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Sell Medibank Private, it no longer justifies government ownership

Francis Sullivan |  27 February 2007

Medibank Private should be sold. It no longer justifies government ownership.

Over the past decade Medibank Private has aggressively secured 30 percent of the health insurance market. It has built a reputation for rigorous and at times ruthless negotiations. Its behaviour is unashamedly commercial. Its agenda is solely to prevail in the price competitive world of private health care. This is not the core purpose for governments. In other words, Medibank Private has outgrown its government parentage.

The current structure of the health insurance market is dominated by a couple of large funds in each state. Medibank Private dominates overall. Even though there are around 40 registered insurers, most are small, restricted in membership or locally based. The appearance of competition is more illusory than real. Consumers have little commercial power, let alone effective choice. Marketing information is confusing yet ultimately there is little differentiation between what health funds offer. The spoils of this market accrue to the established funds, whilst industry innovation and flexibility are paid lip service.

Clearly this is not in the long term interests of the private health sector or indeed the health system in general. As governments increasingly shift the commercial risk of health services to the private sector and in turn to private households, the challenge will be to create a private health market which rewards quality health outcomes and better management of health risks. This is unlikely to be achieved by selling Medibank Private to an existing health insurer, or to have it broken up between existing funds. Only more of the same will result.

What is needed is to open the market to new players who bring serious competitive tension and innovation to the health system. The growth in insurance premiums will not be restrained without real competition. Likewise market tensions can deliver better health cover products for consumers and break down some of the staid cultural rigidity that characterises aspects of private medicine. Health insurers with a history of managing the health care of populations, particularly as they age and bear the increasing burden of chronic diseases, should be high on the government’s preferred purchaser list.

The government intends to change the private health insurance regulations to permit health funds to cover more than hospital based services. This provides an opportunity for progressive and imaginative insurers to stake a claim in the Australian market.

If some of the prospective purchasers are overseas based, then so be it. Health care products, pharmaceuticals and medical supplies are already heavily internationally sourced. Increasingly so too is the clinical workforce. To discount foreign health insurers seems to be ideological rather than practical.

The least desirable result of this sale would be the prospect of Medibank Private becoming the target of a private equity play. The likely outcome of which will be the stripping of assets, the loss of jobs and no improvement in the health services available to the community, let alone to the fund’s current membership.

This is a serious public policy issue. One worthy of parliamentary consideration and determination. The health care assets under Medibank Private’s stewardship can legitimately be claimed as community assets. Not only the membership, but tax payers over the years have contributed to Medibank Private’s success. The fact that it can now be liquidated for a substantial amount provides the government with an opportunity to address some serious issues of social disadvantage, most glaringly in indigenous and mental health services.

Of course this requires the government to redirect the sale proceeds from the Futures Fund to areas of serious deprivation. That will ultimately be a political call but nonetheless one which would have broad community support.

This sale debate needs balance. The purpose of Medibank Private has changed as indeed will the regulatory environment for private health insurance. The main issue at stake, is not whether a sale should proceed but that Medibank Private is sold to the right buyer, creating the right market structure and to ensure the proceeds are used for the right social outcomes. This needs to be the preoccupation of concerned legislators and elected members of parliament.

Francis Sullivan is  CEO Catholic Health Australia



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