests of the members to working in the best interests of the shareholders. By its very nature, this cannot be in the best interests of the members. I have already acknowledged that, while there may be an overlap of membership and shareholders, they are different. There has been public speculation that Medibank Private has a market value of somewhere between $1.5 billion and $3 billion. Assuming the market would demand a return on investment of seven per cent, this would translate into an annual dividend payment of between $105 million and $210 million. Not only does this dividend payment have a potential impact on premiums; it also represents a huge amount of money that would be funnelled out to shareholders rather than be used to improve services or maintain premiums at a low level.

The proposed change in favour of shareholders over members also has implications for older Australians and those with chronic illnesses. While regulations will remain to protect against discrimination, how long will it take for a privatised Medibank to identify those who represent the greatest risk and therefore the greatest cost? This concern is clearly reflected in comments from former Health Insurance Commissioner Ray Williams, Professor John Deeble and Dr Robert Maher released on 5 September. In addition to calling the sale ‘irrational’ they warned that, as soon as a large share of the market is held by private shareholders, there will be pressure on the government to deregulate the industry or remove government price control or to reduce or eradicate the community rating obligation. The government will attempt to dismiss this as preposterous.

But let us look for a moment at Telstra, which is not yet fully privatised and also subject to government service regulations. Telstra has clearly become much more focused on what is and what is not profitable. For example, thousands of public telephones have been removed or earmarked for removal, not because they are not needed but because they are not profitable. We need to look at the rights of existing Medibank Private members. There has been considerable debate about the rights and entitlements of existing members in relation to the proceeds of the proposed sale of Medibank Private. Public comments, again, include those of economics commentator Terry McCrann on 6 October 2006:

I suggest there are two components to the value of Medibank and that the government clearly owns only one of them.

And further:

… but there is at least an argument that the profit and its sale multiple are owned by the members who have overpaid for their health insurance.

Other parties, including the Australian Medical Association, argue the case for members’ rights from a moral perspective rather than a legal perspective. The AMA, while not wishing to comment on the legality of the situation, doubts the morality of the sale, given that much of the value of Medibank Private is in its financial reserves, which were not contributed to by government but rather extracted from the members in compliance with regulatory requirements, and that there is a strong case for mutualising Medibank Private and retaining the equity within those left contributing to it, namely, the members.

The government has sought to obtain definitive legal advice about ownership and members’ rights, which was done through solicitors Blake Dawson Waldron. It would seem clear that considerable uncertainty remains. This is perhaps evidenced by the government’s undertaking to provide some type of share entitlement for existing members, but in what form still remains unclear.

The government also proposes to change Medibank Private rules so that section 78 of the National Health Act does not apply. This change simply allows the Minister for Health and Ageing to abrogate his responsibility under the National Health Act to consider whether the proposed changes impose an unreasonable or inequitable condition affecting the rights of any contributors, which is precisely what the privatisation of Medibank Private will do.

We also have to look at the government’s proposal regarding the potential privatisation of public hospitals. The privatisation of Medibank is just one element of the ideological mindset of the government and the minister for health. For example, what would be the consequences if Medibank Private were sold to the same private organisation that, under the government’s proposals, seeks to win contracts to manage our public hospitals? What would be the consequence of an insurer also being in a position to influence or determine patient care in public hospitals? The old saying, ‘It would be like giving Dracula the keys to the blood bank,’ would be very close to the mark. Again, this would seem to fit precisely with the Howard government’s blind obsession with privatisation, without the slightest regard for the views of the people they are supposed to represent and, equally, with no regard for any adverse consequences of their actions.

The minister for health delivered a speech to the Menzies Research Centre on 9 September 2006, during which he advocated that state governments should outsource the management of public hospitals, allowing the private companies to run these hospitals for a profit. The minister has been quoted in the press as saying: ‘Obviously, if you are a private business, you want to make a profit.’

Such a proposal is another example of the minister and the government being blinded by ideology and of their unwillingness or inability to acknowledge and therefore learn from past mistakes. Unfortunately, we are talking about essential community assets. The sick, the elderly and those who cannot afford private health insurance will suffer as a result of the government’s ideological superiority and refusal to acknowledge the facts. Most Australian states have experimented with private management of public health services and individual departments within public health organisations, using a variety of structures and agreements. Some have been quite successful. There are, however, a number of highly critical reports, including the state Auditor-General reports, and several examples of states reversing such arrangements.

For example, in a report on the Joondalup Hospital, the Western Australian Auditor-General found (1) the process failed to establish that the public-private arrangements would deliver a net potential benefit over a public sector alternative and (2) the Metropolitan Health Services Board claims that bed block at inner city hospitals resulted from Joondalup’s reluctance to accept patient transfers due to financial arrangements. As for the ideological argument that private is better, a comparison of Joondalup Hospital with benchmark hospitals found patient satisfaction inferior—particularly relating to the availability of staff, continuity of care and patients being kept informed.

In relation to the Port Macquarie hospital, the New South Wales Auditor-General reported that the government would pay twice for the cost of the capital construction in the annual availability fee and through fee-for-service payments but would own neither the land nor the buildings. In South Australia, Modbury Hospital management was outsourced by the then Liberal government in 1995, essentially to increase efficiency. The experiment obviously has not worked. However, the current state government is currently negotiating to terminate the contract with Healthscope, which is not scheduled to expire until 2010. The South Australian Minister for Health is reported as saying in March this year:

I think one of the ways that Healthscope is able to make a profit or keep the thing running is by squeezing services that a public system would give higher priority to.

It is not surprising then that the proposal of the federal Minister for Health and Ageing was met with negative responses from a number of state premiers and state health ministers.

Labor acknowledge that private hospitals are a significant and essential component of the hospital system in Australia. We believe, however, that it is the public hospital system that faces the task of dealing with the vast majority of acute and complex cases and emergency episodes of care. Labor also believe that the role of private hospitals is and should be complementary rather than competitive or adversarial.

In conclusion, I believe this bill has nothing whatsoever to do with good public policy, nothing whatsoever to do with maintaining or improving the way our current world-class health system provides its range of treatments and services to the people of Australia and everything to do with the manic obsession of this government and this Prime Minister with privatisation at any cost and to hell with the consequences. That is why I strongly oppose this bill.

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