Senate debates

Monday, 4 December 2006

Medibank Private Sale Bill 2006

Second Reading

5:35 pm

Photo of Linda KirkLinda Kirk (SA, Australian Labor Party) Share this | Hansard source

I also rise this afternoon to speak on the Medibank Private Sale Bill 2006. As a number of speakers have said, this bill will mean that the nation’s largest health insurer, Medibank Private, will be added to this government’s long list of unnecessary and ill-considered privatisations. Consistent with Labor’s longstanding policy of opposition to the continued privatisation of this country’s iconic assets, I along with other Labor senators will be opposing this bill.

In April this year the announcement was made of the Commonwealth government’s intention to introduce legislation to permit the sale of Medibank Private. Medibank Private—or Medibank—has been government owned and controlled since 1976.  The sale as we understand it will be conducted by share market float and will occur in 2008, assuming that this government is re-elected. The government has conceded that it will not sell Medibank Private until after the election—so, as other speakers have asked, I have to ask why it is that we are being asked to pass this legislation this week, before Christmas 2006.

The committee that inquired into this legislation, the Senate Standing Committee on Finance and Public Administration, reported on 27 November this year. It had a very short time frame in which to report, which is the usual practice these days. It did in fact leave unresolved a number of issues. There are three matters that I would like to refer to in the time that I have available today: the legal question of who owns Medibank, what effect its sale will have on premiums—as Senator Hogg referred to—and how such a massive privatisation will affect the private health insurance market more generally.

I will begin with the issue of whether or not the government is entitled to sell Medibank and what rights current members have to the Medibank Private fund. At this point, even though I have declared it on the senators’ register of interest, I should indicate that I hold Medibank Private health insurance. The Parliamentary Library earlier this year released a research brief that was entitled The proposed sale of Medibank Private: historical, legal and policy perspectives. This brief challenges the government’s claim to sole ownership of the fund. One conclusion that is reached in this brief is that it is arguable that members have the right to the benefits of the existing surplus assets of the fund and that a sale of Medibank, if it were to adversely affect those rights, could give rise to a compensation claim against the Commonwealth. The beneficial ownership of the Medibank fund arguably lies with those who have the right to control Medibank Private and are entitled to its residual earnings.

As I mentioned, this was a brief prepared by our Parliamentary library. Shortly after the release of this brief, the Sydney Morning Herald reported that the Medibank board had received legal advice some five years ago that raised questions about whether the Commonwealth was the sole owner or whether its 2.8 million members also had ownership rights. After 30 years of contributions, Medibank members have accumulated close to $1 billion in assets, cash and equity. The only equity that belongs to the Commonwealth government is a cash injection of $85 million, which it made in 2005. After contributing so much for so long, it is most certainly the case that members deserve at least a say in Medibank’s future.

In response to the Parliamentary Library research brief, which was released by Labor on 1 September, by 4 September the Department of Finance and Administration had somehow managed to get legal advice from Blake Dawson Waldron claiming that the parliamentary research brief was wrong. The conclusion of the government’s legal advice unambiguously rejected any suggestion that the members of Medibank could be entitled to compensation upon any sale. A response to this, released by the Parliamentary Library, again raised the question of whether the proposed sale of Medibank Private could leave the government open to legal action from existing policy holders. This is clearly a matter on which legal advice differs. As I understand it, the committee determined that this matter still remains unresolved.

I think the issues of whether Medibank Private members have any beneficial interest and whether there could be compensation claims following the sale are important matters. Despite the stand that the government has taken on the legal advice that I have just referred to, it has, as I understand it, now committed itself to including some entitlement for existing members in the eventual sale—meaning that the government has at least recognised that its legal advice may not have been absolute.

Another important issue that I would like to refer to in the time that I have today is the impact that the sale will have on health insurance premiums. As we well know, private health insurance premiums are a real issue for a large section of the Australian community. Private health insurance costs approximately three to four per cent of the average family income. We know that Medibank Private is currently a not-for-profit fund, and under the National Health Act 1953 the fund is prohibited from giving dividends to shareholders or any financial return to members. This means that every cent of any surplus is reinvested into the fund for the benefit of its members.

This legislation that we have before us today, the Medibank Private Sale Bill 2006, proposes to allow the Commonwealth to modify the constitution of Medibank so that it can operate on a for-profit basis. In its submission to the Senate Finance and Public Administration Committee in October this year, the Community and Public Sector Union explained that for-profit insurers need to provide dividends for investors, and the dividends would need to be high enough to attract investors. In this scenario shareholders are going to become very important—probably more important than members—with the result being less service and higher premiums. Cost-cutting measures would be implemented in order to maximise profits and dividends. Higher premiums would be inevitable as the new owner would seek to maximise returns to shareholders.

One important variable in all of this is the level of membership. The government is relying on the current level of membership in Medibank remaining the same. But there is no guarantee that the current membership levels will be maintained. If a significant number of members choose to opt out of the fund, premiums for remaining members would undoubtedly, inevitably increase.

At the very least, the sale of Medibank by float will increase the cost of health insurance to cover the cost of such things as dividends for investors, ‘the sweetener’—as you might call it—for current customers to become investors, and brokerage for the sale. Respected economic commentators have concluded—it is not simply my conclusion—that this will mean higher premiums for Australian families, who are already under pressure from rising interest rates.

Given that Medibank private is Australia’s biggest health insurer, once it becomes a for-profit company this will inevitably have implications for the private health insurance sector at large. If the market leader’s premiums go up then other insurers will surely follow. There may also be reduced competition, depending on whether the new owner is a new or existing player in the sector, which would drive up premiums.

In making its case for the sale, the government has asserted that government owned companies are inefficient. It claims that ‘a privately owned fund would be able to be more efficient’ with the possibility that this may lead to ‘less upward pressure on premiums’. On the contrary, in October this year Medibank Private announced a record profit of more than $200 million, up 53 per cent on the 2004-05 result. You have to wonder: if it is producing that kind of profit, how can there possibly be much inefficiency in the way that the company is currently operating?

Medibank’s running costs are below industry average and below the majority of private funds. At the same time, the health fund paid out a record $2.45 billion in benefits. This very strong financial performance ensures that Medibank Private can continue to protect its members and gives it the ability to reduce premium growth. Millions of Australians could expect a smaller rise in their private health insurance premiums after this record profit.

The government argues that the privatisation will reduce administrative requirements. This is certainly not true. Whilst government business enterprise reporting requirements would no longer exist, the privatised Medibank would need to regularly provide comprehensive reports to its shareholders, as do all the other private health insurers.

One out of every three Australians covered by private health funds is covered by Medibank Private. Medibank is the leading insurer in New South Wales, Victoria, the ACT and the Northern Territory, and the No. 2 provider elsewhere. This size and dominance allows Medibank to negotiate in the market and put downward pressure on the cost of hospital services in Australia. As a not-for-profit fund, Medibank is only ever negotiating on behalf of its members. As the current owner of Medibank, the Commonwealth therefore has substantial influence within the industry, including in relation to premium levels and contract bargaining. Medibank also has a broader role in the community in providing informed analysis and advocacy on health and community issues, based on principles of universality and equity. In many ways Medibank is seen as the conscience of the health insurance industry. If Medibank is privatised, this voice will be lost.

The Howard government has promised more competition through the sale of Medibank. On the contrary, the Doctors Reform Society argues that, as a profit driven company, Medibank Private ‘will emerge to tell patients what their treatment will be, where they will have it, and which doctors will deliver it, irrespective of the quality of care’. This is the way that the Americans do it; this is the way their system has gone—and this is the way our system is going to go as well, if this government succeeds in enacting this legislation and goes ahead with the sale. Americans currently face an unregulated private market for private health insurance, where premiums are increasing at a rate of five times the increase in wages. This should be a wake-up call for this government. A health sector dominated by the private market forces does not promote greater efficiency or better health outcomes.

The private health insurance market is an oligopoly by nature. Although there were 40 funds registered as at the end of June 2005, the six largest funds then commanded 77 per cent of the coverage of private health funds and, in the 2004-05 financial year, three-quarters of the total contributions to health funds. This gives the large funds considerable market power which they wield against both consumers of care—that is, the members of the funds—and the providers of care.

The government continues to promise more competition by the sale of Medibank, but can it guarantee that existing health funds will be prevented from purchasing Medibank Private, so that anticompetitive aspects of the sale are minimised? It does not take an expert to understand that the sale of Medibank to one of the large existing health funds is highly anticompetitive. It would have the potential not only to reduce premium competition, which I have been talking about, but also to reduce competition in terms of the insurance products on offer. For example, Medibank Private offers both ‘known gap’ and so-called ‘no gap’ products, but MBF and HCF do not offer the former. The history of the private health funds is that they use their market power against both the providers of care and the consumers of care.

Community sentiment and expert opinion are strongly against the sale of Medibank Private. Australians do not want to see the continued privatisation of this nation’s assets. The sale is extremely unpopular in the community. A recent Newspoll showed that 63 per cent of Australians oppose the government’s plan to offload Medibank Private, with only 17 per cent supporting it. In addition, a huge majority of Australians, some 74 per cent, said the sale would lead to higher premiums and only a tiny group, three per cent, said it would lead to a drop in premiums. This represents overwhelming opposition to the sale of Medibank Private. Premium rises will make private health insurance unaffordable and lead to people dropping their cover and heading for public hospitals when they are sick. This is bad news for private hospitals, where demand will decrease, and very bad news for public hospitals, which are already struggling to cope with the patients that they have. The last thing public hospitals want is an increase in patient numbers. This will put an even greater workload on an already overloaded system.

The bill is ambiguous in relation to ultimate ownership of Medibank. The government has talked about foreign ownership of Medibank. There is no permanent restriction on either full or partial foreign ownership. The harsh reality is that Medibank could shortly cease to be an Australian company with an Australian head office. The government is also unable to give any assurance that current Medibank employees will not lose their jobs. The sale could well mean that Australian jobs are lost. Labor has consistently argued against the sale of Australia’s largest not-for-profit national health insurer.

The Senate Standing Committee on Finance and Public Administration has released its report on the bill. Opposition senators are concerned that the government’s stated reasons for selling Medibank have been asserted rather than demonstrated or substantiated. The opposition senators’ report urges the Senate to reject the bill. A for-profit Medibank Private would focus solely on bottom-line profits and the interests of shareholders, as I have tried to emphasise here today. This would be to the detriment of the fund members, health fund workers and the broader community. For these reasons I urge senators to oppose this bill.

Comments

No comments