Medibank sale could force up premiums: AMA

04/11/2013

The AMA has flagged concerns that the Abbott Government’s proposed sale of Medibank Private could result in higher health insurance premiums for families because of increased commercial pressure and a potential reduction in competition.

Acting on long-standing Coalition policy, Finance Minister Mathias Cormann late last month initiated work on privatising Medibank, the nation’s largest private health insurer, with estimates the sale could deliver at least $4 billion to the Government’s bottom line.

But AMA President Dr Steve Hambleton has raised fears that the sell-off could potentially hurt patients, and called for close scrutiny of the terms of any proposed sale.

Ever since legislation authorising the sale was proposed in 2006, the AMA has voiced concerns that the privatisation of Medibank Private will lift premiums and leave families worse off.

Dr Hambleton said there were three specific areas of concern regarding the proposed sale.

Firstly, if Medibank Private (which is the biggest health fund, with close to 30 per cent of the market) was sold to another health fund it would severely curtail competitive pressure.

Secondly, premiums could be forced higher as private owners sought a quick return on investment to help service the equity needed to fund the purchase, with the risk increasing the higher the purchase price.

Thirdly, that Australian policyholders could be heavily exposed to international financial risk if the buyer is an offshore entity, as could well be the case.

Dr Hambleton said that the sale could also drive premiums up faster by removing the moderating influence of Government from a part of the market.

“We are concerned that competition needs to be maintained in the private health [market], and Government owning Medibank Private has kept costs down,” the AMA President said on ABC radio. “We…wonder whether it will actually decrease the amount of pressure on private health insurers to keep their prices down.”

His warnings were echoed by Shadow Health Minister Catherine King, who said taxpayers should be concerned about the sale plan.

“It’s up to Government to explain how the sale of Medibank Private will benefit Australians, and whether they’d sit idly by and watch health premiums rise as a result,” Ms King said.

But Senator Cormann dismissed such concerns, telling The Australian Financial Review that “whether in private or public hands, Medibank operates under the same laws and regulatory environment as all other health insurers”.

Since the sale was first mooted nine years ago, estimates of the likely sale price have doubled, from $2 billion to $4 billion, though market analysts have warned the Abbott Government may struggle to get much more than that unless changes are made to private health insurance policies.

Nomura analyst Toby Langley told The Australian Financial Review that the insurer would have to demonstrate a credible long-term growth story to the market in order to bump up the potential sale price.

Mr Langley said measures like means testing of the private health insurance rebate and the removal of the rebate from lifetime health cover loading had created uncertainty about the potential for growth in private health insurance cover, making it “quite an awkward time” to be putting a health fund on the market.

In a move that could increase investor interest, Treasurer Joe Hockey has flagged the possibility that Medibank Private could take over responsibility for administering the National Disability Insurance Scheme.

While the sale of Medibank Private is Government policy, Senator Cormann told the AFR its privatisation was not inevitable, and would depend on achieving the best deal for taxpayers.

Senator Cormann has directed the Finance Department to commission a three-month scoping study of the sale looking at the sale method, timing, cost, regulatory issues, possible return and the readiness of Medibank Private for sale.

The study is due to begin by the end of the month and be completed by the end of February next year, so that the transaction could be included in framing the 2014-15 Federal Budget.

“There is no compelling policy reason for the Government to continue to own Medibank,” the Finance Minister said, “[and its] privatisation would remove the current conflict where the Government is both the regulator of the private health insurance market, as well as a large market participant.”

Senator Cormann said the proceeds of the sale could be used to fund other policy priorities or reduce overall Government debt.

Dr Hambleton said the AMA would be guided in its view on the sale by the results of the scoping study and the degree to which it addressed the Association’s concerns.

Adrian Rollins