Senate debates

Thursday, 7 September 2006

Medibank Private

4:23 pm

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

I move:

That the Senate—
notes that:
the Government is divided over the sale of Medibank Private,
the public is concerned about the consequences of the sale of Medibank Private and its impact on the affordability of private health insurance, and
despite government promises to keep private health insurance premiums low, they have risen by almost 40 per cent since 2001; and
calls on the Government to abandon plans to sell-off Medibank Private.

It is timely in this week of confusion and chaos in the coalition parties that we have the opportunity in the chamber today to debate this motion about the future of Medibank Private. As you would be aware, I am sure, Mr Deputy President, Medibank Private is the only national private health insurer in Australia. It is owned by the Australian government and therefore the Australian people.

The first point in the motion is:

the Government is divided over the sale of Medibank Private …

Any casual observer of this week’s media would be able to see the division in the government about how the government might dispose of Medibank Private. On the one hand, you have a group proposing that Medibank Private should be sold to a series of other operators, including potentially of course operators who are not Australian. On the other hand, you have a group suggesting that Medibank Private should be floated on the stock market. We have two completely different points of view from the government members as to what they think might be the best way to proceed with the sale of Medibank Private. Which group they belong to, of course, depends on which ideological faction they are from. It is ideology, not sensible policy on private health insurance, that is driving the privatisation of Medibank Private.

There are two groups of people in the Liberal and National parties debating whether it should be sold as an entity to other private health insurance providers or floated on the stock market. There is confusion and chaos amongst the Liberal and National parties about how to dispose of the entity, but there is no evident confusion on the government benches about whether Medibank Private should be sold. They seem to be as one on that issue. It is not a question of whether Medibank Private should be sold; it is certainly the question of how to sell it that is causing them all this trouble.

The pursuit of this sale is evidence that the government has no care about the effect it would have on the three million members of Medibank Private. There is no care for the effect on the economy and there is no care for the effect on other private health insurance providers or in fact on the whole private health insurance sector if this sale goes ahead. With some of the murmurings I have heard from Senator Joyce, I do not hold out a lot of hope for the government negotiating a reasonable way forward. He too is focused on how to sell the entity, not whether to sell the entity. We have a clear distinction between the government and the opposition on this issue. The government is saying we should be able to sell Medibank Private and, here in the Labor Party, we are saying that that is not the way to go.

The second point in the motion we are debating this afternoon is:

the public is concerned about the consequences of the sale of Medibank Private and its impact on the affordability of private health insurance …

Yes, the public is concerned. On Monday, in a question in question time, I provided Senator Minchin with the opportunity to explain the basis for his claims that privatisation will result in lower premiums. I have to say, his answers were less than comforting. He said:

… based on advice we had in our scoping study—

and I will come back to that—

… the efficiency dividend that could be derived from the private ownership of Medibank Private would lessen the upward pressure on health insurance premiums.

He says to the media in the public arena that selling Medibank Private would result in lower premiums, but here in the chamber where someone is going to write it down, where someone is going to hold him to his word, he slightly changes the message. The message now is ‘lessen the upward pressure on health premiums’. Senator Minchin, that is not good enough. He went on to say:

The scoping study indicated in some detail the extent to which the efficiency dividend that would be derived from private ownership of Medibank Private would lessen the upward pressure on health insurance premiums.

He has taken the opportunity to say it twice.

We have given Senator Minchin the opportunity to share the background. What is the rationale behind his ability to make those slightly different statements? How can he say that it is going to either put pressure downwards on premiums or at least stop them going up too high? This is the scoping study. I have asked Senator Minchin twice in this chamber to provide us with a copy of the scoping study so we can have a look at the rationale that supports the premise that he is prosecuting.

Unfortunately for the three million members of Medibank Private and unfortunately for the private health insurance sector, Senator Minchin has done what this government is turning into an art form: saying that commercial-in-confidence decisions would preclude him from being able to provide that scoping study to the chamber. But I ask again. It is only fair for this community to understand the principles that drive this government to be able to make those sorts of comments. It is only fair that we have a copy of the scoping study that would indicate that premiums will go down.

But he would not explain the rationale or the logic behind his statement that privatisation will lower premiums, because there is in fact no logic behind that statement. The logic is clear. The board of a publicly listed Medibank Private is required by law to maximise the profits and returns to its shareholders. That would be the role of a board member and that is what they have to do by law. Profits and returns to shareholders are the first motivation of a private company, and Medibank Private would be in that category.

Contrast that, though, with the current situation where the not-for-profit nature of Medibank Private means that any surpluses are returned to its members via lower premiums. It is only commonsense, therefore, that a privatised Medibank Private will have to return to shareholders the profit that is currently going to lowering premiums. It is commonsense that Australians understand and that is why they are concerned about the privatisation of this entity.

You do not have to just rely on the Labor Party to put out that sort of commonsense. The Australian Medical Association have also made a submission to the Australian Competition and Consumer Commission on the proposed sale of Medibank Private. They have raised serious concerns about higher premiums for Medibank Private customers and reduced competition in the private insurance sector. Dr Mukesh Haikerwal said that higher premiums would be inevitable as the new owners sought to maximise returns to shareholders. So the AMA get it; they know what is going to happen. The Labor Party get it; we know what is going to happen. It is now incumbent upon the government to come clean and explain the logic and the rationale behind the premise that allows the government to say that privatising Medibank Private will lead to reduced premiums. I would suggest that the way forward is to provide this Senate with a copy of the scoping study as requested in this chamber. Dr Haikerwal went on to say:

There is also a chance of flow-on higher premiums across the whole private health sector because of reduced competition. But the extent of the rises would depend on whether the new owner is a new or an existing player in the sector.

This goes back to the question: how are the government proposing to sell it? Have they worked that out? What impact will that have on other private health insurers? Does the scoping study actually go to the question? I would like to know the answer to that. I think that the three million people who are members of Medibank Private have a right to know what the impact will be on their private health insurance provider, and all other private health insurance members have a right to know what is going to happen in terms of competition in the private health insurance sector if Medibank Private is sold. There will be some commercial-in-confidence elements in that scoping study—I recognise that—but surely it is incumbent upon the government to provide the Senate and the community of Australia with the principles that underpin their belief that premiums will go down.

There is also a question of legality. You would be aware, Mr Acting Deputy President, that the Parliamentary Library has produced a research brief which has raised a number of serious issues about the proposed sale of Medibank Private. Two of their conclusions are important for the community to understand. The research brief says:

  • while the government clearly ‘owns’ Medibank Private Limited (the managing organisation of the Medibank Private fund) the fund itself is best characterised as a government controlled not-for-profit entity (not strictly owned by either the Commonwealth or the fund members)

Another conclusion of the paper, which I think is important for us to understand, is:

  • members of the fund nevertheless have certain rights to the benefit of the fund and associated assets and these rights need to be considered in any scheme for the sale of Medibank Private

The government has been quick to commission some legal advice, and Senator Minchin with a great flourish on Monday happily tabled that advice in the Senate. That advice disputes the position of the Parliamentary Library. This chamber—those of us here—is not in a position to make a judgement over which advice is correct.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Yes, you are. It is a public document.

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

Who is correct though, Senator? Are you going to arbitrate on that? Are you now a judge? There is only one place where this is going to be resolved, I believe, and that is going to be in the courts. That is the sort of environment we are in. There is confusion about the legality of whether or not we can sell the entity and yet this government is progressing and pushing on with this ideologically driven desire to divest itself of Medibank Private Ltd.

I have to make the very obvious comment also that it was okay for Senator Minchin to table a piece of legal advice on Monday that supports his position. He was very happy to do that. Senator Ray, who sits behind me—and I take great heed of what Senator Ray mentions in the chamber—asked what sort of precedent we are undertaking here. I think that is an important question that this chamber now has before it. We have a precedent of providing certain pieces of legal advice. Senator Minchin was happy to table the legal advice that supports his position, but he is not happy to table the scoping study. What conclusion can we draw? Of course, he will table something that supports his point of view, but you have to ask why he will not table other things. If he cannot table all of the scoping study, why can’t he table the principles that underpinned the work that was undertaken in the scoping study?

The third part of the motion that we are dealing with today goes to the point that private health insurance premiums have in fact risen some 40 per cent since 2001. Most of us here will remember the debate in 2001, when the government said—and actually promised—that the introduction of the 30 per cent rebate on private health insurance would put ‘downward pressure on private health insurance premiums’. In the last five years we have seen a 40 per cent rise in private health insurance premiums. I am sure that people on the other side will stand up and say that that is because of advances in technology, increased demand and an ageing population; there will be a whole range of reasons why private health insurance premiums have risen by 40 per cent. But I am afraid that promise has not been met by this government.

We have a situation now where the Minister for Health and Ageing approves every application from the private health insurance sector for increases in their premiums. When Senator Patterson was minister we did have an opportunity and there was a measure through which a minister could refuse applications for increases in private health insurance rebates. In fact, to her credit, she did so. But not once has this minister not approved applications for premium rises.

We also have to think about what impact this will have on families. We know that there will be increases in private health insurance rebates. This is at the same time that we are going to have increases in interest rates. We also have increases, of course, in petrol prices. Now we have the triple whammy—interest rates, petrol prices and now the private health insurance rebate.

The final element of this motion that we are debating today calls on the federal government to abandon its plans to sell off Medibank Private. The motivation of the Liberal Party and the National Party in selling Medibank Private is ideology. I am not opposed to ideology. Ideology is the thing that brings us all to this place. It directs the things we believe in. But ideology and ideologically driven decisions always have to be tempered by commonsense. I am afraid that this government is banking on its ideology and not taking the opportunity to step back and ask these questions: what will this do to three million Medibank Private members; what will this do to all of the members of other private health insurance schemes in Australia; what will it do to the economy of this nation; and what will it do to premiums?

I have no evidence that changes my mind on this. I look forward to government members explaining to us how a privatised Medibank Private with an obligation to return dividends to its shareholders can actually put downward pressure on health insurance premiums. There is no logic in that. I invite members of the government to explain that to the people of Australia, because they are very concerned about what privatisation of Medibank Private will mean for our community.

4:41 pm

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

I stand to oppose the motion moved by Senator McLucas and the Labor Party in this place. I do it because I believe a number of things. I believe that the Labor Party are stuck in the past. They are on the opposition benches for that exact reason. They want everything to stay the same. This is notwithstanding that every one of the state and territory governments around the country, not this year and not last year but a decade or more ago, sold their state insurance organisations. They were owned by the state governments and their insurance offices have been sold. That includes the GIO in New South Wales, the SIO in Victoria, Suncorp in Queensland, the SGIC in South Australia, the SGIO in Western Australia and the TGIO in Tasmania. I will touch on that again shortly. Not only that—this is a Labor Party that, with decision making in its grasp when they were in government, sold Qantas and the Commonwealth Bank. I will indeed also touch on that again shortly.

I want to go back and look at some of the reasons that this government is united in support of the sale of Medibank Private. We believe it is in the interests of the public. Also, we believe it is in the interests of the taxpayers and, indeed, the members of Medibank Private. I will explain why. In my view, it makes no sense for the Australian government to own Australia’s largest private health insurance fund. I will put it as simply as possible. Why would the government want to own a billion-dollar-plus business enterprise with a $2.8 billion annual turnover that provides no universal service obligation to taxpayers? It trades in the black and has never returned a dividend. Occasionally, it requires a taxpayer contribution to bolster its capital backing. This is something that Senator McLucas failed to mention in her address to this Senate.

The government has no business being a player in the private health insurance market while also being a regulator of private health funds and their premiums. This ensures either a perceived or real conflict of interest and, for this reason alone, I find Labor’s opposition to the policy puzzling. I believe that the party opposite has adopted a policy of seeking relevance by blanket opposition to any significant proposal that this government puts up.

As I have indicated, Labor has talked about the increase in premiums. No, premiums will not go up as a result of a sale. Tony Abbott in this parliament referred to Labor’s sale of Qantas and said that it did not push up airfares. Labor’s sale of the Commonwealth Bank—what happened to that; what happened to interest rates? They did not go up as a result of the sale of the Commonwealth Bank.

There has been much comment on how a sale would reduce competition, but a sale of Medibank Private could strengthen the market and boost competition. In my view, for Labor to oppose the sale is them on pure ideological autopilot and opposing for opposing’s sake. Since 1998, both major parties have sold or share-floated—and I have looked at the research—over $50 billion worth of public assets. That is not only our side; it is the Labor Party as well. The Labor Party were responsible for the sale of the Commonwealth Bank, Australian Airlines and part of Qantas.

In my view, businesses run business better than government runs business. Why do I say that? Because I have a business background. I understand the workings of small business to some degree, being a former Tasmanian government small business award winner in Tasmania. But the opposition side is full of representatives from the union movement. Where is the business background on the other side? Why does business operate business better than government?

Photo of Michael ForshawMichael Forshaw (NSW, Australian Labor Party) Share this | | Hansard source

Senator Forshaw interjecting

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

There are some very fundamental understandings as to why that is the case.

Photo of Andrew MurrayAndrew Murray (WA, Australian Democrats) Share this | | Hansard source

Order! Please address your remarks through the chair, Senator Barnett.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

I was making a comment with respect to why business runs business better than government runs business. State governments, as I said, not only in the last few years but in the last 20 years—this is how Labor is stuck in the past—have sold off their government business enterprises not just in terms of insurance but across the board and, specifically, all of their own insurance companies. I have mentioned which ones they were and I can advise the Senate: the New South Wales GIO was sold in 1992 by the Greiner government; the SIO in Victoria was sold in 1992 by the Kirner Labor government; Suncorp Queensland was sold in 1997 by the Borbidge government; the SGIC in South Australia was sold in 1996 under the Brown and Olsen government; in 1993 the SGIO Western Australia was floated by the Lawrence government; and the TGIO, in 1995 by the Groom government. So the facts are on the record.

What reason is there for Medibank Private to remain in public ownership? How is it that such a large government funded asset is able to draw on taxpayers’ funds to bolster its own dominant position while being of no benefit to a large number of taxpayers, who I might add either have no private health insurance or have membership with other private insurers? What about those Australians? Are they being discriminated against? Is it fair to them? In my view, it is a distortion of the market, and the market cannot be and should not be tolerated to that degree. It is entirely unfair on other health funds and their members.

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


Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

In 1976—because it is discriminatory, Senator McLucas. The government, representing the taxpayer, owns a very substantial asset that has three million members and is nearly a third of the private health insurance market. Through you, Mr Acting Deputy President, to Senator McLucas, that is the reason why.

The Acting Deputy President:

Senator Barnett, ignore the interjections.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Medibank Private was established in 1976 and was made an autonomous government business enterprise in 1998. Medibank Private made an operating profit of $130.8 million in 2004-05, a massive 192 per cent turnaround on the profit level in 2002 and, I understand, for 2005-06, a profit approaching $200 million. There has been a turnaround in that regard, and I will make some comments about Medibank Private management shortly and will be commending them for their efforts in that regard. In 2003-04, the company made a profit of $44.8 million, but that was following a special taxpayer injection of $85 million. So Senator McLucas may ask: why is it unfair on the other health insurers’ members? That is why: you were using taxpayers’ money to prop up a government funded Medibank Private at the time. That is unfair and it was in the form of 85 $1 million shares.

The fund operates on a not-for-profit basis and has a membership base covering, as Senator McLucas indicated, around three million Australians or just under one-third of Australians who have private health insurance cover. In summary, the government ownership of Medibank Private is one humungous distortion of the market. It is unfair and discriminatory to many Australians and the sooner it is sold in an appropriate fashion the better. I will comment on the method of sale shortly.

Amazingly, this dominant player in the private health insurance industry has not returned one cracker, not one dividend, to the government. There has been no mention by the opposition during this debate to date that it has not returned one cracker. The government, through representing the taxpayers of Australia, owns this very substantial asset with not one return—not one dividend. How fair is that? The fact that from time to time taxpayers are asked to contribute funds to Medibank Private creates an unfair playing field.

Photo of Kate LundyKate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | | Hansard source

Senator Lundy interjecting

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

It is quite clear it is an unfair playing field, Senator Lundy. It is unfair to the other private health insurers that this fund is given this special injection of money. Indeed, it is the country’s biggest private health insurer.

Photo of Kate LundyKate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | | Hansard source

Senator Lundy interjecting

The Acting Deputy President:

Order, Senator Lundy! Senator Barnett is entitled to be heard in silence.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

In my view, selling Medibank Private will strengthen the private health insurance market, not weaken it as the opposition has asserted. A privately owned entity could reduce management and administration expenses and also expand into new areas of doing business. Why do you want to constrain them under the current arrangements? Is that appropriate? Is that fair? It gets back to my point that business knows how to run business; and it does it better than government, I can assure you of that.

Photo of Kate LundyKate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | | Hansard source

You know that for a fact, do you?

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Yes, indeed. I will use an example—

Photo of Kate LundyKate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | | Hansard source

Tell us why the Public Service was created.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Listen to this, Senator Lundy—you might learn something. The privately owned BUPA has a management expense ratio of 7.7 per cent compared to 9.3 per cent for Medibank Private and 10 per cent for the mutualised MBF. So, a privately owned entity has a management expense ratio of 7.7 per cent—

Opposition Senators:

Opposition senators interjecting

The Acting Deputy President:

Order, Senator Forshaw! You will have your opportunity to speak later.

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

and it is operated on a for-profit basis. In my view, the Australian government’s ownership of Medibank Private has no positive influence or bearing on private health insurance premiums or the increasing take-up of private health insurance. Medibank Private provides no universal service obligation, as I indicated earlier. That is another point that has been omitted from the opposition’s assertions. All health funds are strictly regulated—the opposition know that; they know the process—no matter who owns them. The government’s 30 per cent private health insurance rebate benefits more than 10 million Australians, or well over 40 per cent of the Australian population. That includes both hospital and ancillary cover. Medibank Private members receive this rebate, and the additional rebate of up to 35 per cent for those aged 65 or 40 per cent for those aged 70 and over, notwithstanding the Labor Party’s opposition to government policy in this area. In theory, government policy could be designed to provide particular benefits for Medibank Private members. That possibility can, of course, be avoided altogether by its sale.

According to its annual report, Medibank Private’s profit has improved by more than $306 million over the past three years. And, as I have indicated, it is improving still. While it says that 88.4 per cent of contributions by members are returned as benefits paid, the insurer matches that return on membership equity against what it says is an industry average of 87.2 per cent. However, as a government owned and funded asset with no requirement to pay a dividend, it is no wonder that Medibank Private holds a dominant position in the market. It should be sold in order to free up the marketplace and not constrain and hinder it, as Labor would like. Medibank Private is one of 38 private health insurance funds, and consumers have many choices about whom they insure with. The government—and this is an important point—is retaining the ministerial premium approval process so that any unjustifiable increase can be rejected. Senator McLucas and the Labor Party make much of that fact.

I want to refer to someone who actually runs a health fund. The CEO of NIB health insurance, Mark Fitzgibbon, has said, ‘The pressure on premiums will be reduced if Medibank goes private.’

Opposition Senators:

Opposition senators interjecting

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

That is what he said. He went on to say, ‘We expect much more aggressive competition from a privately owned Medibank.’

Photo of Michael ForshawMichael Forshaw (NSW, Australian Labor Party) Share this | | Hansard source

The same people said the Titanic wouldn’t sink!

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Senator Forshaw will be interested to know who Mr Fitzgibbon is. He is, coincidentally, the brother of Joel Fitzgibbon, the Labor member for Hunter. Mr Mark Fitzgibbon is right: competition is the thing. This is where Labor misses the point. The government does not need to own one of 38 health insurance companies in this country.

Photo of Ruth WebberRuth Webber (WA, Australian Labor Party) Share this | | Hansard source

But wait, there’s more!

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

Do not worry—there is plenty more. In terms of ministerial discretion, I want to note that there are criteria against which applications for increases will be considered. The Labor Party knows the process and has indicated an increase of 40 per cent. My advice in terms of the increase is that it is closer to 35 per cent over the five years. That increase, of course, reflects the cost of health care and the cost of an increase in that health care over that period of time.

In terms of the first point that Senator McLucas put forward in her motion—that the government is divided over the sale of Medibank Private—I have made it quite clear that that is not true. It is not the case. There is unanimity in that regard. There is total support. In terms of the method of the sale of Medibank Private, yes, there has been some discussion about whether it would be via the stock market, via a trade sale or via other means. I have expressed the view that, if at all possible, a float would be preferred, where you could leave the entity together and it could remain as one. If the process does proceed along those lines, I hope that there will be some arrangements, some special entitlement, for the members of Medibank Private to encourage them to be part owners of that entity via the share sale.

In terms of the funds, I want to make it clear that the government has made an announcement already with respect to the money that is currently an asset in Medibank Private. When Medibank Private is sold, many of the funds will be used for medical research. I want to congratulate the Minister for Health and Ageing, Tony Abbott, and the Prime Minister on making that decision. In terms of medical research, it is very important, and I appreciate that fact. I understand, according to the budget papers, that $500 million will go to the National Health and Medical Research Council and a further $170 million will go to other research arrangements. In that regard, I acknowledge the $30-odd million plus that has already been announced with respect to type 1 diabetes research in this country. Medical research is very important. I appreciate the leadership of Mr Howard and Mr Abbott, particularly in this area.

Photo of Kate LundyKate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | | Hansard source

But you can’t have it unless you sell Medibank Private?

Photo of Guy BarnettGuy Barnett (Tasmania, Liberal Party) Share this | | Hansard source

If you want to hold onto it, you do not have those funds. Through you, Mr Acting Deputy President, to Senator Lundy: you do not have that opportunity; you are effectively opposing and blocking opportunities for more funding for medical research, and I do not support that.

I want to put on the record my strong support for George Savvides, the CEO of Medibank Private, and his team—his executive team and his management team—for the work they have done over the last few years in getting Medibank Private into a very financially capable position and indeed improving its profitability and making it a very sound company—such that the government can make this decision for and on behalf of the taxpayers. George Savvides has helped turn the company around. He has done an excellent job in doing that. He has put Medibank Private in a position where there is now significant interest from potential buyers, as has been noted in the media in the last weeks and months.

My views with respect to Medibank Private have been noted already in feature articles in the Hobart Mercury on 4 August last year and in the Financial Review on 6 September last year and in a speech in the Senate in May this year. I believe that choice is underpinning the government’s policy. It is something that Labor opposes. Labor has an equivocal position on choice—some people would say opposition to it—particularly with respect to the 30 per cent health insurance rebate. I hope that is something that the opposition clarifies before the next election. (Time expired)

5:02 pm

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

I rise to speak on the opposition’s motion, which calls on the government to abandon its proposals to sell Medibank Private. The Democrats do not have an ideological opposition to privatisation; we judge each case on its merits and according to the public interest. We also hold the view that pushing people into private health insurance, as this government has done since it came to office, is not in the long-term interests of the health system in this country.

We are not here arguing in great defence of Medibank Private or suggesting that it should have greater coverage—or, for that matter, that the rest of the sector should have greater coverage. In fact, if we ever needed reminding about the problems with private health care in this country, the Community Affairs Committee gynaecological cancer inquiry that is currently underway indicates that: woman after woman told us that in the private sector they received very inadequate care compared with the public sector, for which they had only praise. One of the main problems is that in the private sector there is not the expertise or the multidisciplinary approach, so women may find themselves having surgery conducted by someone with no special expertise in gynaecological oncology.

We get evidence in this place all the time about the very high cost of private health care, and frequently—twice a year—we are reminded about the high costs when premium rises are again agreed to by government. However, today I want to argue that the government has not substantiated its proposal. I foreshadow that I will move an amendment to this motion stating:

At the end of paragraph (b), add:
“, unless the Government is prepared to produce a white paper that substantiates and supports its proposal, to engage in a genuine period of public consultation, and to be able to confirm it has widespread public support for its sale”.

On the face of it, it appears that the government cannot do that. Medibank Private holds a unique place in the private health insurance landscape. It is our largest private health insurance fund, with around one-third of the market and around three million members. As such, it is a leader in the sector and influential in the way the sector as a whole operates.

Although the government is yet to make explicit what form the sale may take, one thing is certain: it intends to sell Medibank Private off regardless of the consequences for current members, regardless of the consequences for future members and regardless of the consequences for members of all other health insurance funds. It is not just current members who have an interest in the sale of Medibank Private. If the sale proceeds, it will fundamentally change the private health insurance industry. We say that that will have far-reaching and long-term consequences for the 43 per cent of Australians who have private health insurance and for anyone who may wish to take it out in future.

There are many unknowns about the sale of Medibank Private and many unknowns about its future, but what we do know is that the sale of Medibank Private will lead to changes for both members of the fund and the broader private health insurance sector. Roughly 85 per cent of Australia’s health insurance funds are run as not-for-profit organisations. These organisations act only in the interests of their members, but if the Howard government privatises Medibank Private, turning it into a profit company, the balance of the industry will change from a predominantly not-for-profit sector to a sector which is pretty much equally split, as far as we can see, between companies for profit and those that are not for profit.

Who knows whether that fifty-fifty arrangement will be maintained? We can expect mergers and takeovers in some states, and that might happen quite quickly. We may have a private health insurance industry that is the complete opposite of what we have now. As I said, the situation now is that 85 per cent of membership is with non-profit organisations.

For-profit organisations obviously have, as part of their motive, paying returns to investors and maximising share price. The new owner of Medibank Private would presumably need to get a return on its $3 billion-or-so investment in Medibank Private. As far as I can see, that will mean a number of options. The new owners could come in and strip the assets—and those assets are very substantial, including a very big share portfolio which assists Medibank Private to pay for the costs of private health insurance. They could come in and sack most of the workers and scale back the operation. No doubt the government would approve of that; that would be seen as some kind of efficiency. So we could have job losses. I am not sure what the impact of that would be on the organisation but it is hardly likely that it would thrive under that arrangement. There is no evidence, as I said earlier, that Medibank Private is a top-heavy organisation, has too many bureaucrats or is administratively inefficient. The other option is that, to pay back that investment of $3 billion, the fees could rise.

Those seem to be the only three possible outcomes of this sale. It is hard to see how going from a situation in which all returns have to be directed towards the benefits of the members to a situation where as well as members there is now a third party which has to be looked after—the shareholders—is going to be of benefit to members.

No doubt this government will try and sell this to the members of Medibank Private and urge them to buy shares in something they already effectively own. Again, it is hard to see who would be the winners out of that. Perhaps they will be encouraged to buy the shares at an inflated price and then we will have the very difficult situation—just like the situation of Telstra—where the government is reluctant to deny Medibank Private a premium increase because suddenly there are a lot of shareholders who also vote. So if the government thinks it has a conflict of interest now in owning Medibank Private—if ‘ownership’ is the right word to use in this case—then it most certainly would have a conflict of interest post sale.

Shareholders will want to see a return on their investment and that money will have to come from somewhere. It could well come from increases in premiums, reduction in benefits and the like, as I said earlier. But for all its talk the government cannot guarantee anyone in this place, or beyond it, that this will not happen. It is not only those people who might face higher Medibank Private premiums who will be affected. As I mentioned, changing Medibank Private’s status to for-profit changes the nature of the sector as a whole. A predominantly not-for-profit sector is very different from one where profits are earned, at least in this instance, by half the organisations in the sector.

So I am not talking here about a single for-profit organisation versus a single not-for-profit organisation but about how the sector operates. It is difficult to know if individual for-profit organisations provide a lesser service than individual not-for-profit organisations. That is because we only have four for-profit funds in the whole of Australia, and they are quite small funds compared with Medibank Private. They are also operating in a larger not-for-profit environment. The government—Senator Barnett did it this afternoon—has used BUPA as the example of a for-profit organisation and has argued that it is as efficient as Medibank Private, or more so. It is true that in 2005 BUPA had lower management costs and premiums than Medibank Private and the industry average. However, what the government did not point out is that it also has less success in retaining members, has received a higher proportion of total complaints compared to market share and, perhaps most importantly, has returned lower benefits to members as a percentage of contributions.

So, is the government now telling us that these things do not matter? We do not know what would happen if BUPA were operating in a predominantly for-profit environment, where profits are the driving force, and was not necessarily operating for the best interest of members. Medibank Private has argued for the maintenance of a not-for-profit sector. Medibank Private’s 1996 submission to the Productivity Commission’s inquiry into private health insurance states that the interests of members are best served when funds ‘viewed their members as “shareholders” for whom the delivery of lower prices is a dividend’.

Medibank Private also argued in its submission that, assuming insurers are supposed to act in the best interests of members, they would be ‘acting irresponsibly if they were to have as their motive the payment of a return to investors’. Medibank Private also argued—as is clear to everyone but the government, apparently—that increasing the number of for-profit health funds potentially adds an additional layer of costs to the financing of health care. The layer that they are talking about is the shareholder. Medibank Private stated that this additional layer ‘will unnecessarily escalate the premium price for private health insurance’.

We are all well aware of the debate around the most cost-effective method for delivering health care. There is a very strong argument that publicly funded and administered systems are the most efficient and equitable way to deliver health care to the population. The Democrats are strongly supportive of a publicly funded healthcare system that is available to all on the basis of need, not the ability to pay.

Administering complex private health insurance is a costly business, and in the US it adds 10 to 15 per cent to the cost of healthcare. As Australia’s health system moves backwards towards the US, with a greater dependence on private health insurance, the costs of administering healthcare financing will rise. It is possible that the privatisation of Medibank Private is another step along this path. It is another step in increasing the costs of health care overall.

The government repeatedly says that this is all about competition—that competition will keep down costs and put downward pressure on premiums. The Minister for Health and Ageing just yesterday in question time said:

The best guarantee of low premiums is competition, not government ownership. That is the best guarantee of low premiums.

Putting aside the issue of the inherent limits on competition that must be maintained in the area of health care, it is not clear that the sale of Medibank Private will necessarily increase competition in any case. Simply repeating it over and over, ad nauseam, does not make it so.

It has been pointed out that Standard and Poor’s has recently argued that any sale of Medibank Private is likely to ‘materially affect the competitive dynamics of the industry’. It would seem that Standard and Poor’s see the possibility that the sale of Medibank Private may lead to rationalisation and greater concentration within the industry as the major force for change. The industry is already very concentrated. It is already dominated by a few large funds which, when measured by premium income, share around 80 per cent of the national market. About 80 per cent of the market in each state is also controlled by the four biggest insurers in each state.

So, if the sale of Medibank Private leads to consolidation amongst these top funds, either through one of them gobbling up Medibank Private or through them merging with one another as a result, that will most certainly reduce competition, not increase it. In fact, MBF have actually indicated that, if they cannot participate in a break-up of Medibank Private, they may have to look at changes to their own structure and for consolidation opportunities. While there may be some argument that amalgamation of some of the smaller funds could be beneficial, if the other top funds are merging with one another it is very hard, I have to say, to see how that is going to be a good thing. The ACCC is on the record as having expressed concerns about merger possibilities between any of the top health funds.

We have to remember that it may be good for competition in one state but very bad for competition in another. The private health insurance market in Australia is for the most part state based and there are state by state differences in the age of the insured population, the number of funds operating, the services provided by funds and the percentage of the insured using public versus private hospitals. More consolidation could lead to further domination by a single fund in some states. Unfortunately, we have heard very little from the government about this issue.

In all the talk of how selling off Medibank Private will increase competition, the government has also conveniently ignored the fact that when Medibank Private first entered the market as a government owned organisation, back in 1976, it brought premiums down. The existing private funds at the time waited for Medibank Private to introduce its contribution rates, and in almost all cases they undercut the fund. So Medibank Private has played a role in competition as a publicly owned entity. It obviously does not have to be privately owned to play this role.

Medibank Private, as a publicly owned fund, has also been able to negotiate competitive price deals with the private hospitals, again showing the way for other funds. Payments to hospitals constitute more than 70 per cent of Medibank Private’s costs and Medibank Private has been increasingly aggressive in its buying power to negotiate with the hospitals. This is in part a factor of its size. Larger funds are much better able to take on private hospitals and medical specialists and to negotiate to reduce the costs they charge. These savings can then be passed on to the members, either through reduced premiums or more services—or at least they would be passed on to members in a not-for-profit private health insurance fund.

In a for-profit organisation, that might not necessarily be the case, especially if the fund is operating in a sector dominated by for-profit companies. In this situation, it might be that the savings that a big fund makes in its negotiations with hospitals and specialists will be passed on to the shareholders, not the members—or, if it is feeling a little generous, the savings might be split between shareholders and members. So it is not just the size of the fund that has to be taken into consideration; it is also the fund’s primary motivation for its very existence.

The government seems to have forgotten that health care is not like any other industry and private health insurance is not like any other insurance product. We expect healthcare providers to act in the interests of their patients, in the interests of the sick and the vulnerable, even when it may not be in their own self-interest. We do not expect, nor do we want, a system in which the people providing the care are motivated by what they can get out of it. Nor do we want a system where the insurers are motivated by the profits they can make, not the quality of the services that patients receive.

This means competition is a meaningless catchcry. There must be constraints on the free market in health care. Yes, there is an important role for competition—it can improve efficiency and it can make services more responsive—but it does need to have limits. Costs are not the only consideration. After all, we do not want to see hospitals competing on the grounds of costs while they ignore patient safety, and there are limits to the efficiency gains that can be made from competing funds.

The government has yet to make a convincing case for selling Medibank Private to improve competition, let alone that it will improve services or quality of care for members. Neither has the government outlined what it will do to tackle some of the other problems that beset private health insurance. One of these is the high level of regulation in the industry. Many commentators point out that a change of owners will not automatically create the opportunity for more innovation or more aggressive negotiating with healthcare providers. This will depend on the wider regulatory environment.

Yes, the government is talking about making changes industry wide, but we do not know what effect they may have on the industry. There certainly are some questions about whether they are of the right type to achieve the outcomes the government says it wants. But, rather than waiting to see what impact these regulations might have on containing costs and improving efficiency, the government is still pushing ahead with the flogging-off of Medibank Private, just to add something else to what is acknowledged as a volatile industry.

The government has not engaged in public debate on this issue. It did not campaign about selling Medibank Private at the last election. It has not released any documentation or reports that provide the public or the Senate with any convincing information that this would be useful to current members of Medibank Private, to the people who have private health insurance generally, to the sustainability or efficiency of the industry or to maintaining the best balance between private and public health care in a broader healthcare sector. It would seem that the government is just hell bent on getting its hands on the $1.5 billion to $2 billion that will come from the sale and it does not really care about any of those issues. That is, of course, to say nothing about whether it has the moral right to sell off an asset that has been built up by contributions from members. I move:

At the end of paragraph (b), add:
“, unless the Government is prepared to produce a white paper that substantiates and supports its proposal, to engage in a genuine period of public consultation, and to be able to confirm it has widespread public support for its sale”.

5:22 pm

Photo of Michael ForshawMichael Forshaw (NSW, Australian Labor Party) Share this | | Hansard source

For the record, let me indicate at the outset that I am a member of Medibank Private and have been for many years—more than I can probably recall but it is certainly over 20 years. I am pretty familiar with Medibank Private; I am also very familiar with the history of its development since it was created by the Fraser government in 1976. I will come back to some of that history in a moment. However, I want to take a few moments to respond to some of the arguments and propositions put forward by Senator Barnett in leading for the government in this debate and putting forward the reasons why he and the government he represents believe Medibank Private should be sold.

First of all, in a rather wide-ranging speech which essentially was nothing more than an attack upon the Labor Party, the Labor governments of the past and the Labor states, he raised all the arguments we have heard so often—that is, that the Labor Party, both at the federal and state levels, had privatised government assets in the past, so how could we have the temerity to oppose the sale of Medibank Private? As always, the coalition refer to the Commonwealth Bank and to Qantas, so I will respond again just to remind them that just because you sell one government owned asset or a group of assets does not mean you should sell them all. The test for privatisation is: does the asset serve a particular public purpose such that it should be retained in public ownership?

Today is not the time—because we do not have the time—to debate the whole issue of privatisation at large. But essential to that question is whether or not the business being sold, or the asset or the enterprise or whatever term you want to give it—and those distinctions can be relevant—provides a service to the community. Of course, what we recall about such enterprises as Qantas and the Commonwealth Bank, notwithstanding their iconic status and how they may have been created in the first place, was that, when they were sold by the previous Labor government, they were businesses competing in a market and acting just like every other player in the market. For instance, in the airline industry Qantas was competing internationally and, as we all know, whilst it was and still is Australia’s flagship carrier and a world leader in the aviation industry, at the end of the day probably no more than about five to 10 per cent of Australians ever saw the direct benefit of Qantas—that is, those who had the opportunity to fly. The sort of capital injection needed to maintain Qantas was clearly one that meant that it would be better off in private hands rather than calling on the taxpayers to spend billions upon billions of dollars to upgrade and maintain its fleet.

It was a similar situation with the Commonwealth Bank. At the time it was not even the largest bank in Australia and it had pretty much lost its role as a protector, if you like, of the interests of many Australians. Banks such as the National Australia Bank, Westpac and others were undercutting it and were providing services in many cases well beyond what the Commonwealth Bank was providing. But, of course, assets such as Medibank Private—and I will call it an asset for the moment—and Telstra are different. I will come back to that.

Senator Barnett also said, ‘The states have sold all these insurance companies, like the GIO and so on.’ The first imputation in his comment was that they had all been sold by Labor state governments. I noticed that my colleague Senator Moore listened intently as well and, when Senator Barnett ran through the list, it was clear that most of them had been sold by Liberal governments. He referred to Nick Greiner, Rob Borbidge and Ray Groom—all conservative premiers. He kicked a bit of an own goal there. Again, he was talking about insurance companies that are in the business of selling insurance for a whole range of products.

We come to Medibank Private then. It is a private health insurance company. It is the largest in the country, it is government owned and it has probably almost twice as many members as any other fund. But it is different, and you just cannot put it in the same boat as companies like the GIO or Qantas. Why? It was clear in Senator Barnett’s contribution that he just does not understand what Medibank Private is all about. I listened intently to his remarks in that 20-minute speech, and I did not hear the words ‘health care’ mentioned once—not once. He talked about how he had been a business owner, that he was an expert in business and how businesses have to compete in a market. The whole speech was laced with references to business and to markets, as though we were talking about a transport company or a company selling bananas or whatever. He never once mentioned health care, and that really disappointed me because I would have thought that Senator Barnett, who I know has a genuine interest in and a commitment to improving health in this country, particularly with regard to obesity, would not ignore the fact that we are talking here about health insurance. That is why I want to return to some of the history.

Let me just remind Senator Barnett of a couple of comments. Firstly, in the Medibank Private annual report 2004 it stated:

Medibank Private is a not-for-profit Government Business Enterprise, with the sole purpose of providing high quality, excellent value private health insurance to our almost three million members. Medibank Private must earn sufficient returns to be financially sustainable, and build reserves to weather volatile, unforseen circumstances that may adversely impact member claiming. No dividends are paid and all of Medibank Private’s financial resources are directed to member benefits.

It further stated:

As a not-for-profit organisation, every dollar of profit is retained within the fund for the benefit of members.

That is what Medibank Private is all about: high-quality, excellent value private health insurance for its members. Yet Senator Barnett attacked the government ownership of Medibank Private by saying it had never paid a dividend to the government. He said ‘it had never paid a cracker’—as if somehow Medibank Private had to operate with a huge profit so that it could pay a dividend back to the government. We know how keen the government are about the rights of shareholders and paying dividends—they are very enthusiastic about it, but their performance is pretty lousy. You only have to look at what has happened with Telstra to see that. Senator Barnett just does not get it.

The other thing I want to remind Senator Barnett of is that, when Medibank Private was separated off from the Health Insurance Commission by this government in 1997, Mr Abbott said in his second reading speech:

This bill provides for the separation of Medibank Private from the Health Insurance Commission, HIC, and the creation of a new Medibank Private corporation. Through the separation, the government will ensure that Medibank Private cannot be perceived to have any competitive advantage over other private health funds through its association with Medicare or other government program functions of the HIC. It reinforces the government’s commitment to the principle of competitive neutrality.

What happened, as those of us who recall know—I know Senator Moore recalls very well, because as a member of the Senate Community Affairs Legislation Committee she has taken a strong interest in this and been involved in many estimates hearings—was that when Medibank Private was separated off from the HIC it lost its right to operate co-located with Medicare offices. That was seen to be a competitive advantage and an unfair one. But Mr Abbott made it very clear in his comments at that time that the government was ensuring competitive neutrality and there was no competitive advantage over other funds. Yet we have here today Senator Barnett saying that Medibank Private has to be sold because it has this unfair competitive advantage. He said it is discriminatory because it is owned by the taxpayers and somehow that is discriminatory against other taxpayers. That is the question: who actually owns it? If the nominal shareholder of Medibank Private is the government, it is the members of Medibank Private who provide the funds for Medibank Private. They provide the income which goes to pay the rebates and goes to build reserves that are relied upon. There is no discrimination whatsoever against other funds. Tony Abbott, I have to say, was right about that point; Senator Barnett was wrong. He just contradicted his own Minister for Health and Ageing in the same speech as he was praising Tony Abbott, the minister, for what a great job he is doing. Frankly, Senator Barnett should go back, read some of the history and some of the reports and learn a little bit more about this area of health insurance.

I want to make some other comments in support of Senator McLucas’s excellent general business motion today. Medibank Private has a very interesting and intricate history. I do not have time to go through that, but I do recommend people have a look at the Parliamentary Library research brief on this issue of the proposed sale. Firstly, Medibank Private was created by the Fraser government. It was created, essentially, for a couple of reasons, one of which was that the Fraser government really wanted to destroy Medibank. Medibank, of course, had been set up by the Whitlam government as a universal health insurance scheme. Private health insurance still existed, but Medibank had been set up. When the Fraser government got in, they ideologically did not like it and those of us who are old enough can recall—I was a young bloke then—on visits to the doctors the one thing you always noticed in the surgeries was a sign on the wall to the effect that you cannot just rely upon Medibank—the practice probably did not bulk-bill: ‘We recommend you be in a private health insurance fund to make sure you are sufficiently covered.’

The AMA did not like Medibank—they hated it. In their view there should be no government run universal health coverage in this country. Fraser in 1976 had to put forward to the people that he would retain Medibank, but he really did not believe in it—just as John Howard eventually had to say that he would retain Medicare but essentially does not believe in it. So they created as a parallel, if you like, this company Medibank Private in the health insurance industry. The arguments that were put forward at the time were that Medibank Private would compete with existing health funds—particularly to provide private health insurance to those who chose to opt out of Medibank—and also that it would increase competition in the private health insurance sector and strengthen the government’s capacity to reform and regulate the industry. That is what happened; it is true. You have to ask: if that is what the Liberal government under Malcolm Fraser thought at the time, and that has been achieved, then why should this Liberal government now go back and turn it all on its head? As I said, the AMA at that time was very strongly opposed to universal health insurance, Medibank, and of course it took the same view when Medicare was created by the Hawke government when it was elected in 1983, which bought back public health insurance for medical costs and left hospital costs and other ancillaries to private health insurance.

I find it therefore very interesting that the AMA, despite the ideological position it has held for so long, now recognises what an important role Medibank Private plays. As its media release has indicated, and as the media has noted, the AMA has raised serious concerns about higher premiums for Medibank Private customers and reduced competition in the private health insurance sector if Medibank Private is sold. To quote the AMA’s media release:

AMA President, Dr Mukesh Haikerwal, said today that higher premiums would be inevitable as the new owner sought to maximise returns to shareholders.

Of course, the AMA is looking at this from the proper perspective of what is in the interests of health care for the people of this nation and what is in the interests of health care for the members of Medibank Private particularly. It is certainly not in the interests of either of those two groups to sell Medibank Private. This government can make all these statements, and their minions and representatives can come out and say, ‘Premiums won’t rise,’ but we have heard it all before. They told us the surcharge would never change. Tony Abbott beat his chest and I do not know if he swore on a stack of Bibles but he certainly made it very clear that it would not be changed. Of course, it was changed.

Photo of Kerry O'BrienKerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | | Hansard source

Rock solid, ironclad.

Photo of Michael ForshawMichael Forshaw (NSW, Australian Labor Party) Share this | | Hansard source

It was a rock solid, ironclad promise—thank you, Senator O’Brien. They told us there were weapons of mass destruction and so on. You just cannot believe this government on most issues.

Not only the AMA is opposed to this government’s proposed sale, even Mr Russell Schneider from the Australian Health Insurance Association, who represents the private health insurance funds other than Medibank Private, has raised concerns. He just does not accept this government’s view that the sale will be good for the private health insurance sector. He said:

Health funds need to be concerned for the well-being of their members, not their shareholders.

As I said, we had Senator Barnett leading the charge today. This is all about floating and selling a company and creating a whole new class of shareholders, just like with Telstra. I would suggest that it will not be the mums and dads and Nick Minchin’s mum who will be buying shares in Medibank Private; it will be purchased by big overseas health insurance companies. There is no doubt in the world that that is what is going to happen. They are circling; we know that. The third biggest health fund in this country is a foreign owned company, the second biggest is MBF and the biggest is Medibank Private. If Mr Russell Schneider—who we have had so many battles with across the table at estimates on issues to do with health care, rebates, subsidies, private versus public and so on—is concerned, then I am really concerned.

The other point I want to make is that Medibank Private, as I said at the start, was created in the context of providing a public universal health insurance system for medical coverage, which was Medibank and then became Medicare, complemented with private health insurance. That is the context in which you have to see this. It is inextricably linked to Medicare and it is inextricably linked to the government’s ability to maintain premiums in health insurance at a reasonable level. They have failed to do that, but at least they are lower than what they might have otherwise been. The government talks about having no business being in private health insurance. Their argument is that governments should not be in private health insurance. If that is the case, if they have no business being involved in it, why are they paying a 30 per cent rebate to every single private health insurance company in this country? This is just a bad decision. (Time expired)

5:42 pm

Photo of Judith AdamsJudith Adams (WA, Liberal Party) Share this | | Hansard source

The sale of Medibank Private is common sense. Governments, as you have heard, are not good at running businesses; it is best left to businesspeople to run businesses. The Howard government has been publicly discussing the sale of Medibank Private for four years. In 2002 we first announced the scoping study and possible sale. In June 2003 we announced that we would not proceed with the sale at that time but never ruled it out for the future. In August 2005 we announced that we would be refreshing our scoping study, which led to the decision to sell. In April 2006 the government announced that it would proceed with the sale of Medibank Private.

Unlike Senator McLucas and her party, we believe in private health insurance and we believe in the private health insurance rebate. This motion is the usual story of Labor attacking the government’s policy simply because it has no alternative policy. All Labor has is a negative scare campaign which implies that the sale will force up premiums. This is simply untrue. Just as selling Qantas has not increased airfares and selling the Commonwealth Bank has not increased interest rates, selling Medibank Private will not increase health insurance premiums.

The second part of this motion is about whether the government is divided. I think not. The government have been completely up-front with the Australian people about our intentions and will proceed with the sale. The government is not divided on this issue—not at all. We are united in our desire to see the private health insurance industry becomes stronger, more effective and competitive. The industry generally will benefit from the largest health fund being privately owned and competing on a level playing field.

Competition for members between funds is the best way to limit premium increases. A study by Carnegie Wylie & Co. concluded that a privately owned fund would be able to be more efficient through lower management expenses and through scope for expansion into new business areas. These greater efficiencies mean that a privately owned fund does not put upward pressure on premiums. There are already five for-profit private health insurance funds and there is no evidence that these for-profit insurers charge higher premiums than other health funds. Selling Medibank Private will make private health insurance more competitive and keep a lid on premium increases. A good example of how the private sector can keep the lid on premium increases is, as we have heard before, a company called BUPA. It operates the privately owned, for-profit funds Mutual Community in South Australia and HBA in Victoria. While average premiums across the industry have increased by 35 per cent over the past five years, BUPA’s premiums have only increased by 25 per cent. So the premiums of this for-profit health insurer are actually getting lower relative to the mutual and government owned funds.

Senator McLucas states that the government is divided on the sale. As far as I am aware the only discussion going on at the moment is whether we will sell Medibank Private by public share offer or by trade sale. Senator Minchin has stated his personal preference for a share market float. This would give all Australians a chance to own a part of the company—with consideration given to giving an additional entitlement to the existing members. A public share offer would keep Medibank Private a strong and independent player in the private health insurance industry, while subjecting it to all the commercial disciplines of the stock market. The final decision on the form of sale will follow advice from the sale advisers. This government wants to give Australians the choice to have the option of private health cover. Selling Medibank Private will make private health insurance more competitive by bringing full commercial discipline to its process. Currently there are 38 health funds. If people are not happy with Medibank Private, they have the option of choice. If Medibank Private or any health fund increases its premiums, their members will leave. Labor do not give the Australian public much credit, do they? Private health insurance customers have full portability. If they are unhappy with the premiums they are paying, they can leave one fund and go to another. If they do this, there is no loss of benefits and no waiting periods.

The commercial advice has been that Medibank Private can be more efficient in private ownership. A fully commercial, privately owned Medibank can be more efficient in private ownership, through lower management expenses and through scope for expansion into new business areas. A privately owned Medibank Private could expand into other areas, such as other forms of insurance, other medical products or other financial products—and through this greater scope be a more efficient operation. It is through more efficient operation that a health fund can further restrain premium growth. The sale of Medibank will not affect the rights that contributors have under the terms of their existing individual health insurance policies. Recognising the continued loyalty of Medibank Private’s customers and staff, the government’s sale objectives commit to considering the interests of staff and members during the sale of the company. Industry regulation, specifically the principle of community rating, prevents adverse risk pricing for the sick and elderly. The intent of community rating is to facilitate affordable access to private health care for all Australians. It means that everyone pays the same premium for their health insurance regardless of health status or claims history. The sale of Medibank Private does not affect the government’s commitment to community rating. Legislation and regulations, including prudential requirements, which apply to all entities in the private health insurance industry protect consumer interests.

Health insurance premiums will continue to rise as the cost of medical technology and the cost of professional medical staff continue to rise. Premiums will not rise any more as a result of this sale. On Saturday, 3 June the Australian newspaper reported comments by the former Australian Health Insurance Association Chief Executive Russel Schneider—and we have heard comments from him quoted by those opposite—in an article entitled ‘Medibank sale won’t boost fees: industry’ that the government’s proposed reforms could lower prices. Mr Schneider said that a continued not-for-profit presence would also keep prices low. I quote:

“There’s a strong not-for-profit component in the health insurance system. That will act as a competitive pressure to ensure costs stay low,” he said.

In order to further protect consumers from inappropriate premium increases, the government is retaining the ministerial premium approval process with clear criteria against which applications for increases will be considered. If any health fund were to apply for premium increases that are clearly excessive, they would be rejected. The sale will also have the benefit of giving us the resources to put more money into health research. We announced in this year’s budget that the sale was allowing us to put an additional $500 million into medical research grants, through the NHMRC, and $170 million into the establishment of a research fellowship scheme. I applaud the government on this. Rather than have taxpayers’ funds tied up in a health insurance business, it makes more sense to use those funds for medical research.

In an article titled ‘Health insurers need competition’, Francis Sullivan, the Chief Executive of Catholic Health Australia, agrees, stating:

... taxpayers over the years have contributed to Medibank Private’s success.

The fact that it can be liquidated for a substantial amount provides the government with an opportunity to address some serious issues of social disadvantage, most glaringly in indigenous and mental health services.

I certainly hope some of this money will go towards research in these areas.

I have seen the Parliamentary Library report that Labor is hanging its hat and its debate on. I join my parliamentary colleagues in labelling this report inaccurate and, I feel, somewhat misleading. The report’s fundamental conclusion is that the government is not free to sell the underlying fund of Medibank Private. This statement is not correct. The government’s longstanding legal view is that the government owns Medibank Private in full, both legally and beneficially. The fact is that the government established this fund 30 years ago, the government put in working capital and the government has taken the risk of owning this firm.

This view has been reaffirmed by the legal advice from Tom Bathurst QC, which was tabled recently. Mr Bathurst confirms that the Commonwealth does own the shares in Medibank Private Ltd and is free to sell those shares. Medibank Private Ltd is not a mutual fund. Mr Bathurst goes on to state that Medibank contributors do not own the funds in Medibank and that, as a result, contributors have no basis on which to seek compensation in the event of a sale. When people buy car insurance from IAG, AAMI or GIO, they are not buying a share in the company; they are buying insurance. If people go to a private hospital, they are not buying a share in a private hospital. The Labor Party are wrong in claiming that we cannot sell Medibank Private and they are wrong to oppose the sale generally.

The government will not abandon our plans to sell off Medibank Private as it is part of our plan for a strong, effective and competitive private health insurance industry. In the same Australian Financial Review article, Francis Sullivan added:

Medibank Private should be sold. It no longer justifies government ownership. Over the past decade Medibank Private has aggressively secured 30 per cent of the health insurance market. It has built a reputation for rigorous and at times ruthless negotiations. Its behaviour is unashamedly commercial. Its agenda is solely to prevail in the price-competitive world of private health care.

This is not the core purpose for governments. In other words, Medibank Private has outgrown its government’s parentage.

In conclusion I would like to mention a few of the other reforms announced by this government to improve the private health insurance sector.

On 26 April 2006, the government announced a package of measures designed to improve competition in the industry, provide value to consumers and ensure the sustainability of the private health sector. The total value of the package is approximately $60 million over four years. These changes will allow funds to offer broader health cover products so that they can provide access to a wider range of private healthcare services. For the first time, health funds will be able to provide cover for preventive health care. These products will be supported by changes to risk equalisation and the inclusion of outreach ‘hospital in the home’ services. Coming from a rural area, I certainly support this initiative.

These changes are designed to increase the value of private health insurance for consumers and to enable health funds to better manage rising health costs by allowing them to contract with the most safe and cost-effective provider of healthcare services. Being able to compare products of health funds is important. Requiring health funds to provide standard information about their products is a prerequisite for easier comparison of products. The establishment of an industry website by the Private Health Insurance Ombudsman will meet the need for access to unbiased information about health funds and their products. The website to be managed by the ombudsman will be a tool people can use when comparing products and health funds.

Lifetime Health Cover has been an important initiative. To reward those long-term health fund members with a Lifetime Health Cover loading, the loading will be removed once the member has had private health insurance for 10 years and continues to have private health insurance. To assist consumers to better understand the benefits of private health insurance and the changes to be introduced, a general communication campaign will be undertaken in 2007. The benefits and government incentives for private health insurance will be promoted to people who may be about to incur a Lifetime Health Cover loading. Medicare Australia will be writing to notify them of their deadline. In line with these changes, the medical profession as a whole will be obliged to disclose the costs associated with a hospital procedure, enabling members to make an informed choice about their treatment.

Together these initiatives should add choice, certainty and value in private health care and ensure that the private health sector continues its vital partnership with the public sector. There will be further consultation with the private health industry before the introduction of the wider private health insurance reform legislation. The government will not abandon its plans to sell off Medibank Private, as it is part of our plan for a strong, effective and competitive private health insurance industry.

I ask the Labor Party: why does the government need to own one of 38 competing private health funds? There is no policy reason for the government to own a health fund. The government believes that businesses are best run by businesspeople, not bureaucrats. I support the sale of Medibank Private.