How To Sell Medibank Private

Transcription

1 Sale of Medibank Private Country: Australia Partner Institute: Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney Survey no: (8)2006 Author(s): Marion Haas Health Policy Issues: Role Private Sector Current Process Stages Idea Pilot Policy Paper Legislation Implementation Evaluation Change 1. Abstract The Australian Government has made plans to sell the private health insurance company it owns, Medibank Private. However, doubts have been raised about who actually owns the company and, in light of opposition to the sale and the imminent sale of a government owned communications company, Telstra, the government has delayed these plans until 2008 at the earliest. 2. Purpose of health policy or idea Medibank Private, owned and controlled by the Australian government, is the country's largest private health insurance company. It operates as a not-for-profit entity. In line with its policy of not owning such assets but placing them in private ownership, the government announced plans to sell the company, thus transforming it into a for-profit company. Main objectives The objectives of this policy were to transfer the ownership of Medibank Private from the Australian Government to private ownership - either by selling it to another company or by floating it on the sharemarket. The stated objectives of the government were to maintain service and quality levels for members while simultaneously enhancing the efficient and competitive nature of the private health insurance (PHI) industry and maintaining its viability. Type of incentives As there was some dispute about whether the government or the members of Medibank Private owned the company, the idea of offering members shares or a discount on shares was floated. As the company is making a profit after some years of not doing so, there is now an incentive for its competitors to purchase it. Groups affected Members of Medibank Private, other members of private health insurance companies - 1 -

2 3. Characteristics of this policy Degree of Innovation traditional innovative Degree of Controversy consensual highly controversial Structural or Systemic Impact marginal fundamental Public Visibility very low very high Transferability strongly system-dependent system-neutral This is not the first time that a suggestion that Medibank Private should be sold has been discussed publically, but it is the most determined proposal so far. As the PHI system in Australia is heavily subsidised and regulated by the government, the suggestion is innovative. It is highly controversial because there is disagreement about a) who owns the company (the government or its members) and b) whether the sale will produce the benefits promoted by the government (more competition, lower premiums etc). Although it is one of the four largest PHI companies in Australia, much of the health system operates in the public sector, so the implementation of the policy will have a marginal impact overall. However, as it has been widely discussed in the media and has been the subject of public polling, its visibility has been high. The PHI system in place in Australia is unique and therefore, policy changes are unlikely to be transferable. 4. Political and economic background A Liberal (conservative) government established Medibank Private in 1976, arguing that a government owned company would introduce greater competition into the private health insurance industry and strengthen the government's capacity to reform and regulate the industry (Harvey 2006). Over the years there have been some discussions about the need for a government owned and controlled PHI fund. Officially, there has been no change in government policy, but the current Liberal government argues that selling Medibank Private will improve its efficiency through lower management expenses and that the increased competition would reduce pressure on premiums, which have been rising steadily. This move could be seen as in line with the current government's policy of privatising government owned entities. 5. Purpose and process analysis Idea Pilot Policy Paper Legislation Implementation Evaluation Change Origins of health policy idea There have been discussions previously about this idea. However, this specific proposal was generated by the Australian government in April It follows similar sales of entities such as the communications company Telstra. The main purpose is to remove ownership and control of a private health insurance (PHI) company from the government. All other PHIs in Australia are privately owned - either by shareholders or by members. The Finance Minister, Senator Nick Minchin is responsible for organising the sale. It has not been decided whether the company will be sold privately or publicly listed on the sharemarket

3 Initiators of idea/main actors Government Civil Society Political Parties Approach of idea The approach of the idea is described as: new: Stakeholder positions Three members of the government were prominent in discussing this issue. The Finance Minister (Minchin) and the Treasurer (Costello) were very suppportive as was the Minister for Health (Abbott). But Abbott was not convinced that the timing was right as the government was also attempting to sell its remaining stake in Telstra the communications company which was onced fully government owned. The opposition party, the Labor Party is opposed to the sale arguing that PHI premiums will rise. A newspaper-commissioned poll found that 63% of the public were opposed to the sale of Medibank Private, 17% supported it and 20% were unsure. Even among supporters of the government, 46% were opposed. An influential radio journalist who is a long-time ally of the government, Mr Alan Jones, and the Australian Medical Association (AMA) have argued that the fund is owned by its members and therefore, if sold, they are entitled to its assets. Actors and positions Description of actors and their positions Government Senator Nick Minchin very supportive strongly opposed Mr Peter Costello very supportive strongly opposed Mr Tony Abbott very supportive strongly opposed Civil Society general public very supportive strongly opposed Political Parties Labor Party very supportive strongly opposed Influences in policy making and legislation No legislation has been introduced to parliament, but, if the sale proceeds, legislation enabling this process will need to be passed by the parliament. Legislative outcome Actors and influence Description of actors and their influence Government Senator Nick Minchin very strong none - 3 -

4 Mr Peter Costello very strong none Mr Tony Abbott very strong none Civil Society general public very strong none Political Parties Labor Party very strong none Positions and Influences at a glance Adoption and implementation The sale has been delayed until at least until after the next federal election which is due towards the end of Monitoring and evaluation If the planned sale proceeeds, and once it is complete, issues which have been raised such as its relationship with members, the effect on the public interest, impact on the cost of PHI premiums, the extent to which it concentrates ownership of PHI companies and therefore its effect on competition in the sector overall will be able to be assessed. 6. Expected outcome - 4 -

5 There is no simple answer to whether the sale of Medibank Private will achieve the stated objectives of the government and what might be the unintended consequences. The answers depend on: what type of sale (trade sale or share float) will proceed who might purchase the company (mutual, for-profit, not-for-profit, small, large) the extent to which the sale will result in concentration or rationalisation other regulatory changes to the PHI industry (eg expansion of coverage for out-of-hospital services). Currently, the company is rated as providing a good level of service and quality to members. The extent to which this continues will depend to some extent on whether future members are regarded as "shareholders" or "clients" in terms of where any benefits from operating profits are directed ie to lower premiums for members or to higher dividends for shareholders in a publicly listed company. Although some for-profit companies had lower management costs and premiums than Medibank Private, they were less successful in retaining members and returned a lower percentage of benefits to members as a percentage of contributions (Buckmaster and Davidson, 2006). It is not clear that the sale of the company will result in greater competition than has or would otherwise occur. The company has developed new products which it has argued have been integral to its gaining and maintaining its large market share. It is the only company with a strong presence in each state of Australia, which means that, to some extent, it has set the industry standard in terms of low administrative costs. Its sale could change its national presence, thus reducing competitive pressures. Whilst this problem might be overcome by breaking up the company and selling it to a number of state-based companies, how this type of sale could be structured is not clear. Private ownership might free Medibank Private to pursue negotiations with providers (doctors and private hospitals) more vigorously. Finally, any change to Medibank Pivate might also stimulate changes (eg demutualisation, amalgamation, increased efficiency) amongst other smaller funds (there are currently 40+ PHI funds in Australia). The question of what is the optimum number of PHI companies in the Australian context is a potentialy important issue as, on the one hand, a certain number of funds is required to maximise competition but on the other, too many may "dilute" or devalue the power funds have to negotiate with individual providers and private hospitals. In turn, this raises the issue of whether there is a national market for PHI in Australia or whether the market is more state-based. Quality of Health Care Services marginal fundamental Level of Equity system less equitable system more equitable Cost Efficiency very low very high Any changes to one PHI fund is unlikely to have major impacts on either the quality or equity of health services, as such decisions are made independently. Although there may be some impacts on efficiency for a) members of Medibank Private and b) members of PHI finds more generally, it is not clear that this will have a major impact on the overall system. 7. References Sources of Information Sydney Morning Herald Metherall, Mark "As members await bonus, Medibank ownership queried" September 2, Coorey, Phillip. "Costello supports float of Medibank" September 4, Metherall, M. "Fund's sale opens a can of worms" September 5,

6 Harvey, Ken. "For sale: one health insurer" September 5, Metherall, M and Coorey P. "Alan Jones queries Medibank plan" September 6, Metherall, Mark "Voters give Medibank sale thumbs down" September 12, AAP. "Abbott signals Medibank sale delay" September 12, Metherall M, Pollard, R. "Sale of Medibank delayed until after federal election" September 13, Buckmaster L, Davidson J. The proposed sale of Medibank Private: historical, legal and policy perspectives. Research Brief, Parliamentary Library, Parliament of Australia. September 1, no. 2, ISSN Author/s and/or contributors to this survey Marion Haas Suggested citation for this online article Marion Haas. "Sale of Medibank Private". Health Policy Monitor, October Available at -