Senate debates

Monday, 4 December 2006

Medibank Private Sale Bill 2006

Second Reading

4:45 pm

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | Hansard source

The Medibank Private Sale Bill 2006 represents yet another ideological attack on public institutions and the rights and welfare of Australian citizens. At stake is a public interest of the highest importance—access to affordable health care, regardless of the state of residence and the level of medical risk. In pursuit of this public interest, Australia has evolved a unique health system in which private and public operators play complementary roles. It is not without its shortcomings, particularly evident in the relatively poorer mortality and morbidity of Aboriginal and Torres Strait Islander citizens, but it delivers overall health outcomes which are superior to those of the United States at a fraction of the cost.

The evidence indicates quite clearly that Medibank Private has played an important role in the success of our system. It was introduced in order to restrain health insurance premiums and to ensure that ordinary Australians would have access to a basic health insurance package. In recent years it has achieved a reputation for innovation in cost management whilst continuing to meet the expectations of members. Its earnings enable it to explore innovative new services for members and to pay out levels of benefits to members that are generous by industry standards.

Medibank Private, a not-for-profit corporation, is and has been for some time the industry leader, despite the fact that it faces the same restrictions and pressures that apply to other private health insurance organisations. As a reward for its outstanding performance, the Howard government now proposes to throw it out of the public sector because it cannot see or will not acknowledge the public interest that is served by retaining it as a publicly owned, not-for-profit organisation, and because it cannot see or will not acknowledge the probable impact of its sale on the members and employees of Medibank Private, on ordinary Australians and on our health system.

As we sit in this house of review we enjoy the privilege and responsibility of examining, on behalf of our constituents, the claims made by the government for introducing this bill. I propose to analyse each of the reasons advanced by the government in favour of the bill before looking at some of its broader implications. The first of the reasons for sale is set out in the explanatory memorandum. It says:

There is no sound policy reason, nor market failure reason, for the Commonwealth to continue to own a health insurance business.

In other words, competition in the private health insurance market is so strong that taking out the major player, which happens to be not-for-profit, and changing its primary focus from members to shareholders will make no difference to the prices of premiums, range of products, value for money of health insurance, and its accessibility to ordinary people. Most people would find this hard to believe.

The government should not pretend that this is a perfect market where market forces are the best guarantee of consumer interests. In fact, private health insurance shows many classic signs of market imperfection, particularly asymmetric information and adverse selection. This is a market where the government subsidises prices to the tune of nearly $3 billion per annum through its rebates on health insurance premiums. Moreover, it is a market which needs government intervention to ensure adequate promotion of a public interest—that of keeping people healthy by ensuring that they have access to affordable, quality health care.

An assessment that this public interest was not being well served by existing private health insurance arrangements led to the introduction of Medibank Private by a Liberal government in 1976. Why, at a time of increasing cost pressures, increased use of expensive new diagnostic techniques and equipment and increased prevalence of costly health conditions such as obesity and diabetes, not to mention demographic ageing, would the market in private health insurance do better without the countervailing force provided by Medibank Private? Cost pressures are increasing, but the cost of failing to provide access to quality health care becomes clearer every year too. Recent research has highlighted, in particular, the importance of ensuring good health care to expectant mothers and young children as a way of reducing health risks and costs in the future.

If you want to look at what happens in a strongly privatised health system with a focus on for-profit medical service providers and insurers, then look at the United States. It spends more than any other country on health care, but its spending is not evenly targeted. Many people cannot afford health insurance and have no access to publicly funded health care systems. The community rating system, whereby higher risk or higher service clients cannot be discriminated against, is patchily applied with the result that in some states the people who most need healthcare insurance cannot get it or cannot maintain access to it.

For other OECD countries, health outcomes are generally related to the level of health expenditure—the more you spend, the better the outcomes in, for example, life expectancy at birth, infant mortality and infant birth weight. But not in the US. According to OECD figures published in 2005, the US spent 15 per cent of GDP in 2003 compared with Australia’s 9.3 per cent in 2002. Life expectancy at birth in the US was 72.2 in 2002, compared with Australia’s 80.3 in 2003. The difference in reference years indicates how difficult it is to undertake cross-country comparisons. But it is safe to say that there are significant differences in costs and health outcomes between Australia, with its carefully balanced public-private healthcare system, and the US, with its overreliance on market medicine. These differences are clearly in Australia’s favour and should discourage us from pursuing an American model.

A related public interest argument for retaining public ownership of Medibank Private is its effectiveness as a virtual regulator of the industry by adhering to its charter focus on members’ interests and by demonstrating the sort of leadership and creativity that have attracted positive comment from conservative market analysts such as Standard and Poor’s. Medibank Private obviates the need for certain types of regulatory intervention on the part of government. It sets a positive performance standard in operations and member benefits for other providers.

Moreover, Medibank Private is the only national private health insurance organisation. It is by far the largest fund, with nearly three million members across Australia—nearly 30 per cent of the entire private health insurance market. It is No. 1 or No. 2 in each and every state or territory. In my home state of Tasmania there were 77,696 individuals covered by Medibank Private in 2005. What guarantee is there that the fund would retain its national coverage if it were sold off?

The second of the government’s stated reasons for wishing to sell Medibank Private, as expressed in the explanatory memorandum, is:

Economic modelling has found that a privately-owned Medibank Private Limited would become more efficient. This will come through lower management expenses and also through an increased ability to expand into other business areas—such as other forms of insurance and other financial products—and through this expanded business, be a more efficient operation. More efficient operations will help restrain premium growth for the benefit of the contributors to the Medibank Private Fund.

To support this claim, the Department of Finance and Administration commissioned a report from a consulting company, CRA International, which, according to its website, represents the ‘gold standard for business consulting and litigation support’. I wonder whether its report for DOFA represents this ‘gold standard’. DOFA says that the report was commissioned on 23 October 2006 and completed on 31 October 2006. You would be right in considering eight days to be a very short period of time in which to undertake an analysis of the comparative efficiency of Australia’s public health insurance organisations. I am not aware of any aspect of public health with a reputation for being easily amenable to analysis. Nevertheless, CRA managed to prepare, in this very tight time frame, a 12-page report entitled The impact of privatisation of Medibank Private on private health insurance premiums.

Its major conclusions can be summarised as follows. Firstly, expected changes in health markets and population demographics over the next 20 years indicate that the real costs in Australia of providing private health insurance, and thus premiums, are likely to rise, all else being equal. Secondly, even if Medibank Private persisted with the sorts of improvements it has demonstrated in recent years, these would be insufficient to enable it to avoid premium increases. Thirdly, modelling of health fund performance indicates that there is scope for a privatised Medibank Private to increase its efficiency by an estimated five to seven per cent, of which only one percentage point would be required in the form of a pre-tax market return on capital, leaving four to six percentage points for the benefit of members.

The account of the modelling undertaken in this report is very spare indeed, but what is clear is that this is yet another example of the government obtaining advice to order. There is no market for the provision of impartial advice to this government—far from it. The government is scrupulous in following Sir Humphrey’s advice: never ask for advice or hold an inquiry without knowing what the result will be.

The model used by CRA is not one with transparent assumptions that would be agreed by a panel of independent experts. On the contrary, the assumptions which drive the outcomes of this econometric model are ones that reflect the ideological prejudices of the government. Change the assumptions; change the outcomes. Economic models are no better or no worse than their assumptions and the machinery used to construct them. Is this model robust and reliable? Has it ever been used to predict something with tolerable accuracy? That seems unlikely.

Even if we try to take the CRA report document at face value, it is puzzling. It asserts that population growth will place increased pressure on average premiums, apparently on the grounds that efficiency falls as the client base grows. This seems counterintuitive. The report equates performance and efficiency with financial performance relative to competitors. It notes that in order to realise a potential increase in efficiency of five to seven per cent—that is, cost cuts of between five and seven per cent—a privatised Medibank Private might need to engage in ‘rationalisation of management, call centres and customer service delivery mechanisms’. The report asserts—once again, counterintuitively—that these cuts would not necessarily result in any reduction of customer service standards. This must be the magic of the private sector at work! I am sure that the current staff of Medibank Private would be very keen to know how these customer-friendly savings would be achieved. I am also sure that the absence of pressure from demanding shareholders would not prevent them from implementing beneficial changes on the spot. But they know, and we know, that in practice so-called efficiency improvements of this type are just about cutting jobs and services.

Finally, the report suggests several strategies for diversification and innovation that would be open to a privatised Medibank Private but fails to explain why some, if not most, of these strategies could not be pursued either under current arrangements or under the revised regulations foreshadowed by the government that would provide further flexibility to all funds.

The impact of the sale of Medibank Private on premiums is an important issue. The CRA report hedged its bets in a sense by predicting that all funds would experience irresistible upward pressure on premium levels. The government has evidently undertaken more work on the impact of Medibank privatisation on premiums in scoping studies which it has decided not to share with us. Whenever the government decides not to release the results of research conducted on its behalf, I assume that they were not favourable to the government’s public position.

The majority report of the Senate Standing Committee on Finance and Public Administration’s inquiry into this bill advanced two further reasons for selling. The first of these was similar to the ‘no good reason not to’ rationale set out in the explanatory memorandum, but with the addition of the idea that the market for private health insurance should now be considered ‘mature and competitive’. How can that claim be tested and what is the relevant evidence? It seems to be just another of the many assertions made by the government which have the right sound but prove to be content free. The majority report makes what it has termed ‘a related point’ on a possible conflict of interest that arises with the government owned business operating in a market substantially regulated by the same government. I can do no better than concur with Professor John Deeble when, in his submission, he wonders how a government could be described as having a conflict of interest with itself.

The continued presence of Medibank Private as a large not-for-profit player in the market may well conflict with the interests of parties who might stand to profit from its sale or from its removal as a competitor, but the only conflict of interest for this government is one of ideology. The continued retention of Medibank Private in the public sector offends the government’s commitment to privatisation. It has, by all reports, been on the hit list for some time. In fact, Medibank Private presents no conflict of interest to the government. On the contrary: it seems to me that there is a unity of interest between public health goals and the goals of a publicly owned Medibank Private.

As a reason for sale, the majority report also espoused ‘the importance of maximising competition in the private health industry with the consequent benefits of containing premiums. There is no evidence at all to justify this claim. The AMA, Professor Deeble and the Community and Public Sector Union all considered the converse to be true. In making up our minds, we should recognise that there is now abundant research that demonstrates that privatisation is neither necessary nor sufficient for improving the efficiency or the effectiveness of government enterprises. To insist otherwise is disingenuous at best.

Up until now, I have been examining the reasons in favour of privatisation provided by the government and their supporters in this chamber. I believe that no reason or evidence that has been advanced so far can withstand even the most sympathetic scrutiny. Instead of yielding benefits, it seems evident that privatisation is most likely to increase costs—first, for Medibank Private members and, second, for other fund members. Ultimately, the costs will flow through to the rest of the community, as the balance between the public and private sectors in our health system will be upset.

Now I would like to talk about those who would face losses of various sorts as a direct result of privatisation. First among them are the members of Medibank Private. The government got the legal advice it paid for, which said, essentially, that it was free to sell Medibank Private and that members were entitled to nothing. But the government has not been able to rely on this advice. To ensure that the bill would not fail to clear a certain constitutional obstacle to government theft, it contains provisions for some sort of compensation for members. I regard the proposal to sell the fund without first distributing its surplus funds to members as morally obnoxious and legally questionable. How could such a proposal be consistent with respect for the rule of law?

The independent advice provided by the Parliamentary Library on this question is clearly more reliable. It says that Medibank Private members have a beneficial interest in the surplus assets of the fund. The government not only proposes to rob members of their current entitlement to share in the profitability of the fund but also proposes to undermine their reasonable expectations about continuity of service levels and product range. What about national access? What about current employees and their prospects of job security after privatisation? What about the benefits such employees stand to lose if they are not guaranteed continued access to government superannuation schemes such as the CSS?

Beyond that, what about Australian ownership? The government proposes to retain a privatised organisation in Australian ownership for only five years. There can be no guarantee that Medibank Private would continue to exist in any recognisable form after that. It is noteworthy that the government has chosen to legislate to exempt Medibank Private’s proposed change of registration from the normal requirements under section 78 of the National Health Act 1953. This means that the change would occur without being subject to normal parliamentary scrutiny and without the need for the Minister for Health and Ageing to review the likely impact of a change of registration on members, on premiums and on the public interest.

What does the government stand to gain? First, it would gain any net proceeds from the sale of Medibank assets. However, I am persuaded by the independent advice of the Parliamentary Library that members would be entitled to seek compensation if the fund were sold and it was converted to for-profit status. The fact that the government has made some provision for compensation in this bill lends credence to this view. Any sale price would also need to be discounted by the usual substantial fee to a private consultant for managing the sale, further diminishing the reserves available to compensate members.

Second, a privatised for-profit Medibank Private would provide a flow of tax revenue on its profits to the government. Finally, privatisation would satisfy this government’s strong ideological bent. The government is determined to flog off Medibank Private, notwithstanding the indefensibility of its position on the legal and moral rights of Medibank Private members and notwithstanding the absence of reliable evidence that the privatisation would benefit the community. The government is steadfast in ignoring the role that a well-run public body can have in leading the market. Just think how often a certain— (Time expired)


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