Senate debates

Monday, 4 December 2006

Medibank Private Sale Bill 2006

Second Reading

6:22 pm

Photo of Jan McLucasJan McLucas (Queensland, Australian Labor Party, Shadow Minister for Aged Care, Disabilities and Carers) Share this | Hansard source

The Medibank Private Sale Bill 2006 clearly defines the differences between the Howard government and a future Labor government. The difference in this instance is that ideology is the government’s only motivation for privatising Medibank Private whereas we in the Labor Party know that the sale of Medibank Private is poor policy for Medibank Private policyholders, for all in the private health industry sector and for the health of Australians generally.

We all know of the Prime Minister’s visceral opposition to Medibank and then Medicare, and that opposition now extends to Medibank Private Ltd. The Prime Minister has a hatred of anything Medibank or Medicare, and the Medibank Private sale is simply a result of this hatred. The sale of Medibank Private is totally ideology driven. The evidence for this is that any of the defences that the government has mounted for its sale cannot be substantiated. The majority report of the Senate Standing Committee on Finance and Public Administration, of which I was a participating member, cites as a reason for the sale the ‘lack of sound public policy ground for the continued public ownership of a private health insurance provider in a mature and competitive market’. But it does not attempt to clarify or put forward any arguments in support of the statement; it is simply a bald opinion which is left hanging without any evidence to support it.

In contrast, Labor has outlined a series of reasons why, in the interests of public policy, the sale of Medibank Private Ltd is not in the public interest. Firstly, in the opinion of many, premiums will rise. But we rely here not just on common sense. Common sense says that, if a not-for-profit private health insurer turns into a for-profit entity—with a statutory responsibility to return profits to shareholders, not policyholders—there simply have to be increases in premiums. But, as I said, you do not have to rely simply on common sense—which I think all Australians understand. Dr John Deeble, who is undisputedly the Australian with the most knowledge and understanding of the economics of private health insurance, stated very plainly during the inquiry that there are sound public policy reasons not to sell Medibank Private. He said:

In fact, the policy interest in private health insurance is now far greater than ever before. Why would this not include a public presence in the private insurance market? There are at least two major arguments for that presence. The first is the conventional one that it would not only be a competitor in financial terms but could also lead in developing products of benefit to its members in terms of healthcare outcomes, not simply money.

              …              …              …

The second and in my view much more important argument, is that MPL’s presence affirms the broader public interest in private health insurance. I have always believed that Medicare is a national system of health care financing which includes the private sector and its insurers, not just a Commonwealth scheme of benefits for medical care and public hospital treatment. The two parts are complementary in ways which go beyond the market place, although there are vested interests with a reason to argue otherwise.

Further, he identified that the change in tax status to a for-profit private health insurer will do nothing for private health consumers. It simply stands to reason that a not-for-profit entity which is not taxable will have to find the funds to pay its tax liability. Dr Deeble said:

How could this outcome be seen as more in the public interest than the present? The Treasury would certainly gain from the privatisation of MPL but the customer would not … The only logical conclusion is that it is the tax-exempt status of the non-profit funds which has held premiums down, not the incentives of for-profit operation.

The AMA, too, supported this position during the inquiry. As I said, one does not have to rely on common sense—although common sense in itself should be sufficient—to realise that premiums simply have to rise. Even former Prime Minister Malcolm Fraser recognises that keeping Medibank Private in public hands will reduce the pressure for premiums growth.

The government has asserted that the sale of Medibank Private would put downward pressure on premiums—though, interestingly, it did not assert that in the majority report of the committee. Until the release of the CRA International report, of which many speakers have spoken, the government had failed to release any evidence of that claim. The government previously told Labor that the scoping study included modelling which came to this conclusion. But, as we know, the government has repeatedly refused to release that scoping study, saying it is not its policy to release details of any asset sale scoping study. But some days later, at the estimates hearings for the Department of Health and Ageing, the head of the private health insurance industry branch said quite clearly that you could not indicate that premiums would rise or fall, and that any commentary on what would happen to premiums was pure conjecture and speculation.

We would all recall that, later that afternoon, the Minister for Finance and Administration released the CRA report. The CRA report says that, irrespective of who owns Medibank Private, premiums will have to rise. It also states that, if privatised, Medibank Private’s technical efficiency could be improved and that this could result in lower premiums. However, the report fails to mention that, as a for-profit fund, any benefits from these so-called efficiencies would be directed not to members’ interests but to the interests of shareholders.

Sitting suspended from 6.30 pm to 7.30 pm

Before we broke for dinner, I was commenting on the government’s CRA report. Apparently, it provides evidence that there will be downward pressure on premiums; however, the AMA, the Australian Medical Association, and Dr Deeble questioned the methodology that CRA used to undertake its inquiry. Dr Deeble quite eloquently, I think, and perhaps bluntly, said:

My criticism of the CRA report is the method that they have used, which is dressed up in all sorts of academic gobbledygook which I know—or should know, anyway. The methodology they have used there has been misapplied.

So there are certainly questions about the ability of the CRA report to make any proper analysis of the potential sale of Medibank Private.

The government also asserts that privatisation will liberate the fund from administrative requirements associated with reporting to the shareholder minister. Currently, those requirements include an annual corporate plan and a statement of intent. Could I suggest to the government—and I know that Medibank Private actually agrees with this—that producing those sorts of corporate reports is a common practice in business and in any private health insurer and does not constitute an onerous burden on a large company. Those reporting requirements do not appear to have had any impact on Medibank Private’s ability to keep its expense ratio below 10 per cent and lower than those of MBF, HCF and HBF. To suggest that by privatising this fund we will somehow liberate it from administrative requirements is just a furphy.

The government also asserts that the sale will allow entry into other insurance markets. As we know, Medibank already offers insurance products in other markets. We know that it offers travel insurance policies under the Medibank brand. To suggest that public ownership of Medibank Private stops it from entering other markets, and therefore maximising profit margins in that sector of the market, is completely false. Insurance products not related to private health insurance products must be underwritten by another company, and that has no bearing on Medibank’s ownership; it is a feature of industry regulation. It was basically confirmed by Medibank Private at the hearings that they are able to venture into the travel insurance market. They simply have to get approval from the minister.

The majority report of the committee of inquiry also suggests that there is a possible—and I underline the word possible—conflict of interest arising from a government owned business operating in a market substantially regulated by the same government. They say that ‘privatising Medibank removes such a risk’. Once again, there is no elaboration in the report and no enunciation of what the apparent risk is. It is, again, a bald statement, hanging without supporting argument. There is no justification for the claim. In June 2003, the ministers for finance and health jointly issued a press release that said that the minister for finance would become the sole shareholder minister of the fund to ‘provide a clear distinction between the Commonwealth’s roles as regulator and owner’.

That brings me to the assertion that privatisation will liberate Medibank Private from government regulation and bureaucracy and thus increase potential dividends. As I said earlier, that is absolute rubbish. Medibank Private Ltd knows, the whole private health insurance sector knows and the government knows that Medibank Private will continue to be regulated in exactly the same way that it is currently—the same way that every private health insurer in this country is regulated. To suggest that a privatised Medibank would have fewer reporting requirements is a hollow claim. Instead of reporting to the minister, Medibank Private will report to the shareholders with, in all probability, far more rigorous scrutiny than they currently receive.

The second assertion from the government is that the sale of Medibank will maximise competition, with the resultant benefit of containing premiums. The government has indicated that the sale will be by way of a float rather than a potential takeover by existing private health insurers. So the out-and-out reduction in competition, which would have been the direct result of such a sale model, is not in front of us. But to suggest that a sale by float will increase competition is plain silly. The day after the sale occurs, if it does, there will be the same number of private health insurers in the market that there are currently. It will be the same market and the same number of insurers, with the same motivation to attract customers to their products.

That brings me to the timing of the sale and the timing of the passage of this legislation. As we know, the bill indicates that the minister will determine when the sale will occur. We also know that the government intends to sell Medibank Private after the next election, should it be elected. Why then, I ask, are we proceeding with this legislation now? Why did we have to invoke the cut-off to expedite this legislation? The answer to that is simple: the government knows that the Australian public opposes the privatisation of Medibank Private.

It is the government’s political plan to quickly deal with the electoral impact of this decision this year, before Christmas, in the hope that the public will forget the fact that this government intends to sell Medibank Private with no rationale or positive public policy result, simply on the basis of ideology. It does not want to have the debate that we are having now in an election year, but the government needs to be assured that Labor will make sure that Australians are very aware of the government’s intentions towards Medibank Private.

There are a number of other issues that my colleagues have canvassed that I would like to touch on. There is the residual risk question and the question of compensation, and there remains a question about the potential liability for compensation relating to the capital generated prior to sale. The government has tabled legal advice from Blake Dawson Waldron which states that the government will not be liable for compensation, but this differs from advice from the Parliament Library which concludes:

It is arguable that members of Medibank Private could be entitled to compensation if the terms of any sale do not adequately account for their rights to the benefit of fund assets.

At best, the situation is uncertain for the government and for Medibank Private members but, at worst, given that the government continues to withhold access to the scoping study, there is a significant financial risk to the government and therefore to taxpayers. If the scoping study found that the sale would be trouble free and would not adversely affect premiums, then why has it not been released and made available for public scrutiny? The other question is on the impact on employees. The government cannot give any assurance that current Medibank Private employees will not lose their jobs. This is no comfort to those in the current workforce and is cause for extreme concern for Labor senators.

The bill limits foreign ownership for five years. It says that the directors of Medibank Private must be Australian and that its headquarters have to be in Australia for those five years. But the question remains: what happens then? What surety do we have that Medibank Private, a company now owned by Australians, owned by this government, will not then move—as BUPA did, for example—into overseas ownership?

Finally, I want to make some comments about the lack of cooperation from government departments during the inquiry. In saying this, I make no reflection on individual public servants, who I believe were simply doing the bidding of their ministers as they had been directed. My view is that these public servants were directed to be less than cooperative. The Senate required the report to be presented on Monday, 27 November. In a letter received on that day, although dated 24 November, the chief of staff to Senator Minchin said, ‘The minister has asked that I respond on his behalf to confirm that he does not intend releasing the legal information that Senator McLucas has requested. The minister also confirmed that he does not intend to make a submission to the committee on the bill.’

There was no submission made to this inquiry by either the Department of Finance and Administration or the Department of Health and Ageing. When I questioned public servants from both departments, I think it is fair to say that both sets of bureaucrats seemed somewhat sheepish. I think it was quite unusual for a committee inquiring into the sale of a publicly owned asset, potentially worth from $1.5 billion to $2 billion, for no submission to appear from either of those departments.

As I said earlier, the sale of Medibank Private is motivated solely by ideology. There is no good public reason for its sale; there is no public benefit to be derived. It is clear that premiums will rise for not only Medibank Private insurers but all private health insurers. The risk associated with the potential compensation question may play out in the courts and the negative impact on both the private and public health sector is known. We note that Senator Fifield was the only government senator prepared to attempt to defend the indefensible. Labor senators will oppose this bill for good public policy reasons and keep Medibank Private in public hands. (Time expired)


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