Who will feel better after Medibank privatisation?

13 October 2014

The Federal Finance Minister, Mathias Cormann, when mounting his case for selling off Medibank Private, announced that 'the scoping study found no evidence that premiums would increase as a result of the sale.' One wonders how the study could have found any evidence. The sale has not happened yet.

Not content with one statement of the obvious, Cormann continued with a further exploration of the self evident. 'As it does now, Medibank Private will need to continue to compete against other funds for policyholders and will need to continue to comply with relevant regulatory requirements around changes in premiums.'

Well, yes, no argument there. There is nothing so effective as the application of circular logic when demonising government, it seems.

It is worth briefly examining the history of the word privatisation. The term is often credited, wrongly, to the Austrian management thinker Peter Drucker. In his 1969 book The Age of Discontinuity he made a point about management in government that has come to be considered a self-evident truism. 'Government is a poor manager …. It has no choice but to be 'bureaucratic'. The only solution, he concluded, was to use non-governmental organisations for the actual doing of things, a process he dubbed ‘re-privatisation’, not privatisation (some academics believe the first moderns to use the term were actually the Nazis).

Drucker’s idea, that government is unable ‘do’ anything well, has since taken complete hold. A neat dichotomy has been created in which there is seen to be a single choice between government, which is inefficient and lacks proper incentives, and business, which is efficient and has good incentives (greed and self interest). It is a neat duality that ensures that other options are never considered, such as effective ways to make government efficient, for example.

The sale of Medibank Private is thus presented as a self-evident good, a way to make the fund more efficient and effectively run. If that turns out to be the case, it will become a very dominant player indeed. Medibank Private has the largest market share of the 34 registered health insurers, at 27 per cent (just ahead of BUPA). Given that it is supposedly run by government managers, who are, by definition, low quality and overly bureaucratic, this can only be seen as surprising. Even more surprising, Medibank Private’s management expenses are relatively stable and close to the industry average. As a report by the Parliamentary Library notes drily,

ECONOMICS

Who will feel better after Medibank privatisation?

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