Monday, 4 December 2006
Medibank Private Sale Bill 2006
I was earlier this afternoon speaking about the savings that Medibank Private has been able to pass on to its members either through reduced premiums or services through its quite aggressive, if you like, negotiations with hospitals and medical specialists. Medibank Private has managed to hold cost rises to just 6.2 per cent when many of its rivals were increasing premiums by eight or nine per cent. It did not need to be privately owned to drive down premiums or get better deals for its members, and the government has not explained why it needs to be privately owned now.
The bill does of course allow for existing assets of the fund, assets that were built up from contributions of existing policy holders, to be turned over to the new shareholders. That ignores the matter of whether the government is entitled legally or morally to sell off assets that have been built up by contributions from those members. The AMA in its media release on 5 September said:
The AMA, while not wishing to comment on the legality of the situation, doubts the morality of the sale given that much of the value of Medibank Private is in its financial reserves which were not contributed by the government but rather, extracted from the members in compliance with regulatory requirements. This does not imply any criticism of the regulatory requirements. Reserves are necessary for proper prudential management of private health funds.
There are of course legal concerns. The Parliamentary Library research brief notes this in September. It said that there were legal doubts about the ability of the government to sell Medibank Private without compensating members. The government was quick to get its own advice that contradicted that. The Library subsequently provided in the Bills Digest a complete rebuttal of the advice the government was given.
The bill includes a clause specifically anticipating the risk of a compensation claim and allowing for the taxpayers to pick up any compensation tab. We say selling Medibank Private to existing members would not only seem to be the more just option but also seem to mitigate any risks of future compensation claims. The AMA endorsed this idea. It said:
If the Government no longer wishes to be involved as an operator of a private health fund, there is a strong case for mutualising Medibank Private and retaining the equity with those who have contributed to it, namely the members.
But, when it comes down to it, this sale is about filling the government’s coffers. The government will stash away from this sale about $2 billion, and there is nothing in this bill to tell us what will be done with that money. The government says it will give $500 million of the proceeds to the National Health and Medical Research Council for research grants but that is not guaranteed in this legislation. It could well turn out to be a non-core promise.
The Democrats would support more funding for medical research, and how good it would be if the government redirected some of the $2.5 billion that it spends every year on private health insurance rebates into research but, sadly, not likely. Even if the government does give $500 million to health research, there is still another $1.5 billion. The outstanding issue therefore is what to do with that extra money, and we have heard nothing from government on that.
The sale of Medibank Private does not do anything to address the health needs of the community but, at the very least, all of the money from the sale should go towards better health care. We do not oppose privatisation per se, as I said earlier today, but we do not support it without justification either. The government has provided no compelling reason to sell Medibank Private, and there are many uncertainties about the effect of the sale. Wanting to get their hands on the $1.5 or $2 billion that will come from the sale is not a good enough reason to sell off an asset that has been built up by members.
I foreshadow my second reading amendment, which has been circulated on sheet 5144 revised. It says:
At the end of the motion, add: ‘but the Senate is of the view that prior to the sale, the Productivity Commission be required to conduct an inquiry into the private health insurance industry, with specific attention to enabling an efficient, competitive and viable private health insurance industry’.
That amendment would at least tell us about the industry and about what needs to be done in order to make it viable, efficient and competitive rather than having this sort of knee-jerk approach that the government has taken and any sense that this sale might actually do that.
The Medibank Private Sale Bill 2006 represents yet another ideological attack on public institutions and the rights and welfare of Australian citizens. At stake is a public interest of the highest importance—access to affordable health care, regardless of the state of residence and the level of medical risk. In pursuit of this public interest, Australia has evolved a unique health system in which private and public operators play complementary roles. It is not without its shortcomings, particularly evident in the relatively poorer mortality and morbidity of Aboriginal and Torres Strait Islander citizens, but it delivers overall health outcomes which are superior to those of the United States at a fraction of the cost.
The evidence indicates quite clearly that Medibank Private has played an important role in the success of our system. It was introduced in order to restrain health insurance premiums and to ensure that ordinary Australians would have access to a basic health insurance package. In recent years it has achieved a reputation for innovation in cost management whilst continuing to meet the expectations of members. Its earnings enable it to explore innovative new services for members and to pay out levels of benefits to members that are generous by industry standards.
Medibank Private, a not-for-profit corporation, is and has been for some time the industry leader, despite the fact that it faces the same restrictions and pressures that apply to other private health insurance organisations. As a reward for its outstanding performance, the Howard government now proposes to throw it out of the public sector because it cannot see or will not acknowledge the public interest that is served by retaining it as a publicly owned, not-for-profit organisation, and because it cannot see or will not acknowledge the probable impact of its sale on the members and employees of Medibank Private, on ordinary Australians and on our health system.
As we sit in this house of review we enjoy the privilege and responsibility of examining, on behalf of our constituents, the claims made by the government for introducing this bill. I propose to analyse each of the reasons advanced by the government in favour of the bill before looking at some of its broader implications. The first of the reasons for sale is set out in the explanatory memorandum. It says:
There is no sound policy reason, nor market failure reason, for the Commonwealth to continue to own a health insurance business.
In other words, competition in the private health insurance market is so strong that taking out the major player, which happens to be not-for-profit, and changing its primary focus from members to shareholders will make no difference to the prices of premiums, range of products, value for money of health insurance, and its accessibility to ordinary people. Most people would find this hard to believe.
The government should not pretend that this is a perfect market where market forces are the best guarantee of consumer interests. In fact, private health insurance shows many classic signs of market imperfection, particularly asymmetric information and adverse selection. This is a market where the government subsidises prices to the tune of nearly $3 billion per annum through its rebates on health insurance premiums. Moreover, it is a market which needs government intervention to ensure adequate promotion of a public interest—that of keeping people healthy by ensuring that they have access to affordable, quality health care.
An assessment that this public interest was not being well served by existing private health insurance arrangements led to the introduction of Medibank Private by a Liberal government in 1976. Why, at a time of increasing cost pressures, increased use of expensive new diagnostic techniques and equipment and increased prevalence of costly health conditions such as obesity and diabetes, not to mention demographic ageing, would the market in private health insurance do better without the countervailing force provided by Medibank Private? Cost pressures are increasing, but the cost of failing to provide access to quality health care becomes clearer every year too. Recent research has highlighted, in particular, the importance of ensuring good health care to expectant mothers and young children as a way of reducing health risks and costs in the future.
If you want to look at what happens in a strongly privatised health system with a focus on for-profit medical service providers and insurers, then look at the United States. It spends more than any other country on health care, but its spending is not evenly targeted. Many people cannot afford health insurance and have no access to publicly funded health care systems. The community rating system, whereby higher risk or higher service clients cannot be discriminated against, is patchily applied with the result that in some states the people who most need healthcare insurance cannot get it or cannot maintain access to it.
For other OECD countries, health outcomes are generally related to the level of health expenditure—the more you spend, the better the outcomes in, for example, life expectancy at birth, infant mortality and infant birth weight. But not in the US. According to OECD figures published in 2005, the US spent 15 per cent of GDP in 2003 compared with Australia’s 9.3 per cent in 2002. Life expectancy at birth in the US was 72.2 in 2002, compared with Australia’s 80.3 in 2003. The difference in reference years indicates how difficult it is to undertake cross-country comparisons. But it is safe to say that there are significant differences in costs and health outcomes between Australia, with its carefully balanced public-private healthcare system, and the US, with its overreliance on market medicine. These differences are clearly in Australia’s favour and should discourage us from pursuing an American model.
A related public interest argument for retaining public ownership of Medibank Private is its effectiveness as a virtual regulator of the industry by adhering to its charter focus on members’ interests and by demonstrating the sort of leadership and creativity that have attracted positive comment from conservative market analysts such as Standard and Poor’s. Medibank Private obviates the need for certain types of regulatory intervention on the part of government. It sets a positive performance standard in operations and member benefits for other providers.
Moreover, Medibank Private is the only national private health insurance organisation. It is by far the largest fund, with nearly three million members across Australia—nearly 30 per cent of the entire private health insurance market. It is No. 1 or No. 2 in each and every state or territory. In my home state of Tasmania there were 77,696 individuals covered by Medibank Private in 2005. What guarantee is there that the fund would retain its national coverage if it were sold off?
The second of the government’s stated reasons for wishing to sell Medibank Private, as expressed in the explanatory memorandum, is:
Economic modelling has found that a privately-owned Medibank Private Limited would become more efficient. This will come through lower management expenses and also through an increased ability to expand into other business areas—such as other forms of insurance and other financial products—and through this expanded business, be a more efficient operation. More efficient operations will help restrain premium growth for the benefit of the contributors to the Medibank Private Fund.
To support this claim, the Department of Finance and Administration commissioned a report from a consulting company, CRA International, which, according to its website, represents the ‘gold standard for business consulting and litigation support’. I wonder whether its report for DOFA represents this ‘gold standard’. DOFA says that the report was commissioned on 23 October 2006 and completed on 31 October 2006. You would be right in considering eight days to be a very short period of time in which to undertake an analysis of the comparative efficiency of Australia’s public health insurance organisations. I am not aware of any aspect of public health with a reputation for being easily amenable to analysis. Nevertheless, CRA managed to prepare, in this very tight time frame, a 12-page report entitled The impact of privatisation of Medibank Private on private health insurance premiums.
Its major conclusions can be summarised as follows. Firstly, expected changes in health markets and population demographics over the next 20 years indicate that the real costs in Australia of providing private health insurance, and thus premiums, are likely to rise, all else being equal. Secondly, even if Medibank Private persisted with the sorts of improvements it has demonstrated in recent years, these would be insufficient to enable it to avoid premium increases. Thirdly, modelling of health fund performance indicates that there is scope for a privatised Medibank Private to increase its efficiency by an estimated five to seven per cent, of which only one percentage point would be required in the form of a pre-tax market return on capital, leaving four to six percentage points for the benefit of members.
The account of the modelling undertaken in this report is very spare indeed, but what is clear is that this is yet another example of the government obtaining advice to order. There is no market for the provision of impartial advice to this government—far from it. The government is scrupulous in following Sir Humphrey’s advice: never ask for advice or hold an inquiry without knowing what the result will be.
The model used by CRA is not one with transparent assumptions that would be agreed by a panel of independent experts. On the contrary, the assumptions which drive the outcomes of this econometric model are ones that reflect the ideological prejudices of the government. Change the assumptions; change the outcomes. Economic models are no better or no worse than their assumptions and the machinery used to construct them. Is this model robust and reliable? Has it ever been used to predict something with tolerable accuracy? That seems unlikely.
Even if we try to take the CRA report document at face value, it is puzzling. It asserts that population growth will place increased pressure on average premiums, apparently on the grounds that efficiency falls as the client base grows. This seems counterintuitive. The report equates performance and efficiency with financial performance relative to competitors. It notes that in order to realise a potential increase in efficiency of five to seven per cent—that is, cost cuts of between five and seven per cent—a privatised Medibank Private might need to engage in ‘rationalisation of management, call centres and customer service delivery mechanisms’. The report asserts—once again, counterintuitively—that these cuts would not necessarily result in any reduction of customer service standards. This must be the magic of the private sector at work! I am sure that the current staff of Medibank Private would be very keen to know how these customer-friendly savings would be achieved. I am also sure that the absence of pressure from demanding shareholders would not prevent them from implementing beneficial changes on the spot. But they know, and we know, that in practice so-called efficiency improvements of this type are just about cutting jobs and services.
Finally, the report suggests several strategies for diversification and innovation that would be open to a privatised Medibank Private but fails to explain why some, if not most, of these strategies could not be pursued either under current arrangements or under the revised regulations foreshadowed by the government that would provide further flexibility to all funds.
The impact of the sale of Medibank Private on premiums is an important issue. The CRA report hedged its bets in a sense by predicting that all funds would experience irresistible upward pressure on premium levels. The government has evidently undertaken more work on the impact of Medibank privatisation on premiums in scoping studies which it has decided not to share with us. Whenever the government decides not to release the results of research conducted on its behalf, I assume that they were not favourable to the government’s public position.
The majority report of the Senate Standing Committee on Finance and Public Administration’s inquiry into this bill advanced two further reasons for selling. The first of these was similar to the ‘no good reason not to’ rationale set out in the explanatory memorandum, but with the addition of the idea that the market for private health insurance should now be considered ‘mature and competitive’. How can that claim be tested and what is the relevant evidence? It seems to be just another of the many assertions made by the government which have the right sound but prove to be content free. The majority report makes what it has termed ‘a related point’ on a possible conflict of interest that arises with the government owned business operating in a market substantially regulated by the same government. I can do no better than concur with Professor John Deeble when, in his submission, he wonders how a government could be described as having a conflict of interest with itself.
The continued presence of Medibank Private as a large not-for-profit player in the market may well conflict with the interests of parties who might stand to profit from its sale or from its removal as a competitor, but the only conflict of interest for this government is one of ideology. The continued retention of Medibank Private in the public sector offends the government’s commitment to privatisation. It has, by all reports, been on the hit list for some time. In fact, Medibank Private presents no conflict of interest to the government. On the contrary: it seems to me that there is a unity of interest between public health goals and the goals of a publicly owned Medibank Private.
As a reason for sale, the majority report also espoused ‘the importance of maximising competition in the private health industry with the consequent benefits of containing premiums. There is no evidence at all to justify this claim. The AMA, Professor Deeble and the Community and Public Sector Union all considered the converse to be true. In making up our minds, we should recognise that there is now abundant research that demonstrates that privatisation is neither necessary nor sufficient for improving the efficiency or the effectiveness of government enterprises. To insist otherwise is disingenuous at best.
Up until now, I have been examining the reasons in favour of privatisation provided by the government and their supporters in this chamber. I believe that no reason or evidence that has been advanced so far can withstand even the most sympathetic scrutiny. Instead of yielding benefits, it seems evident that privatisation is most likely to increase costs—first, for Medibank Private members and, second, for other fund members. Ultimately, the costs will flow through to the rest of the community, as the balance between the public and private sectors in our health system will be upset.
Now I would like to talk about those who would face losses of various sorts as a direct result of privatisation. First among them are the members of Medibank Private. The government got the legal advice it paid for, which said, essentially, that it was free to sell Medibank Private and that members were entitled to nothing. But the government has not been able to rely on this advice. To ensure that the bill would not fail to clear a certain constitutional obstacle to government theft, it contains provisions for some sort of compensation for members. I regard the proposal to sell the fund without first distributing its surplus funds to members as morally obnoxious and legally questionable. How could such a proposal be consistent with respect for the rule of law?
The independent advice provided by the Parliamentary Library on this question is clearly more reliable. It says that Medibank Private members have a beneficial interest in the surplus assets of the fund. The government not only proposes to rob members of their current entitlement to share in the profitability of the fund but also proposes to undermine their reasonable expectations about continuity of service levels and product range. What about national access? What about current employees and their prospects of job security after privatisation? What about the benefits such employees stand to lose if they are not guaranteed continued access to government superannuation schemes such as the CSS?
Beyond that, what about Australian ownership? The government proposes to retain a privatised organisation in Australian ownership for only five years. There can be no guarantee that Medibank Private would continue to exist in any recognisable form after that. It is noteworthy that the government has chosen to legislate to exempt Medibank Private’s proposed change of registration from the normal requirements under section 78 of the National Health Act 1953. This means that the change would occur without being subject to normal parliamentary scrutiny and without the need for the Minister for Health and Ageing to review the likely impact of a change of registration on members, on premiums and on the public interest.
What does the government stand to gain? First, it would gain any net proceeds from the sale of Medibank assets. However, I am persuaded by the independent advice of the Parliamentary Library that members would be entitled to seek compensation if the fund were sold and it was converted to for-profit status. The fact that the government has made some provision for compensation in this bill lends credence to this view. Any sale price would also need to be discounted by the usual substantial fee to a private consultant for managing the sale, further diminishing the reserves available to compensate members.
Second, a privatised for-profit Medibank Private would provide a flow of tax revenue on its profits to the government. Finally, privatisation would satisfy this government’s strong ideological bent. The government is determined to flog off Medibank Private, notwithstanding the indefensibility of its position on the legal and moral rights of Medibank Private members and notwithstanding the absence of reliable evidence that the privatisation would benefit the community. The government is steadfast in ignoring the role that a well-run public body can have in leading the market. Just think how often a certain— (Time expired)
I rise to speak on the Medibank Private Sale Bill 2006. One could be forgiven for feeling a sense of deja vu in this place: here we are yet again debating the sale of another public asset, the sale of which, just like Telstra, will be detrimental to the Australian community and, most significantly, to the Medibank Private members. That is right: yet again we are seeing this arrogant government attempting to force legislation through this place that is going to be detrimental to the Australian people.
During the second reading debate on this bill in the other place, we saw the debate guillotined and the bill declared urgent. That was despite the government not intending to go through with the sale until 2008—until after the next election. And why were members in the other place refused the opportunity to speak on this bill? It was because the Howard government does not care about parliamentary process, it does not care about ensuring that legislation is debated and it does not want the Australian public’s attention to be drawn to this debate to help them see the truth about this bill.
In short, this is a government that does not care that it is forcing bad legislation through parliament. This is a government that does not care about the effect of such legislation on Australia or its effect on the Australian people. This bill needs to be looked at exactly for what it is, as does the reasoning behind it—and that is the sale of Medibank Private. The government’s reasons are illogical and flawed. It has asserted repeatedly that it wants to sell Medibank Private for the benefit of members and to create lower premiums but, during estimates hearings, Senator Minchin released a CRA report that stated:
Medibank Private’s premiums will have to rise irrespective of who owns Medibank Private.
The opposition senators’ report in the inquiry of the Senate Standing Committee on Finance and Public Administration into the bill also noted that the report stated:
... that, if privatised, Medibank’s technical efficiency could be improved and that this could result in lower premiums.
The opposition senators’ report went on to say:
... the report fails to mention that, as a ‘for profit’ fund, the benefit of any efficiencies would also be directed to shareholders, and not to members, as is currently the case.
Hence, we need to step back and ask: is this bill and the resulting sale of Medibank Private going to improve the situation of those with private health insurance and those who will require private health insurance in the future and is it going to be better for Australia? The answer to all these questions is, ‘No, of course it’s not.’ It is not going to be a better situation for Medibank Private members, for prospective members or for Australia.
The sale of Medibank Private will undoubtedly drive up premiums, and this is at a time when the government should be doing whatever it can to encourage Australians to invest in private health insurance. But, yet again, this arrogant government is doing nothing to plan for the future. It has no thought for any time except the present and no thought at all for Middle Australia. It is the mums and dads out there who are going to be hurt by this bill.
There are three million Medibank Private members at present. That represents 29 per cent of the private health insurance market in this country. Medibank Private was created in 1976 by the then Fraser government with the aim of it contributing to a viable and competitive health insurance industry. The Prime Minister first raised the possibility of its privatisation 20 years ago as part of his comprehensive privatisation agenda—the results of which we have all witnessed repeatedly in this place and again today. Make no mistake: this is an agenda driven by one man’s ideology.
The Australian Medical Association has repeatedly warned that premiums will go up if Medibank Private is sold. This is a view that has been shared by highly respected and well-known economic commentator Terry McCrann, who has said that premiums will have to go up because Medibank Private shareholders will expect a dividend on their investment. Mr McCrann also raised the point that the private health insurance market is largely not-for-profit and Medibank may struggle as a for-profit health insurer or its privatisation may trigger a trend in the private health insurance sector to be geared towards money-making rather than doing the job it should be doing.
There is no doubt that it is the Prime Minister’s intention to push this legislation through the parliament and, should Mr Howard and the coalition win the next election, they will sell Medibank Private, even though, according to a recent AC Nielsen poll, 63 per cent of people are against the sale. Is it any wonder when in 2001 the Prime Minister promised the Australian people that his election policies would ‘lead to reduced premiums’ and, far from that, private health insurance premiums have actually gone up by almost 40 per cent on average since 2001?
In the Tasmanian electorate of Bass, 38.4 per cent of people had private health insurance in 2005, down from 40.3 per cent in 2004. The Tasmanian electorates of Braddon, Franklin and Lyons all also recorded decreases in the percentage of private health insurance holders. In fact, Denison was the only electorate to record an increase in the proportion of the population covered by private health insurance. With the pressures that are on the public health system, the government should be doing its utmost to encourage people to purchase private health insurance. Selling Medibank Private is not the way to boost consumer confidence in the private health sector, especially when the Minister for Health and Ageing, Mr Abbott, has stated that he will not hesitate to approve premium increase requests from the private health insurance industry.
All of this flies in the face of the government’s public reasoning behind the sale. When announcing the sale, Senator Minchin said the sale of Medibank Private would increase competition in the private health insurance sector and therefore put ‘less upward pressure on premiums’. That is going to be quite a hard tale for the Australian public to swallow when, on the day after the sale of Medibank Private, there will be exactly the same number of private health insurers and no increase in competition.
As noted in the Bills Digest by the Parliamentary Library, this bill contains the provisions necessary to facilitate the sale of Medibank Private. The digest notes that:
... a sale that does not adequately account for the interest of members in the Medibank Private fund may result in a liability to pay compensation to members. The Government has indicated that it intends to offer some form of benefit to members, but is yet to specify details. This Bill contains no pro-visions for such benefits. The Bill contains various ‘safety-net’ compensation provisions, making it unlikely that it would be found to be con-stitutionally invalid in the event that it was found to acquire the property of members. Any redress available to members in such circumstances is likely to be limited to a claim for compensation.
In trying to swing public opinion in its favour, the government has stated that it would give Medibank Private members special rights in the float, yet it has failed to outline exactly how members would be treated. The Bills Digest also notes that the bill contains safeguards directed at securing the Australian character of Medibank Private, with the intention of ensuring diversified ownership. However, these provisions will expire five years after the sale of Medibank Private. Medibank Private is worth over half a billion dollars, and one could argue that the three million Medibank Private members would have a right to be compensated if it were to be divvied up and sold off. If there is any doubt at all that Medibank Private members will be ripped off, the sale should not take place.
The opposition senators’ report also stated that, if there is a chance that taxpayers may be required to meet the cost of compensation claims arising from the sale, supporting the bill is impossible. Labor is against the sale of Medibank Private, it is against this legislation and, while the government will use its powers in this place to force this bill through, a Labor government would rip up this legislation and keep Medibank Private in public ownership, which is in the best interests of all its members and all Australians.
In rising to speak on the Medibank Private Sale Bill 2006 I declare that I am a card-carrying member of Medibank Private, and that appears on my register of interests. I say that so that no-one is in any doubt as to where I stand on this debate. Having declared my interest in this, I must say that I am opposed to the sale, which should come as no surprise to the people opposite. For a long time—not just over years but over decades—my family were members of another fund, which will remain nameless. As a result of the competitiveness in the industry and the uncompetitiveness of the fund, we left the fund to become members of Medibank Private. We shopped around, of course, and Medibank Private offered the best deal for our then family of five. I think that, as they have gained their independence, my children have each continued on in Medibank Private—I cannot be 100 per cent sure of that but I am reasonably sure.
I believe that because it was a significant not-for-profit fund it kept the other funds honest. Isn’t it strange that there is very much a similar situation in the superannuation industry, where we have large industry funds that are not for profit? Over a long period of time, they have kept the for-profit sector of the superannuation industry very honest, in my opinion. Without that, the for-profit funds would have gone ahead in leaps and bounds in terms of charges and, having been uncompetitive, would then have seen their popularity with contributors wane. But that has not been allowed to happen because of the substantial hold of the industry superannuation funds.
I will not speak for a long time on this bill this evening. My main purpose is to declare my personal circumstances. But I want to take a couple of minutes to peruse some of the opposition senators’ report and some of the second reading speech—that is another gem, but we will come to that in a few moments. I want to draw the Senate’s attention to the opposition senators’ report at paragraph 1.3, where it talks about the late decision by the government to release the CRA International report. Paragraph 1.3 says:
Later that afternoon, the Minister for Finance and Administration released the CRA report, which stated that ‘Medibank Private’s premiums will have to rise irrespective of who owns Medibank Private’.
It seems to me that that is a fait accompli. The report goes on:
… if privatised, Medibank’s technical efficiency could be improved and this could result in lower premiums.
Let us not mince words; technical improvement is generally a euphemism for sacking people and reducing labour. Beyond that, there is not much by way of efficiencies to be made, and that is the only way in which lower premiums could result. The opposition senators’ report goes on to say:
However, the report fails to mention that, as a ‘for profit’ fund, the benefit of any efficiencies would also be directed to shareholders, and not to members, as is currently the case.
Hence I drew the analogy with the industry superannuation funds, where there is no for-profit concept within the industry superannuation funds. All the benefits that accrue do not go in high salaries and high charges and fees and do not go back into providing a dividend to corporate shareholders; they go back directly to the members. Of course, once Medibank Private becomes a public company, it has a distinct imperative whereby it must return a dividend to the shareholders; otherwise, why exist? If it is operating efficiently, the only way to return the dividend is invariably to cut staff. That is the last thing we need in this environment. No case is given by the government as to why this should be and why it needs to be privatised. In paragraph 1.4, the opposition senators’ report says:
The Government asserts that the sale will increase competition in the private health insurance market. Again, because it is allegedly contained in the scoping study, evidence to support this contention has not been produced.
Isn’t that a surprise? You make a bland statement that privatising it will lead to increased competition, but when the evidence is called for, the evidence, sadly, is missing. Then at 1.6 the opposition senators’ report says:
The Government also asserts that privatisation will liberate the fund from administrative requirements associated with government ownership. Currently, these requirements include an annual corporate plan and statement of intent. A float would not lessen these reporting requirements but require the fund to report to the market rather than the minister.
The conclusion of the opposition senators was that this was not going to change the status quo. All it was going to do was to change the perception of how it looked and operated. The claim that it was going to free it from administrative requirements was not found to be true. Medibank Private is still going to be required in effect to have an annual corporate plan, a statement of intent and, of course, if it becomes a public company, it will be subject to the rigours of the ASX. I am not going to, as I say, delve into the full content of the opposition senators’ report but I think that the statements that were made are compelling indeed.
I want to take a couple of minutes to look at the spin that was placed once again in the second reading speech by the Special Minister of State. I have commented about a few second reading speeches on a couple of bills in recent times. I really think the government needs to take a look at getting someone to write better second reading speeches than are being trotted out in this parliament. There is generally no intellectual rigour to the second reading speeches. They comprise a number of bland statements and, because those statements are made, ipso facto they become facts of themselves. This is, for me, quite an unacceptable way in which legislation should be handled in this place. Let us look at the second reading speech. On the first page it said:
Members will be aware that my department and the Department of Health and Ageing are consulting industry on a range of reforms to the private health insurance industry.
It went on:
These reforms are aimed at:
- making private health cover more affordable;
- improving customer access to information about health insurance products, to help customers make decisions about the cover they need; and
- streamlining the regulation of the industry while maintaining the benefits of competition and strong prudential oversight.
This is a very nice motherhood statement but nothing that really goes to the core of providing a better service to people in their health-care cover in Australia. It is very easy for the government to say they are looking at a range of reforms that are making private health cover more affordable, but when you dig into the second reading speech you cannot find out how this proposal in any way leads to that outcome. There might be a hypothesis that this happens but there is nothing there that sustains the claim that is made.
I do not know how this bill is going to improve ‘customer access to information about health insurance products, to help customers make decisions about the cover they need’. I am quite comfortable with the cover that I have had with Medibank Private now over a number of years. Privatising it does not seem to me to be going to make one iota of difference to my access to information about health insurance products. The information about health insurance products is already out there on the web and in a number of different forms and I can access it at my desire. The last dot point, about ‘streamlining the regulation of the industry while maintaining the benefits of competition and strong prudential oversight’, is questionable indeed. Undoubtedly, the prudential oversight is going to be the same whether it is a public or a private company. The second reading speech then went on to say:
There is no sound policy reason for the Australian government to continue to own a health fund.
That is just a bland statement. There is no reason that the Australian government cannot continue to own a health fund either, so making a simple statement like that does not of itself justify the sale. One would expect that they would then try to justify that statement. But the minister made no attempt whatsoever. It went on:
Competition between funds is the best way of keeping a lid on premiums.
Again this is a bland statement. It is a throwaway line without any justification. There is nothing to say that the sale of Medibank Private will go in any way to lessening the competition between funds and thereby keeping in an already existing state the lid on the premiums that we pay. One of the things that people constantly complain to me about is the ongoing increases that seem to take place annually, as they can, on adjustment of the premiums that people pay to these health funds. Again, I think that is very much a throwaway line in a second reading speech without any justification. Then the minister’s second reading speech goes on to say:
The private health insurance industry will also benefit from the largest health fund being privately owned and competing on a level playing field.
I would have thought that they might have attempted to try to explain that but there is no attempt at all. Again, it is another very bland statement for which there is no justification. So something has to happen with the speechwriters from the government’s side to at least lift their game and put some intellectual rigour into the second reading speeches. The minister’s second reading speech at page 2 went on to say:
Decisions about implementing the sale of Medibank Private will be made in the context of the Australian government’s objectives for the sale …
There were a list of dot points and I am not going to go through all of them. But the first was:
- to contribute to an efficient, competitive and viable private health insurance industry …
Again there is no substantiation of that at all from what I can see. It is again a bland comment that we are supposed to accept because the government have made this statement that it is going to happen. The next dot point said:
- to maintain service and quality levels for Medibank Private contributors, including—
and this is the normal throwaway line—
- in regional and rural Australia …
So you have to bring regional and rural Australia into it somehow, somewhere to make this justifiable. But, again, there is no evidence to sustain what the minister’s second reading speech says. Last but not least of the five dot points is where they say:
- to ensure the sale process treats Medibank Private employees in a fair manner, including through the preservation of accrued entitlements …
That is big hearted indeed. But there is no justification beyond the sale as to what the future of Medibank Private employees will be—none whatsoever. They are just being treated as one would reasonably expect them to be treated in the transmission of a sale: fairly and equitably. You cannot ask for more than that. But to give this as a reason justifying the sale beggars belief. Then in the minister’s second reading speech it says:
Claims that the sale of Medibank Private will somehow be the cause of an increase in premiums for health cover are unfounded.
I would think that if one is taking away the not-for-profit operation of the fund then there are going to be increased costs in the fund by returning a dividend to the owners of the fund. Unlike a mutual fund, where the dividend is returned to the contributors to the fund, this would no longer apply. After all, the owners of Medibank Private would want a dividend—and, if they do not, they are commercial idiots. That is the only term I could use to describe them. But under that paragraph the minister says:
Competition for members between funds is the best way to limit premium increases. Consumers, and the industry as a whole, will benefit from the largest health fund being privately owned and competing on a level playing field.
My golly gosh—what a group of words that ends up being! It gives no justification. I am glad to see you agree with me over there. There is no justification whatsoever, no substantiation—just again a throwaway line that this is going to limit premium increases. Some people might believe in the tooth fairy, the fairies at the bottom of the garden or a number of other mythical creatures—but I do not. And I do not believe that any justification has been given in the minister’s second reading speech that will show that this will happen. Purely and simply because the minister states it does not mean it is going to happen. Then it says:
Consumers, and the industry as a whole, will benefit from the largest health fund being privately owned and competing on a level playing field.
It was bad enough to say it once, but they have repeated it. So it looks as though the justification for anything in a second reading speech is not to say it once but repeat it twice or three times and that, if you repeat it often enough, it becomes the truth. Simply put, there seems to be no justification in the minister’s second reading speech for this sale, other than that it fits in with the ideological disposition of this government to get rid of this valuable service that is provided to a large number of Australians—and, for a large number of Australians, at a price that they can afford. It would not be the largest fund if it were not a competitive fund. And there is nothing to say that, by its transmission into being a privately owned company, this will in some way magically change the competitiveness of this company or put pressure on the marketplace to keep premiums low. I would say that what is not broken, leave alone. Leave it where it is: in the hands of the public and under the scrutiny that it is currently subject to. There seems no reason for this sale to be rushed through this parliament at this stage. It has been advocated that the sale will take place for some time well into the future. So leave what is not broken alone at this stage and let us see this bill consigned to the backlogs for quite a while into the future.
I also rise this afternoon to speak on the Medibank Private Sale Bill 2006. As a number of speakers have said, this bill will mean that the nation’s largest health insurer, Medibank Private, will be added to this government’s long list of unnecessary and ill-considered privatisations. Consistent with Labor’s longstanding policy of opposition to the continued privatisation of this country’s iconic assets, I along with other Labor senators will be opposing this bill.
In April this year the announcement was made of the Commonwealth government’s intention to introduce legislation to permit the sale of Medibank Private. Medibank Private—or Medibank—has been government owned and controlled since 1976. The sale as we understand it will be conducted by share market float and will occur in 2008, assuming that this government is re-elected. The government has conceded that it will not sell Medibank Private until after the election—so, as other speakers have asked, I have to ask why it is that we are being asked to pass this legislation this week, before Christmas 2006.
The committee that inquired into this legislation, the Senate Standing Committee on Finance and Public Administration, reported on 27 November this year. It had a very short time frame in which to report, which is the usual practice these days. It did in fact leave unresolved a number of issues. There are three matters that I would like to refer to in the time that I have available today: the legal question of who owns Medibank, what effect its sale will have on premiums—as Senator Hogg referred to—and how such a massive privatisation will affect the private health insurance market more generally.
I will begin with the issue of whether or not the government is entitled to sell Medibank and what rights current members have to the Medibank Private fund. At this point, even though I have declared it on the senators’ register of interest, I should indicate that I hold Medibank Private health insurance. The Parliamentary Library earlier this year released a research brief that was entitled The proposed sale of Medibank Private: historical, legal and policy perspectives. This brief challenges the government’s claim to sole ownership of the fund. One conclusion that is reached in this brief is that it is arguable that members have the right to the benefits of the existing surplus assets of the fund and that a sale of Medibank, if it were to adversely affect those rights, could give rise to a compensation claim against the Commonwealth. The beneficial ownership of the Medibank fund arguably lies with those who have the right to control Medibank Private and are entitled to its residual earnings.
As I mentioned, this was a brief prepared by our Parliamentary library. Shortly after the release of this brief, the Sydney Morning Herald reported that the Medibank board had received legal advice some five years ago that raised questions about whether the Commonwealth was the sole owner or whether its 2.8 million members also had ownership rights. After 30 years of contributions, Medibank members have accumulated close to $1 billion in assets, cash and equity. The only equity that belongs to the Commonwealth government is a cash injection of $85 million, which it made in 2005. After contributing so much for so long, it is most certainly the case that members deserve at least a say in Medibank’s future.
In response to the Parliamentary Library research brief, which was released by Labor on 1 September, by 4 September the Department of Finance and Administration had somehow managed to get legal advice from Blake Dawson Waldron claiming that the parliamentary research brief was wrong. The conclusion of the government’s legal advice unambiguously rejected any suggestion that the members of Medibank could be entitled to compensation upon any sale. A response to this, released by the Parliamentary Library, again raised the question of whether the proposed sale of Medibank Private could leave the government open to legal action from existing policy holders. This is clearly a matter on which legal advice differs. As I understand it, the committee determined that this matter still remains unresolved.
I think the issues of whether Medibank Private members have any beneficial interest and whether there could be compensation claims following the sale are important matters. Despite the stand that the government has taken on the legal advice that I have just referred to, it has, as I understand it, now committed itself to including some entitlement for existing members in the eventual sale—meaning that the government has at least recognised that its legal advice may not have been absolute.
Another important issue that I would like to refer to in the time that I have today is the impact that the sale will have on health insurance premiums. As we well know, private health insurance premiums are a real issue for a large section of the Australian community. Private health insurance costs approximately three to four per cent of the average family income. We know that Medibank Private is currently a not-for-profit fund, and under the National Health Act 1953 the fund is prohibited from giving dividends to shareholders or any financial return to members. This means that every cent of any surplus is reinvested into the fund for the benefit of its members.
This legislation that we have before us today, the Medibank Private Sale Bill 2006, proposes to allow the Commonwealth to modify the constitution of Medibank so that it can operate on a for-profit basis. In its submission to the Senate Finance and Public Administration Committee in October this year, the Community and Public Sector Union explained that for-profit insurers need to provide dividends for investors, and the dividends would need to be high enough to attract investors. In this scenario shareholders are going to become very important—probably more important than members—with the result being less service and higher premiums. Cost-cutting measures would be implemented in order to maximise profits and dividends. Higher premiums would be inevitable as the new owner would seek to maximise returns to shareholders.
One important variable in all of this is the level of membership. The government is relying on the current level of membership in Medibank remaining the same. But there is no guarantee that the current membership levels will be maintained. If a significant number of members choose to opt out of the fund, premiums for remaining members would undoubtedly, inevitably increase.
At the very least, the sale of Medibank by float will increase the cost of health insurance to cover the cost of such things as dividends for investors, ‘the sweetener’—as you might call it—for current customers to become investors, and brokerage for the sale. Respected economic commentators have concluded—it is not simply my conclusion—that this will mean higher premiums for Australian families, who are already under pressure from rising interest rates.
Given that Medibank private is Australia’s biggest health insurer, once it becomes a for-profit company this will inevitably have implications for the private health insurance sector at large. If the market leader’s premiums go up then other insurers will surely follow. There may also be reduced competition, depending on whether the new owner is a new or existing player in the sector, which would drive up premiums.
In making its case for the sale, the government has asserted that government owned companies are inefficient. It claims that ‘a privately owned fund would be able to be more efficient’ with the possibility that this may lead to ‘less upward pressure on premiums’. On the contrary, in October this year Medibank Private announced a record profit of more than $200 million, up 53 per cent on the 2004-05 result. You have to wonder: if it is producing that kind of profit, how can there possibly be much inefficiency in the way that the company is currently operating?
Medibank’s running costs are below industry average and below the majority of private funds. At the same time, the health fund paid out a record $2.45 billion in benefits. This very strong financial performance ensures that Medibank Private can continue to protect its members and gives it the ability to reduce premium growth. Millions of Australians could expect a smaller rise in their private health insurance premiums after this record profit.
The government argues that the privatisation will reduce administrative requirements. This is certainly not true. Whilst government business enterprise reporting requirements would no longer exist, the privatised Medibank would need to regularly provide comprehensive reports to its shareholders, as do all the other private health insurers.
One out of every three Australians covered by private health funds is covered by Medibank Private. Medibank is the leading insurer in New South Wales, Victoria, the ACT and the Northern Territory, and the No. 2 provider elsewhere. This size and dominance allows Medibank to negotiate in the market and put downward pressure on the cost of hospital services in Australia. As a not-for-profit fund, Medibank is only ever negotiating on behalf of its members. As the current owner of Medibank, the Commonwealth therefore has substantial influence within the industry, including in relation to premium levels and contract bargaining. Medibank also has a broader role in the community in providing informed analysis and advocacy on health and community issues, based on principles of universality and equity. In many ways Medibank is seen as the conscience of the health insurance industry. If Medibank is privatised, this voice will be lost.
The Howard government has promised more competition through the sale of Medibank. On the contrary, the Doctors Reform Society argues that, as a profit driven company, Medibank Private ‘will emerge to tell patients what their treatment will be, where they will have it, and which doctors will deliver it, irrespective of the quality of care’. This is the way that the Americans do it; this is the way their system has gone—and this is the way our system is going to go as well, if this government succeeds in enacting this legislation and goes ahead with the sale. Americans currently face an unregulated private market for private health insurance, where premiums are increasing at a rate of five times the increase in wages. This should be a wake-up call for this government. A health sector dominated by the private market forces does not promote greater efficiency or better health outcomes.
The private health insurance market is an oligopoly by nature. Although there were 40 funds registered as at the end of June 2005, the six largest funds then commanded 77 per cent of the coverage of private health funds and, in the 2004-05 financial year, three-quarters of the total contributions to health funds. This gives the large funds considerable market power which they wield against both consumers of care—that is, the members of the funds—and the providers of care.
The government continues to promise more competition by the sale of Medibank, but can it guarantee that existing health funds will be prevented from purchasing Medibank Private, so that anticompetitive aspects of the sale are minimised? It does not take an expert to understand that the sale of Medibank to one of the large existing health funds is highly anticompetitive. It would have the potential not only to reduce premium competition, which I have been talking about, but also to reduce competition in terms of the insurance products on offer. For example, Medibank Private offers both ‘known gap’ and so-called ‘no gap’ products, but MBF and HCF do not offer the former. The history of the private health funds is that they use their market power against both the providers of care and the consumers of care.
Community sentiment and expert opinion are strongly against the sale of Medibank Private. Australians do not want to see the continued privatisation of this nation’s assets. The sale is extremely unpopular in the community. A recent Newspoll showed that 63 per cent of Australians oppose the government’s plan to offload Medibank Private, with only 17 per cent supporting it. In addition, a huge majority of Australians, some 74 per cent, said the sale would lead to higher premiums and only a tiny group, three per cent, said it would lead to a drop in premiums. This represents overwhelming opposition to the sale of Medibank Private. Premium rises will make private health insurance unaffordable and lead to people dropping their cover and heading for public hospitals when they are sick. This is bad news for private hospitals, where demand will decrease, and very bad news for public hospitals, which are already struggling to cope with the patients that they have. The last thing public hospitals want is an increase in patient numbers. This will put an even greater workload on an already overloaded system.
The bill is ambiguous in relation to ultimate ownership of Medibank. The government has talked about foreign ownership of Medibank. There is no permanent restriction on either full or partial foreign ownership. The harsh reality is that Medibank could shortly cease to be an Australian company with an Australian head office. The government is also unable to give any assurance that current Medibank employees will not lose their jobs. The sale could well mean that Australian jobs are lost. Labor has consistently argued against the sale of Australia’s largest not-for-profit national health insurer.
The Senate Standing Committee on Finance and Public Administration has released its report on the bill. Opposition senators are concerned that the government’s stated reasons for selling Medibank have been asserted rather than demonstrated or substantiated. The opposition senators’ report urges the Senate to reject the bill. A for-profit Medibank Private would focus solely on bottom-line profits and the interests of shareholders, as I have tried to emphasise here today. This would be to the detriment of the fund members, health fund workers and the broader community. For these reasons I urge senators to oppose this bill.
I rise to oppose the Medibank Private Sale Bill 2006, which would lead to the sell-off of Medibank Private. In doing so, I endorse the opposition senators’ report, as part of the report by the Senate Standing Committee on Finance and Public Administration into the Medibank Private Sale Bill. Indeed, I am a signatory to the opposition senators’ report, being the deputy chair of that committee. I do not want to take up the time of the Senate this evening by going through in detail the arguments advanced in the opposition senators’ report: they are there, they are straightforward, I believe they are persuasive and I would ask that senators read that report. I believe that, if they read it in good faith, they will understand the reasons that this bill should be opposed. However, I think it is important to comment upon a number of the key issues in this debate—issues that have been addressed in the opposition senators’ report.
The first one is that there is serious doubt about the government’s right to sell Medibank Private. This question has been debated at some length and in some detail. The fact that that debate has occurred demonstrates that this is not a straightforward issue. The government would have it that Medibank Private, the health fund, is owned by Medibank Private Ltd and, further, that Medibank Private Ltd is a company which is wholly owned by the government. Therefore, they being the sole shareholder, they can sell off the asset or the company. That is a neat argument, but it has some serious flaws. The first flaw is that it misrepresents the real nature of Medibank Private.
I think Senator Kirk, in her excellent speech a moment ago, addressed this aspect when she referred to the fact that Medibank Private is a not-for-profit health fund. It is Australia’s largest health fund. It was established many years ago by a Labor government as an integral part of the holistic approach to health coverage in this country: you have Medicare—or its predecessor, Medibank—and you have Medibank Private. I know that the previous Liberal government under Malcolm Fraser was involved in the reconstruction of the original Medibank, but the real position is that Medibank Private, together with Medicare, provides a system of health coverage for a large number of Australians. So Medibank Private had its genesis in the changes in the Whitlam government years. It brought about a system of universal coverage of health costs for Australians.
Being a not-for-profit health fund, the issue arises as to who the owners are. On the one hand, the government say they own the company that holds the shares and therefore they are the sole owner—and therefore they can sell it. But, when you look into it more deeply, you have to take account of the fact that the very foundation of Medibank Private is its membership. As I said, it has the largest membership of any health fund in this country. And what are the assets of that fund? The assets of that fund are its revenue derived from premiums and its revenue that is held in reserve. In that context, it is important to understand that—as the opposition senators’ report sets out—the beneficial owners of Medibank Private are the members. They look to that fund and to the reserves of that fund to continue to provide them with the coverage of their health costs that are not covered by Medicare, particularly, obviously, hospital insurance coverage and ancillary cover.
I should say at this point that I am a member of Medibank Private. I have family coverage in the fund and I have been a member of Medibank Private for many, many years—pretty much from the time when I was at an age and of a status that I needed and decided to take out health insurance. My point in this debate is, as the opposition senators’ report points out, that, when you look at the structure of Medibank Private, in reality, rather than owners being the shareholders of the company Medibank Private Ltd, the owners are the members of the fund. The reserves are there if they are needed to be called upon to cover the contingency for future claims against the fund. This is a not-for-profit fund. This is a not-for-profit company. It does not set out to make a profit. It does not set out to declare a dividend. In that context, for the government to blandly state that ‘on paper we are the owner because we hold all the shares in Medibank Private Ltd and we can therefore sell this company off’ is to disregard the interests of millions of Australians and their families.
At the very least, the members have a beneficial interest. They certainly have, I believe, at law an equitable interest—and there is conflicting advice as to the legal status of this sell-off. The government relies upon advice from the department of finance that they can sell, but alternative advice has been put forward by reputable persons and organisations that that is not the case. That is a question that I believe is unresolved and that may well have to be tested at law if this legislation passes this chamber and the parliament. I will leave it at that point, but I think it is not appropriate—it is starting out from the wrong premise—to pass a law that has a serious legal question hanging over it. It may well be for the courts to determine that issue if this legislation is passed.
The second point I want to make in regard to this sell off is to actually pick up on a couple of the interjections that were made by the Minister for the Arts and Sport, Senator Kemp. The argument is always put by the government whenever we debate legislation that deals with privatisation—it was said when we debated Telstra—that the Labor Party in government sold Qantas and they sold the Commonwealth Bank. I have responded to that argument on previous occasions, and I will do so again tonight. The test as to whether or not it is good public policy to privatise government owned assets or government owned services—and I stress the word ‘services’—is whether or not it is appropriate in the market that that government owned corporation or service operates. Of course the big distinction here is that Medibank Private operates in a market which is about delivering health insurance, which is essentially a not-for-profit system.
As has been said by Senator Kirk and others, Medibank Private is a not-for-profit fund. This is not a market where even the other private funds that operate in the health sector do so on the basis of endeavouring to make profits and deliver profits back to shareholders. That is why nearly all of them are mutuals or companies established under similar arrangements. That stands in stark contrast to the situation that operated for the Commonwealth Bank and Qantas.
The government can try to score cheap political points on this, but I have always maintained that, when it came to Qantas, it was operating in a market that was essentially providing a service to a small proportion of the population—those that chose to fly on aeroplanes either domestically or overseas. I think that probably accounts for about five per cent of the population. They were competing against private sector companies that were operating for a profit, both domestically and internationally. The same was true of the great Commonwealth Bank. It was set up by the Chifley government but at the time that it was sold it was operating in a market where it was competing against all those other banks that were operating for a profit to deliver returns back to shareholders. Again, it was operating in a market where it did not necessarily have, by the time it was sold, a huge advantage over the other banks. My recollection is that it was actually not the biggest bank in Australia by that stage. It was certainly being challenged by the National Australia Bank and by Westpac.
I always point out that there is a distinction between the privatisation of those two government owned entities, as they were at the time, and entities such as Telstra, Medibank Private and Australia Post—which I believe could well be the next cab off the rank if this government wants to continue down this road—because in each of these latter cases the government owned entity has provided a service which is either delivered to just about every Australian and their family or, in the case of Medibank Private, delivered in a not-for-profit sector.
The health of all Australians is not a market that operates like all other markets. It does not operate as a for-profit market. The biggest financial contributor to the health of all Australians is government. It underwrites the cost of health care in this country through Medicare, through the PBS, and through the budgetary expenditure on all those other aspects of health such as hospitals and so on. That is the market that Medibank Private operates in.
You cannot argue that somehow Medibank Private can be sold off like other government-owned entities in the past, such as the Commonwealth Bank and Qantas. It is a totally different scenario. On that basis I think there is a special case here—just as there is with Australia Post and just as we argued with Telstra—that at the end of the day the nation and the Australian people benefit from government ownership of these enterprises.
I will mention a couple of other points. The government claim that the sale of Medibank Private will have a beneficial impact on premiums. Frankly, there is just no evidence for that whatsoever. It is simply a belief of the government. I do not even think they necessarily believe it. I think the motivation here is more ideological rather than anything founded on a firmly held belief. It is a mere assertion.
The government has a pretty poor track record when it comes to making assertions about what will happen in the health sector in this country. We should remember that it was this government that told us that the Medicare safety net was affordable. The Minister for Health and Ageing, Mr Abbott, put his hand on his heart and said that it would never have to be altered because it was affordable and that all those arguments put about that it would lead to a blow-out in costs were just, in his view, nonsense. Of course, he was proved dramatically wrong. Within a short space of six to 12 months he was proved totally wrong and had to apologise to the Australian people—probably one of the few apologies this government has ever made to the Australian people—and introduce changes to the Medicare safety net scheme because of the blow-out in costs.
Equally, the government has stated over the years that its 30 per cent rebate scheme for private health insurance premiums would constrain premium increases in private health insurance. That has not happened. Since this government came into office and since the 30 per cent rebate scheme was introduced, premiums have continued to increase. It has reached the point where the government no longer seriously considers whether or not it should approve an application for an increase; it pretty much ticks it off. So each year, despite this massive subsidy to private health insurance, premiums continue to rise. It is not just premiums that continue to rise but the other ‘under the table’ change that has occurred is that the funds themselves have found ways to reduce the level of refund and put extra restrictions upon their members to obtain those refunds. As a member of Medibank Private I have seen that occur.
The final point I make is this: the government has put this little caveat in the legislation which says that there cannot be any foreign ownership of Medibank Private for five years once it is sold. Big deal! What does that really achieve? That is just a signal to say that, in five years time, this fund can be sold off to any foreign owned investment bank, company, corporation or whatever. We know that there are major multinational companies and investment arms that are eagerly eyeing off this business, if it is sold, and they will wait five years if they have to. That, frankly, is a meaningless caveat.
I believe that we should take note of the comments made by Dr John Deeble to the Senate Standing Committee on Finance and Public Administration. He was the architect of the original Medibank, which is now Medicare. He is a person who understands and contributed so much to the development of our universal health coverage system. We should also take note of the AMA’s serious concerns about this sell-off. We should oppose it.
Family First believes the government is selling out Australian families by selling Medibank Private. Private health insurance is important to Australian families, where take-up rates are highest amongst couples who have children. Private health insurance is important as it gives families a sense of security and peace of mind. Private health insurance has become an essential service for many families who want access to quality hospitals at affordable prices. Private health cover is the only option for many Australian families. The government is partly responsible for this situation. It has forced many Australians into health insurance by offering discounts for cover and by punishing families, if they sign up later on, with high premium fees. Families will be worse off if Medibank Private is sold, as its sole focus would then be profits for shareholders. Profits for shareholders, rather than service to members, would become the priority. Family First believes the needs of Australian families must come first; profits should not come before families. Instead, the government has turned its back on families by putting forward the Medibank Private Sale Bill 2006 to sell Australia’s largest health insurer. Not only that, the government will be making Medibank Private a for-profit company listed on the share market.
The government did have the option of making Medibank Private a mutual fund so that it was not for profit and kept its focus on the needs of members rather than shareholders, but it rejected that option in favour of one where Medibank’s priority will be for profit. The values of the market are more important to the government than the need of families for good value health insurance.
Medibank is not a mutual fund but, as a not-for-profit government owned business, it has a characteristic similar to a mutual’s of putting members’ interest before profits and shareholders. The sell-off of Medibank Private is yet another example of the government’s so-called ‘family friendly’ policies being nothing more than market friendly.
Family First has launched a national grassroots campaign to pressure the government to abandon its plans to sell Medibank Private. This includes distributing ‘Hands off Medibank Private’ bumper stickers. Family First will continue this campaign to help the government change its mind and do the right thing by Australian families. The government eventually realised it was not doing the right thing with Snowy Hydro and stopped the sale. The government should also change its mind and stop the sale of Medibank.
Who benefits from the sale of Medibank Private? Not the people who own health insurance policies with Medibank. The government will benefit by flogging off another asset. Investors may benefit and those who have some extra cash to buy the shares might also benefit, but everyday Aussie families will miss out on the spoils and have to deal with higher costs and reduced benefits.
A privatised Medibank Private would first and foremost have to make money for its shareholders—lots of money. Its top priority would be profits—delivering maximum returns to shareholders. This would lead to increased premiums and reduced services. Australian families are already struggling and will be worse off with a privatised Medibank Private motivated solely by its profits and the bottom line and helping to lead the private insurance industry down this path.
Family First has a fundamental disagreement with the government over the aims of Medibank Private. The objective of Medibank should be to provide a service to its members at the best possible price, not to make as much profit as it can. As health insurance has become an essential service for many Australian families, there is a legitimate role for government to provide this service to satisfy members rather than profits.
Professor John Deeble, a former commissioner in the Health Insurance Commission over the 14 years that the commission managed Medibank, explained to the Senate committee looking into this bill that it was set up to provide an affordable service rather than to make money. Rather than focus on providing a good service, the government has decided that Medibank should be a competitive for-profit business listed on the share market.
The government issued a report by consultants CRA International which made claims of how much better Medibank Private would operate as a privatised listed company. But the CRA report was written from the perspective of market ideology, where an organisation is defined as efficient if it can turn a profit for its shareholders. To make that profit, Medibank will have to cut benefits to members. This is part of a strange notion that a company that provides poorer service and charges higher premiums is the better company because it provides better returns to shareholders! The AMA pointed out that the CRA International report cites MBF as a more efficient fund than Medibank Private on the grounds that MBF pays lower benefits.
The issue comes back again to a fundamental disagreement over what the overall objectives of Medibank Private should be: to make profit or to service members. Family First believes Medibank Private’s main objective should be to serve members. The government argues that privatising Medibank would put downward pressure on premiums. Family First believes this is complete nonsense, as there is already competition between health insurance funds. Privatising Medibank Private would in fact put upward pressure on premiums because it would face the extra pressure of having to make more money in order to satisfy both the tax office and shareholders. A privatised Medibank would have to earn 30 per cent more just to cover the loss of tax-exempt status. It is that tax-free status that helps keep premiums down, not the incentives in a for-profit structure.
The other significant cost of privatisation is that Medibank Private would have to provide a return to shareholders, which is money it previously did not have to find. The best way to ensure families can afford health insurance is for the government to be a player in the sector to keep everybody honest. If the government no longer has a financial interest in the industry, how long will it be before its role of regulating premiums will become nothing more than a rubber stamp? How long will it be before an increasingly profit focused industry pressures the government for higher and higher premiums? Just last month, the chief executive of NIB Health Funds admitted the Medibank sale would cause a ‘tsunami’ of change in the industry with ‘fewer and larger players’. NIB is also considering following Medibank’s lead by demutualising and floating the company.
Private health insurance is important to Australians. More than one in two adults have made the financial sacrifice to take out insurance, with the largest rates of private health insurance being among couples with children. However, two-thirds of those who do not have health insurance say it is because it is already too expensive. Given the significant government investment in health insurance, it is vital that the government continue to ensure access to private cover is affordable and accessible to as many Australian families as possible.
If the government is serious when it claims to care about Australian families, it should ditch its plans to sell Medibank Private, which will lead to higher premiums and reduced services. Family First believes the government should retain ownership of Medibank Private for the public good, to ensure affordable health insurance and quality health services for all Australian families.
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)
I rise to speak on the Medibank Private Sale Bill 2006. This bill is the Howard government’s latest attack on the prosperity and pocketbooks of Middle Australia. The legislation before the Senate this evening will give the government the power to sell Medibank Private and it will reclassify the organisation as a for-profit fund. Let me provide a brief overview of this bill. This bill does a number of things. The first schedule of the bill provides for the sale of Medibank Private, it amends the Health Insurance Commission (Reform and Separation of Functions) Act 1997, with the effect that the Commonwealth is no longer required to retain ownership of shares in Medibank Private, and it also allows for Medibank Private to distribute profits that it accumulated while it was operating as a not-for-profit entity.
The second schedule of the bill contains a range of conditions relating to the sale of Medibank Private. Firstly, it provides for a range of schemes under which the fund may be sold. It also alters the status of Medibank Private, changing it to a for-profit corporation which may distribute profits. Finally, it puts restrictions on the ownership of Medibank Private and ensures that it must retain its Australian identity for the next five years.
But let us get this clear. This bill is being rushed through. What this government now specialises in is rushing legislation through this Senate without proper scrutiny. In fact, it is making it an art form in this place and should be condemned for it. Despite the fact that the government has made the decision to sell Medibank Private, and despite the fact that it is rushing through the legislation to give it power to sell, the government has indicated that it does not intend to sell the fund until 2008 at the earliest. You immediately have to ask yourself why the government is so keen on pushing the legislation through at this point in time. Have we nothing better to do? Isn’t there other legislation we could consider? These are all good questions that need an answer, but I am sure we are not going to get one from the government. Instead, we are dealing with this bill some years before it is necessary. Instead of waiting in order to ensure that legal and policy questions are decisively answered, we are going to continue with this bill.
There are significant legal issues that have been raised in this sale—and they have been raised not only in the research brief by the Parliamentary Library. But let us go to that point first. These legal issues were raised in a paper produced by the Parliamentary Library earlier this year, titled The proposed sale of Medibank Private: historical, legal and policy perspectives. I am sure that senators are aware of the comprehensive issues raised in this paper, so I will not dwell on them in detail. However, to briefly recap, the library raised the issue that members of the fund may hold certain rights to surplus assets of the fund. If the fund were sold by the government, there may be some claim by the members for compensation. I note, of course, that the government was quick to table legal advice from Blake Dawson Waldron that purports to show that the members of Medibank Private would not be entitled to compensation.
Two interesting points arise out of that. Firstly, the government do not often table legal advice—in fact, I have asked for it to be tabled at estimates and here many a time in order to get a standard response, but it is not the government’s practice to do this—but, in this instance, we see them rush it out in response to a library brief. That in itself is an unusual position: to respond not to the politics of the day but to a library brief. At that point, it was not even a committee report, a government report or an issue raised here. Be that as it may, this point remains unresolved. There is no conclusive decision of a court to which you can point to say that it has been finally decided. Subsequent publications of the Parliamentary Library have also picked up on some matters in the advice that still remain open to interpretation. I have yet to see another piece of legal advice from the government about those matters, but it may find its way forward through the minister and be tabled here. If not, I am sure the shadow minister will take up the matter in the committee stage.
While it is not my role to adjudicate on the competing advices that have been provided by the library and Blake Dawson Waldron—I am not in a position either to say that Blake Dawson Waldron is the correct and preferable choice—I urge the government to step back and make sure that we get it right. I would have thought that the more important thing to do would be to ensure that we avoid a situation where we might be locked in litigation for years because of the government’s rush to sell off or—perhaps I could use a bold phrase—because of the government’s eagerness to sell off this asset without ensuring sufficient time to allow those matters to be at least comprehensively dealt with and proper legal advice obtained and to ensure that the market is not left hanging in this respect. If the government is in such a rush to sell off this asset, we have to ask why it does not add further relevant legal advice and table that to ensure that there is certainty in the marketplace and that these matters are properly resolved or wait to ensure that they are resolved.
I think there is another string to the government’s bow. Not only are they keen on selling assets; they are also keen on their ideological approach. However, when you look at the government’s plan to sell off Medibank Private, when you depack it, it should not be seen as anything other than a pure ideological bent towards an economic rationalist agenda that is out of line with average Australian families. The basis of the sale was summarised neatly by Ms Julia Gillard from the House of Representatives, who quoted the Minister for Health and Ageing as basically stating, ‘What we do as Liberals is to sell things.’ So there you have it: this is a decision based on the ideological rhetoric of the minister for health. I cannot even hold Senator Minchin accountable for that! They are Liberals and they sell things—that seems to be their catchcry. Perhaps I can ascribe that to Senator Minchin eventually, but not now.
It is no wonder that they are forced to use such a simple argument in favour of their scheme. There is no evidence that the sale will reduce premiums or increase competition. As I have noted above, in the past, Medibank Private has even argued against this position. The Howard government cannot guarantee that the sale will have a positive impact on members. Some of the statements and arguments put forward in the House pointed to a Howard government broken promise in 2001. The promise was that his election policies would lead to reduced premiums; instead, premiums have risen by almost 40 per cent since that time.
This is a government that, with its control of the Senate, is becoming more arrogant each day we sit. This is another example of the Howard government’s growing arrogance. Since the Howard government seized control of the Senate, we have seen one ideological attack after another, firstly on conditions, such as those attacks in the Work Choices legislation on Australian families, where the government is committed to its agenda of driving down the working conditions of ordinary Australians. We have seen the sell-off of Telstra but we have not seen a commensurate increase in the service to rural and regional Australia. We have seen what could only be described as an ideological bent—and perhaps I can ascribe this one to Senator Minchin—with the introduction of the voluntary student unionism legislation. We are seeing it again with this bill.
Labor is opposed to this bill. It is an extreme position just like the coalition’s IR agenda, just like their voluntary student unionism legislation, just like their ability to sell-off Telstra without considering the wider ramifications. There is no need to sell Medibank Private now. There is no evidence that the sale will reduce premiums and increase competition. The government argue for two main points: efficiency, which will engender greater competition—it is a sort of Milton Friedman argument—and, coupled with that, the idea, ‘We also might have a conflict of interest and therefore we need to sell it.’ When you unpack those two arguments, they are not supported enough to warrant the sale of Medibank Private. If those arguments won out on every occasion, that would mean, in all instances, that there is no public-private debate to be had—the private must always be more efficient than the public. That is a ridiculous argument. There are reasons why in the public domain it is better to have private enterprise, and competition results. There are other competing interests which dictate that it is better for some things to remain in public hands. Of course that is an ongoing argument that can be had on another day but it is not an argument that rationally could be put up in this debate.
The fact is that this bill will have very little impact on the ability of Medibank Private to operate as a private company. It will make no difference in terms of the operation of the National Health Act, but it will now no longer be required to provide reports to the shareholder minister. However, what it will do is to vastly increase the percentage of the healthcare fund market that is for profit as opposed to not for profit. All this means, in truth, is that Medibank Private would be entitled to distribute profits. It will not lead to increased competition. The bill before us will not introduce a single new health insurer into Australia. That is the essence of increasing competition in a marketplace. In fact, in the past Medibank Private has actually made the argument that it would increase the premiums. In a submission to the 1996 Productivity Commission inquiry into private health insurance, it stated:
A situation where a for-profit ‘middleman’ … is also involved … will unnecessarily escalate the premium … for private health insurance.
So even Medibank, in the past, has argued that this form of reform will not make premiums any cheaper.
There is also a serious concern about the manner in which the government is ramming this bill through parliament. Even with the bill through, the government, as I have said, is not expected to sell Medibank Private until 2008. It really is incumbent on this government to convince the Senate of the need for the piece of legislation now rather than in 2007 or 2008, depending on the timing of the sale.
This is particularly salient when one considers that there is substantial concern surrounding some of the legal aspects of the sale—such as the ownership of the assets, which I have already touched on. So where is the rush? Why doesn’t the government put aside the legislation for the time being and make sure that all of these issues are resolved before continuing? It is not to argue that you should never act; it is about ensuring that if you do think the market is the place then you also must think the market must have certainty. To have certainty, you should ensure that what you are doing will provide certainty and will not create uncertainty in the marketplace.
Let us be clear: the Howard government’s extremist agenda for Medibank Private is not one that is based on any rational assessment of the benefits of the policy. It is not based on community sentiments. It is based on their own extreme ideological viewpoint, and—I will say it again—their growing arrogance and contempt. It is based on the idea that they are Liberals and they like to sell things.
But, fundamentally, it is the product of a government that is growing more and more out of touch with Middle Australia each day. It is a product of a government that has seen health insurance premiums rise by 40 per cent since 2001. This bill is yet another peg in the Howard government’s plan to drive down the conditions of Middle Australia. John Howard no longer governs for ordinary Australians. He now governs—and we have said this again and again—for the big end, for those who sign up to the banner that ‘we are Liberals and we sell things’. The bill before us today is really about an ideology that is now out of touch and extreme and should be voted down.
Can I conclude this debate on the Medibank Private Sale Bill 2006 by thanking all those who have participated. I do not know where to start with Senator Ludwig’s contribution. Perhaps I should leave it to just sit on the record, because it is hardly worthy of response. It is extraordinary to hear the government being criticised for selling things when his own Labor government in Queensland is busy selling energy retailers—as it properly should—and privatising government businesses, as other Labor governments around the country are busy privatising government businesses and as his own federal Labor Party in government privatised any number of government businesses. In the 21st century there is hardly a civilised and sensible government in the Western world that is not either in the practice of or contemplating the privatisation of government businesses, because most of us have been mugged by the reality that governments should not own and operate commercial businesses. But apparently the federal Labor Party has not caught up with the 21st century, as evidenced by its industrial relations policy, which is also a back-to-the-future policy.
The decision we have made that Medibank Private Ltd, a private health insurance business, should be floated is part of a wider package of reforms that the government has determined to proceed with to help ensure the sustainability and viability of the whole private health insurance industry in this country. It is all about helping improve the affordability of private health insurance, something that our government is committed to and which the Labor Party has very questionable credentials on. The Labor Party for many years railed against the 30 per cent private health insurance rebate. While it now professes not to oppose the private health insurance rebate, we will be urging Australians at the next federal election not to trust the Labor Party on that issue. So the Labor Party speaks with great cant and hypocrisy on this question of affordability of private health insurance, given its track record on the question of the rebate for private health insurance.
Unlike the Labor Party, we are very strongly committed to a viable and competitive private health insurance industry, affordable for Australians, with the government playing a proper role as the regulator of that industry. So it is the case that the government, if re-elected at the next election, will offer shares in this company to the Australian public by way of an initial public offering, as the legislation prescribes, with a shareholder limit of 15 per cent for the first five years of its sale.
It is of course disappointing to us that, unlike the coalition in opposition, where we supported the Labor government on the sale of Qantas and the Commonwealth Bank, the opposition has taken a knee-jerk, negative view of this matter. In our view, opposition speakers have made absolutely no case as to why this business should remain in public hands. That really is the test these days. We are in the 21st century. We have learnt a lot through the 20th century as to why governments should not run commercial businesses, as evidenced by the collapse of a variety of government owned state banks at enormous cost to taxpayers. Now the onus is on those who say that individual businesses should remain in government hands. That onus is not being met by those in this chamber who have argued that the business should remain in government hands. They have not made the case as to why Medibank Private should remain a government owned business.
Medibank Private Ltd is one of 38 private health insurance businesses in this country offering their services to ordinary Australians, in an industry that the federal government has the responsibility to regulate—and it is a significantly regulated business. It is exactly the same case as Telstra. Once Telstra was opened up to competition, and a whole range of telecommunications companies came into the industry—an industry for which the federal government has responsibility for regulation—the case for government ownership evaporated. And that is the case with respect to private health insurance. There is no longer any case for the government owning one of 38 private health insurance businesses in this country. It is our strong view that taxpayers should not have their funds tied up in a private health insurance business of this kind. Private health insurance is now a highly competitive business and is not a place for governments.
It is a fact that this business, Medibank Private Ltd, lost no less than $175 million in 2002 on its operations. That was a cost borne by taxpayers. Flowing from that, taxpayers, as the shareholders in this business, were required to make a capital injection of some $85 million in 2004 because of the risks of being in this business and the need for a proper capital adequacy ratio. I give, and have given on many occasions, great credit to the current management for restoring the fortunes of this company. But that history, which highlights as in any commercial business the risks of operating that business, does demonstrate why taxpayers should not be involved in this industry.
The opponents of the sale have made, as they always do with these issues, a series of wild and unsubstantiated claims. Can I start with the first—that is, that premiums will go up as a direct result of the sale. There is absolutely no basis for that assertion. There has been no evidence adduced to support that wild and unsubstantiated claim. Indeed, we have on the contrary produced evidence to demonstrate that, if anything, it is likely that there will be less upward pressure on premiums as a result of us exiting ownership of this business.
And of course the opponents of the sale conveniently ignore the fact that, as Minister Abbott and I announced back in April, the government will retain its authority over the question of whether premium increases will or will not be approved. So we retain that ultimate authority over any proposal to increase premiums. In any event, to the extent that premiums increase—and we all know why private health insurance premiums increase—with 38 businesses in this industry, customers are free to select another private health insurer if they believe the premium escalations are unwarranted.
There is also this wild and unsubstantiated claim that the government does not actually own Medibank Private Ltd. No-one actually believes that proposition but it is peddled in this place. We have tabled and presented clear legal advice that demonstrates that of course, as anyone would ultimately understand, the government does own Medibank Private Ltd. The ALP, the opposition, implicitly accepts that proposition by arguing that it wants to keep Medibank Private Ltd in government ownership. By definition, it therefore accepts that the government does own the business.
We believe this sale is a very important and very timely step in the development of the private health insurance industry in Australia. This will be the first Australian private health insurance business listed on the Australian Stock Exchange and, therefore, for the first time all Australians will have the opportunity to invest in a private health insurance business. We think that is quite a critical and important step. A listed Medibank Private Ltd will then be able to raise capital, expand the business, move into other business areas and offer more services to its customers—developments which, almost by definition, as a government owned business, remain very difficult, if not impossible, for it to pursue at the moment.
We very strongly believe that the whole private health insurance business will benefit from the largest company in that industry being privately owned and competing on a level playing field. It means that the government—as in the case of Telstra—can concentrate solely on its role as the regulator, and not as the owner of one of the businesses in that industry or an investor in that industry. We have already announced that as a result of our proposed disinvestment in this industry we have put $500 million extra into medical research grants in this country. We have also announced a $170 million commitment to establish a medical research fellowship scheme. These are much more sensible uses of taxpayer funds than having them at risk, at large, in a commercial private health insurance business.
There have been questions adduced as to why the government is legislating now for the sale when we have stated that the sale itself will not occur until 2008. We have made it clear that, based on the commercial advice available to us in relation to T3, to have announced that Medibank Private Ltd would be floated in this term of government could have had significant implications for the T3 float. Therefore, before the formal T3 float, we ruled out Medibank Private Ltd being sold in this term—that is, before the end of 2007—in order to ensure that we gave clear air to the T3 float.
I am glad we did that because, as is now evident, the T3 float was highly successful. But we then announced that although the float would be delayed for those reasons we would, nevertheless, seek to have the parliament approve the sale of this business now to enable the government to press ahead with the significant and comprehensive sale preparations which are involved in any float. Yes, it is a lot easier to do a sale through a trade sale. It is more complicated to do it through an IPO but, for the reasons enunciated, we do not believe it appropriate to sell this business through a trade sale. We want to enable all Australians to buy shares in this business through an IPO, and that does take a significant amount of preparation to effect.
There are a number of things which we will now, subject to passage of this legislation, proceed with—for example, moving the business to a fully commercial footing, undertaking the detailed vendor due diligence process and determining the share offer structure, including our proposal to have a special entitlement for current MPL customers. Of course, we will be going through the process of engaging a full advisory and implementation team.
I will allude briefly to Senator Murray’s proposed second reading amendments to this bill and, in doing so, thank Senator Murray for his considered report on the Medibank Private sale in the Senate Standing Committee on Finance and Public Administration report on this bill. He has given it a lot of thought. I welcome the fact that he has made the point that a strong public case has not been found for retaining this business in public hands. I welcome that position adopted by Senator Murray—and a lucid and practical position it is—but Senator Murray has proposed a second reading amendment and specific amendments to the bill. They essentially go to the question of the method of the sale. Of course we treat them seriously but the premise upon which we do not accept Senator Murray’s amendments is that we reject out of hand the proposition that somehow the government does not own this business—which, as I have said before, is nonsense—and we are not going to do anything to suggest that that proposition has any legitimacy whatsoever. As I said, the ALP, by implication, rejects that proposition by arguing that the business should remain in government hands.
As I said before, we think that this business should be sold by way of a public float. We think that is good for the industry. We do not believe there is a sufficient market available to sell this business via a trade sale, so it should be offered by a public float. We therefore think that all Australians should have the opportunity to buy a share in this business. We think it should be conducted by the normal comprehensive public float, which enables a mix of institutional and retail investors to ensure this business is able to establish itself on a proper commercial footing.
It is a fact that, in Australia, having a certain proportion of shares owned by institutional investors is quite important to the stability and future of a business. To say that only customers of this business should be able to buy shares is quite wrong. It would be as though only customers of Qantas could have participated in the Qantas float, or only customers of the Commonwealth Bank could have participated in that float—and the same applies to the Telstra float. Nevertheless, as is the case with Telstra in respect of shareholders in T3, we have said that we will offer some form of entitlement to Medibank Private Ltd customers, but only in the sense that they are customers and have shown a loyalty to this business, which we want to recognise. We are not doing so in any respect with regard to this false assertion that there is some proprietary interest held by customers of this business. That has been categorically rejected by the government and its legal advisers.
When you buy a service from Medibank Private Ltd, in effect you are buying insurance. You are entering into an insurance contract, as you would with any normal insurance company. You are not acquiring some proprietary interest in this business. On that basis we reject out of hand the amendments proposed by Senator Murray, while acknowledging the thoughtfulness of his position that a public case has not been found for keeping this business in government hands. We think all Australians should have the opportunity to participate in the float of this business.
I move my second reading amendment, which is on sheet 5144 revised:
At the end of the motion, add: “but the Senate is of the view that prior to the sale, the Productivity Commission be required to conduct an inquiry into the private health insurance industry, with specific attention to enabling an efficient, competitive and viable private health insurance industry”.
I move my second reading amendment, which is on sheet 5130:
At the end of the motion, add: “but the Senate is of the view that any funds raised by the sale of Medibank Private should be directed to public health care.”
I seek to declare that my family holds a membership in Medibank Private. I need to declare that before taking part in any voting on this matter.
Original question put:
That this bill be now read a second time.