Privatisation of Medibank Private

One needs a full cost-benefit analysis (including all externalities such as secondary effects n health premiums) to form an intelligent view on whether to sell Medibank Private.

In the meantime, it makes no sense to say that reducing the level of government debt quickly is essential for the future prosperity of all Australians, as Joe Hockey argues. The level of debt is not an appropriate measure of balanced sheet strength (public or private). Rather the focus should be on government net worth (assets minus liabilities) and earning power of the assets – the dividends earned relative to public debt interest.

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conrad
conrad
11 years ago

Are there really any arguments for the government keeping Medibank private apart from short-term reasons, like not getting a good price for it? I can’t see why it would do anything to the price of health insurance, since there are so many other providers in what appears to be a very competitive market (and, at least for me, many of whom are cheaper). In addition, in the worst case, if there was some group that I can’t think of that is worse off without Medibank, there is always the public health system to fall back on.

As for Joe Hockey’s statements, I agree with you. It’s just silly politics.

Michael S.
Michael S.
11 years ago

The two state labour governments that the federal coalition is trying to ride the wave of discontent with the most (NSW, QLD) lost a big chunk of support over privatisations (power and rail respectively). It seems odd that Hockey is getting out arguing for more privatisation.

Russell
Russell
11 years ago

But Conrad if some outfit buys Medibank for say a billion dollars, then they’ll have to make payments on the billion they borrowed, plus interest, and then they’ll want a handsome profit too …. how can they provide insurance cheaper than the current organisation that has no debt and doesn’t have to make a profit?

crocodile
crocodile
11 years ago

Why sell it. Since private health funds derive 30% of their revenue from the government it shouldn’t take too long to give all the proceeds back.

Corin
Corin
11 years ago

I don’t think this will be unpopular and is a cheap way (politically) of raising some revenue. I mean you’d cop more grief by slashing $3 or $4 bn in industry assistance or FTBs even though it would be far better policy and would actually assist with the structural repair of the budget which an asset sale will not. It gives Hockey some cover for not actually doing hard things ……

David Stalker
David Stalker
11 years ago

Why, Privatisation at all, it goes a long way in taking the load of hospitals already laboring under the public system.
What is needed is a federally run hospital system and get rid of the incompetence of the states.

Paul Frijters
Paul Frijters
11 years ago

though I agree with the sentiment of the post, the intro does raise an eyebrow:

“One needs a full cost-benefit analysis (including all externalities such as secondary effects on health premiums) to form an intelligent view on whether to sell Medibank Private.”

Since no-one can possibly do what is asked here, I guess that means we will have to make do with an unintelligent view on medibank!

billie
billie
11 years ago

It’s a no brainer!
Why sell a cash cow?

When Medibank Private is sold to the for profit sector, premiums will rise and the cover members receive will be clipped even further than it is now.

People forget that before the introduction of universal health care HBA & HBF would not pay benefits to patients deemed chronically ill. So you would pay your premiums and when you tried to claim the response would be “Sorry you are chronically ill because you have stayed in hospital for more than 3 months, have diabetes, have epilepsy”.

They say that health insurance premiums are set by the government so that the smaller health funds can survive and because Medibank is the largest its in the best position.

Fred Argy
Fred Argy
11 years ago

Yep, I must agree with you that a full cost-benefit analysis would be very onerous and I only raised it because it seems the right thing to do (isn’t everyone, including the PC, arguing the case for more cost benefit analysis?).

My point is that even a very modest sort of analysis would soon put the thing to rest.

Francis Xavier Holden
11 years ago

As long as the Feds exercise some control over the Private health insurance industry they need MediBank Private to be able to accurately know what costs and drivers and profit etc there are. Otherwise the rest of the industry will fudge and bullshit.

As long as the stupid PHI subsidy /rebate exists then the true value of MBP will need to be discounted to take into account the possible withdrawal of the subsidy at some stage.A very imprecise science.

My guess is the effect of withdrawal of subsidy will be over estimated thus valuing MBP too low while the subsidy is in place.

Tom N.
Tom N.
11 years ago

I only raised it because it seems the right thing to do (isnt everyone, including the PC, arguing the case for more cost benefit analysis?.

“More” CBA does not mean maximum CBA, Fred. In this particular case, a smarter approach would be to look for the existence of a material market failure that retention of Medibank Private in public hands might efficiently overcome. The one you mentioned seems a long shot to me.

Tel
Tel
11 years ago

Can anyone explain why health insurance is fundamentally different to house insurance or car insurance? If a strong government insurance provider is needed in the health sector then logically is must be needed in all sectors since they all follow the same process (as far as I can make out).

We can talk about the high price of medicine, but that would be a completely different discussion… supply and demand in medical skills and certification, levels of competition amongst drug manufacturers, effort spent in administration and quality control, etc. — things that the insurance companies have very little control over.

As long as the stupid PHI subsidy /rebate exists then the true value of MBP will need to be discounted to take into account the possible withdrawal of the subsidy at some stage.A very imprecise science.

My guess is the effect of withdrawal of subsidy will be over estimated thus valuing MBP too low while the subsidy is in place.

Given the clear undercurrent of attempted budget balancing (and a long history of Labor dislike for private health insurance in all its forms), I would expect that half the idea of selling out is so the government can drop the PHI subsidy immediately after the sale without being in a conflict of interest position. More people will move towards Medicare and the whole private health insurance sector will shrink but by that time it will be the shareholder’s problem.

billie
billie
11 years ago

Tel asked “Can anyone explain why health insurance is fundamentally different to house insurance or car insurance?”

The short answer is because most of us claim on our Health Insurance regularly or know someone who has made extensive use of health insurance so we are aware of the GAP payments, the additional expenses when you go to the operating theatre etc

I haven’t made a claim on my car or house insurance for quite a while [touchwood] so I think I pay the first $300 of any claim. I think if my property was destroyed by fire I would find myself underinsured, by definition. A house that is 40 years old has wear and tear and no insurer will insure for the cost of rebuilding so that no one is tempted to burn the property to get a new replacement

Pam
Pam
11 years ago

In October last year, the Rudd Government passed legislation for Medibank Private, changing it from a NON-PROFIT fund to a WITH-PROFIT fund. The PM recently announced a special $300m dividend will be paid from Medibank Private to fund election promises. The Opposition has declared that Medibank Private will be privatised.

Whether you vote Labor or Liberal, the concepts are the same: Medibank Private has already been changed, and in the long term, there will be upwards pressure on Medibank Private premiums.

Let me explain:

* the $300m special transfer out of the fund to the Govt is equivalent to a premium increase of 7.5%. This year, Medibank Private premiums were increased, yet apparently there was excess money in the fund. So why were premiums increased? Why wasn’t the money used to keep premiums unchanged or benefits improved?

This is complicated, so bear with me – I hope to make it understandable.

As a NON-profit fund, if premiums are greater than claims in a year, the excess builds up in reserves to create a buffer. If we have a bad claims year in the future, a buffer allows a high premium increase in that year to be reduced. The money had stayed in the fund for the benefits of policyholders.

In a WITH-PROFITS fund, if premiums are greater than claims, a profit is calculated. Tax is payable on this profit, and the net profit released to the owner or held to be released to the owner in later years.

Think about it: if money is removed from the fund, then it has to impact future premiums; maybe not now, but certainly at some point in the future. The important point to remember is that in the non-profit fund, the money is only for the policyholders. Now it will also fund a profit for the owners. The govt seems to be glossing over that point.

An actuary specialising in health insurance commented in SMH that the reserves in Medibank Private were lower than other health insurers.

Actuaries talk about “policyholder’s reasonable expectations”. My husband and I joined the fund 20 years ago because it was a non-profit fund backed by the Government. After 20 years of unchange, our “reasonable expectations” were that this would continue in the future. The switch I mentioned above is a massive policy change, and as such our reasonable expectations have not been met.

I have written to the Private Health Administration Insurance Council (http://www.phiac.gov.au/for-consumers/frequently-asked-questions/) ://http://www.phiac.gov.au/for-consume…ed-questions/) to complain about this fact.

I also pointed out to them that on their website, they state: PHIAC is required to take all reasonable steps to perform its functions and exercise its powers with a view to achieving an appropriate balance between:

•fostering an efficient and competitive health insurance industry
•protecting the interests of consumers
•ensuring the prudential safety of individual private health insurers.
I asked them to explain how changing the fund from non-profit to with-profit, with transfers of money out of the scheme could possibly be protecting the interests of consumers. They haven’t yet replied.

In 2002, Medibank Private had very bad claims experience. However the fund was rescued, so to speak, because of legislation changes that provided tax incentives to invest in private health. Young people moved into the fund, to the extent that reserves built up and the position turned around. Bear in mind that young non-pregnant people are less likely to make medical claims than pregnant families or older people, and that a large influx of this magnitude is unlikely to occur again.

My husband and I received no correspondence asking us to “vote” on whether we were happy with the changes to Medibank Private. As such, we have decided to “vote with our feet” – we are studying other non-profit health funds and mutual funds.

A mutual company is owned by the policyholders. A non-profit fund has an owner, and can become private within a month.

At the moment, people can change funds without penalty. There is no further underwriting and no waiting periods. (These are actually the rules of the receiving fund.). There is a premium reduction for joining the scheme by the age of 30 – at the moment, that reduction is transferred with you as if you had always been a member of the new fund.

If the govt chose to, they could remove the transfer of the premium reduction, thereby locking you in to your existing scheme. If you wish to “bail” from Medibank Private, that is a consideration you should remember.

I post the above so you understand what is happening on something that appears to be sneaking in without much comment by the press.