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The Forum > Article Comments > Bad medicine: the sale of Medibank Private > Comments

Bad medicine: the sale of Medibank Private : Comments

By Jonathan J. Ariel, published 2/10/2014

Assuming a sale of Medibank, who benefits from the IPO?

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Wow watch out Rhostry LOL - we'll make a libertarian of you yet, pretty soon you'll be consistently in favour of liberty, and then where will we be?
Posted by Jardine K. Jardine, Thursday, 2 October 2014 11:52:57 AM
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That's a red herring, Jardine K. Jardine.

>>The ethical way to pay out the proceeds of sale would be to distribute them to the people who have paid in, in proportion to their contributions<<

Small problem. Medibank Private ceased to be a mutual (i.e. owned by its members/policyholders) back in 2009, when the Rudd government turned it into a "for profit" organization, 100% owned by the government, and liable to pay tax on its profits. That was the opportunity to recognize the value of members' contributions, as happened with e.g. MBF when they were taken over by BUPA, and nib, when they IPO'd. Five years later, it is both an irrelevant exercise, and one that would be impossible to implement fairly.

And this is pure "there's a monster hiding under my bed" imagination, Wolly B.

>>The scariest thing about the sale of Medi-bank private is that it is sending us down the road of the American Health care system<<

Arrant nonsense.

Successive Australian governments have developed a highly effective combination of a core taxpayer-funded system that is augmented by close to $16bn a year in voluntary private insurance subscriptions.

Nothing in the Medibank sale changes that balance. As "just another health fund", operating in a competitive market for a highly-valued service (healthcare), Medibank will need to be even sharper in future, as will all its competitors.

Which is an important consideration, given that a visible impact of Obamacare in America has been the creation of a level of competition between insurers that has actually slowed the growth of healthcare costs in the US. It's what competition is for, people.

There is not one single aspect of the Medibank IPO that brings us closer to the American system.

Don't listen to propaganda (and that includes the Medibank prospectus, of course). Take the time to work it out for yourself, from first principles.
Posted by Pericles, Thursday, 2 October 2014 2:01:38 PM
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The sale of Medibank private is in accordance with best practise.

1 The point of government is to deliver services that the private sector cannot deliver efficiently. That 70% of the market is private indicates that this is no place for a government owned company especially one insuring family pets.

2 The proposition that MP is a price leader that can keep prices low is fatuous considering that it is not by any means the lowest, and a privately owned company is not likely to shred its market share by raising prices.

3 The sale of MP will give to the treasury 100% of its value + 30% of future profits and employee paye.
Posted by Shadow Minister, Thursday, 2 October 2014 2:18:04 PM
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Jardine,

You insist that in any privatisation the proceeds should be distributed to the people who paid into the fund. I suppose along the lines of the demutualisation of MBF and its reincarnation as part of BUPA.

There is a flaw in your argument. Most funds started as private enterprises, where those who paid into them took the risk that the funds will make a go of it.

Medibank however was established in 1975 through the Health Insurance Commission, a part of the Commonwealth government. It was not established as a private organisation. It was capitalised by all Australians, including those who opted for its rivals.
Posted by Jonathan J. Ariel, Sunday, 5 October 2014 11:27:06 AM
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Pericles

You state that the "prime" objective is for the Government to get out of a business in which it has no legitimacy, as Government ownership adds no value to the process of insurance".

Really? You don’t believe that by competing in the health care market and in so doing:

a) sending a price signal to rivals when it comes to premium rises;
b) not only providing competition in an oligopolistic market but making money while doing so. Money that finds its way into Consolidated Revenue and not the pockets of what could become a cartel.

Surely the above two arguments makes the consumer/taxpayer better off?

You ask if I “would you expect there to be a government insurer to insure your house, or your car? Same applies to health insurance. It is a commercial venture”.

I beg to differ.
Finding money for health care, unlike home or automobile insurance is not an option. When the Crown exits this industry, in due course “consolidation” will occur. Higher premiums should follow. In tandem with lower payouts on claims.

You add that “the next objective is to recoup as much money from the process as possible for the taxpayer. Mr Ariel canvasses a series of alternatives to an IPO. If any of these had been likely to produce a greater return, I am reasonably sure one of them would have been chosen”

Again I beg to differ.

One of the unspoken rules in government is that : “the government will always do that which benefits the taxpayer most, so long as it does not conflict with what benefits the government most".

Selling Medibank for say $5.5 billion via an IPO and in the process enriching folk whose votes a government wants or needs by $500 m makes more sense to the spin merchants and lobbyists than selling Medibank say to a foreign insurer for $6 billion.
Posted by Jonathan J. Ariel, Sunday, 5 October 2014 11:46:19 AM
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Wattle

Maybe my point was not clear. I am not opposed to Medibank being a for profit fund. The fact is that it doesn’t cost the Commonwealth to be in the health insurance business. In fact it makes money and that makes its way to Consolidated Revenue.

We can't turn the clock back to when it was a not for profit fund. Therefore my query is “how do Australians benefit from privatising a Commonwealth owned for profit fund’?

Wolly B

Yes I too fear that this sale is taking us down the American road with respect to healthcare.

Pericles

You state that “there is not one single aspect of the Medibank IPO that brings us closer to the American system”.

How long do you think it will take the Commonwealth to exit the role of arbitrating on health insurance premium rises and outsource that task to an “independent body”.

Independent of the taxpayer sure.

Independent of market players? I wonder.
Posted by Jonathan J. Ariel, Sunday, 5 October 2014 11:56:50 AM
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