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HANSARD EXTRACT

Medibank Private Sale Bill 2006: Second Reading

1 November 2006

Mr HAYES (Werriwa) (6.09 p.m.)—This government loves delivering choices.

Interjection

Mr Dutton—Hear, hear!

Continue

Mr HAYES—Along with a number of choices—I am glad the minister at the table is joining in—we have seen a number of so-called reforms that this government plans to bring in, but certainly so far the choices have not been on subjects confronting the Australian public. At the next election voters will have a whole range of choices when they come to the ballot box. They will get a choice between the government’s extreme industrial relations policy—which the government packaged as reform—and a system based on fairness and decency, which will be taken to the election by the Australian Labor Party. They will also have a choice between the government and the opposition on Australia’s involvement in Iraq. Again, this week has seen much debate on that matter played out in this parliament and in the country’s newspapers. That will be a very clear choice for the Australian public when they go to the ballot boxes some time late next year.

More to the point, they will have a choice between the vastly different approaches to combating things such as climate change and they will have a choice between the proposals of this government and those of the opposition in relation to the sale of Medibank Private. Let me make it very clear that I and all members of the Labor Party stand quite opposed to the sale of Medibank Private. Labor is not convinced by the government’s argument as to the Medibank Private Sale Bill 2006 that the sale of Medibank Private is good for competition, that it will be good for existing Medibank Private members or, for that matter, that it will be good for future customers of Medibank Private. That is why Labor is pledging to keep Medibank Private in government hands at next year’s election. Unlike the government, Labor is in touch with the views of the Australian public on this matter.

Mr Deputy Speaker, as you and no doubt every member of this chamber are aware, at this stage polling shows that the punters out there do not support the sale of Medibank Private. They do not believe the government when it says that people are going to be better off and they certainly do not believe the government when it says that the privatisation of Medibank will result in downward pressures on premiums.

Possibly the most interesting aspect of this debate is the heated dispute that has emerged over the rights of existing Medibank Private members. I am sure the government is aware that Medibank Private members have played a huge part in building the value of Medibank Private. It is quite true that the government injected $85 million into Medibank Private in May 2004, but the main value of Medibank Private is derived from the reserves contributed by members over a significant period of years. The members have assisted with the dramatic turnaround of Medibank Private as a company: losses of $175.5 million four years ago turned into an operating profit of $220 million last year, which obviously makes it very attractive to equity investors at the moment.

Of course the business side of the equation is one thing, but what has received considerable attention is the legal aspects of the sale. Following the announcement that the government intended to put Medibank Private up for sale, there has been much debate about who actually owns it. I would have thought that this would have been a first-order question—that, when you are going to contemplate disposal of an asset, you should actually first make sure that you are the person who has proprietary interest over that asset. It is a reasonably straightforward proposition: any seller has to make sure that they own a thing before they go out and sell it, otherwise a lot of my former clients in the constabulary might take an interest. And the Minister for Revenue and Assistant Treasurer, who is at the table, might have a view about people selling things that they did not quite own.

It seems that the government might be looking to bypass this basic rule when it comes to Medibank Private. Once this matter came on for public debate, the Parliamentary Library commissioned a research paper. It took it upon itself, under its independent charter, to investigate what rights the members of Medibank Private had in this fund. One conclusion reported in its brief was that members may have the right to the surplus assets of this fund. That is not an insignificant conclusion by this independent body. According to the library, the sale could give rise to a claim against the Commonwealth.

This put the government in a bit of a tailspin, and it rushed out and did what it normally does in these sorts of circumstances. You might recall that in the industrial relations debate the first thing that the minister did was to run out and engage a plethora of legal advisers from the private sector to play a role in helping formulate the government’s position on Work Choices. But what the government did on this occasion was to go and get separate advice—in the hope, I suppose, that it would be advice which would give it something to hang its hat on when it came down to the issue of ownership.

The advice that it obtained was from Blake Dawson Waldron. It was tabled by the Minister for Finance and Administration in early September. And that advice indicated that the Commonwealth was not liable to pay compensation. No doubt it was a bit of reprieve for the minister to receive that advice.

Well, which is it? Will we be liable or will we not? The question is yet to be answered in any decisive way. When the library considered the advice from Blake’s—and, again, this is on record—it considered that advice, for various reasons that it articulated, to be wrong. It pointed out a range of problems with the advice and hence it seriously questioned its conclusions.

The $653 million question, when it comes to the sale of Medibank Private, is: who actually owns it? The government claims that it does, and it has produced this legal advice to back up its assertion. The Parliamentary Library seriously doubts the conclusions contained in that advice. So most of us are really left none the wiser on that fundamental question of who actually owns Medibank Private.

Despite the fact that the Commonwealth is sticking to the advice offered by its hired guns in this matter, it has hedged its bets. It has inserted a provision in this bill that seeks to remove the Commonwealth from any compensation claim that may arise as a result of this sale. It has also indicated that it intends to recognise existing members, through an entitlement as part of the public offer structure. So, while the government on one hand is sure that it has the right and is sure that it actually owns Medibank Private, it still seems to feel the need to hedge its bets against any adverse findings of ownership by removing itself from any liability for compensation and it has sought to placate the existing members through a yet to be detailed entitlement in the public offer.

If the government is willing to go to all those lengths to make sure that it is far removed from any possible future legal action taken by any one of the members of Medibank Private, one can only conclude that the government has little confidence in the legal advice it has received from its solicitors in this regard. If the government does not have confidence in its legal advice on this occasion, if it is nervous about the sale, if it needs to go to these lengths—of putting all these hedging positions into this bill to protect itself into the future—then this sale should be stopped, and it should be stopped now, because the fundamental proposition as to who owns it is yet to be determined. It is a simple proposition: if you are not sure that you—as the minister—are the person who actually owns the residual assets in this organisation, then you should not attempt to sell it.

The biggest concern for most people is the impact that this sale will have on industry competition and on premiums. There is a very deep concern among the public—as was the case with the sale of Telstra and other privatisations—that this will be nothing more than another trip down the ideological highway, a trip which, quite frankly, the majority of Australians do not want to take. As a recent ACNielsen poll on the privatisation of Medibank found, nearly two in three respondents wanted the insurer to remain in public hands. Only 17 per cent—that is, less than one in five—actually supported the sale of Medibank Private. This is a pretty significant finding, although, as we have seen with this government pursuing its various ideological agendas, nothing is going to be allowed to stand in its way: not public disquiet, not expert objection—nothing.

The only thing in the past that has stopped this government’s agenda when it comes to privatisation—and I should not have said there was nothing, because there was something—has been Alan Jones. You may recall that when it came to the sale of Snowy Hydro it was the objections of Alan Jones, and the opportunity that the government saw to score points against the Victorian and New South Wales governments, that stopped the privatisation objectives of the Howard government. On this occasion, despite the fact that Alan Jones has labelled the sale of Medibank as immoral, the government does not seem prepared to back down. So, given that the Commonwealth will not back down, what are the impacts going to be?

Medibank Private has about three million members and accounts for about 30 per cent of the private health insurance market in Australia. It has to be considered the most significant player in that market. The nearest insurer in terms of market share is MBF, which accounts for nearly 20 per cent of the market. Given the size and relative market strength of Medibank, serious consideration has to be given to the impact on the market and on competition of its change from being a not-for-profit organisation to one which is profit focused. Labor has a real and serious concern that privatisation is going to result in higher premiums, lower service levels or limits on claims—or, in the worst possible scenario, all of the above.

While the Minister for Finance and Administration continues to stick by the line that the privatisation will place downward pressure on premiums, no-one else seems to be convinced and no-one else whom I have heard speak has rushed out to agree with him on this. No-one who has spoken in this debate, from various philosophical positions, has rushed to speak in support of the minister in his claim that this is going to lead to downward pressure on health insurance premiums. Even the Minister for Health and Ageing, who has been responsible for increase after increase in private health insurance premiums, has conceded that following the sale of Medibank Private premiums are bound to rise.

The minister for health—a man who has approved health insurance increases—when asked recently about the period post Medibank privatisation, said that he would have no hesitation in approving higher premiums. That really comes as no surprise, as the minister for health has hardly been a picture of self-control when it has come to approving premium increases in the past. Why would he exercise some self-control at this stage when it comes to increases in health insurance premiums? So the official line is that there will be downward pressure on premiums, while the health minister believes the exact opposite. With such divergent views within the government, it is probably best that people consider the views of others to gain some insight as to what might happen.

The Age recently reported the comments of an investment banker as follows:

One investment banker stressed that whoever won control of the asset would be planning to extract value using some combination of cutting costs, limiting claims and raising premiums. The owner would hope to make its money in two or three years, the banker said. After that Medibank would probably be sold—either whole or in pieces.

It seems that downward pressure is the last thing that is going to be exerted on premiums. It is incumbent upon the government, should it be successful in getting the privatisation bill through, to provide some sort of assurance to existing Medibank members rather than just throwing them and their premiums to the breeze. The members need some certainty about what is likely to happen to their premiums. That is not being addressed. It is certainly contrary to the position that has been asserted by the Minister for Health and Ageing in this regard.

Health and health insurance are vital areas when it comes to public policy. Changes to Medicare, the subsidisation of the private health insurance industry through the 30 per cent health insurance rebate and the dogged determination of this government to inject the private sector into health care while it extracts itself make the sale of Medibank all the more important. The sale of Medibank will not result in better service. In itself it will not lower administrative costs. It will not reduce the regulatory burden and it will certainly not put downward pressure on premiums. It has certainly become clear that the sale of Medibank will do everything but put downward pressure on premiums. For the doubters out there, the government’s record on premiums stands in stark contrast to its assertions that this sale will place downward pressure on premiums.

People need only remember that since 2001 health insurance premiums have increased by 40 per cent. A change in the primary motivation of Medibank from being a not-for-profit organisation to an organisation motivated by profit—one where the operator will necessarily be geared to generating a profit and return to shareholders—will give an entirely new complexion to the industry. We should bear in mind that Medibank Private at this stage accounts for 30 per cent of that industry. Once the largest operator in the market is let loose—having to placate shareholders and having to generate profits—it will not be long before it starts to place considerable pressure on the government to increase premiums regularly and probably significantly. Naturally Medibank’s lobbying will be supported by the rest of the industry, placing even more pressure on the government, and before you know it the health minister will have his rubber stamp out once more to approve further premium hikes and meet the wishes of the health insurance industry.

Even the best companies in the most homogeneous industries find it difficult to balance the competing motivations of profit, service and competition. So how can anyone really expect it to be any different when it comes to the health insurance industry? I oppose this bill. I think any members who consider the welfare of private health insurance holders should equally oppose this bill. (Time expired)

 

 

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