Privatisation of Medibank

3 Apr 2014

The government is going forward with the much speculated sale of Medibank Private.

It was announced last week that Medibank Private will be sold through initial public offering in the 2014-15 financial year.

A recent study by the government has come to a conclusion that there is no compelling reason for Medibank Private to stay in the public sector.

There has been both positive and negative feedback on the announcement but The University of Queensland (UQ) Economics Professor Alan Duhs said that the privatisation of Medibank should not be an issue.

“There are only three legitimate reasons to be in the public sector: defense against an invader, internal defense against thieves, that’s the police, and to build public works which can’t otherwise be provided profitably by the private sector, and Medibank does not fall under any of those.”

Professor Duhs said it was a predictable move by the current government.

“It is no surprise that a liberal party government wants to assert ideological purity by putting Medibank Private back into the private sector.”

UQ Economics Professor John Quiggin who has done several studies in privatisation said that privatising a publicly owned firm in a regulated industry has its setbacks.

“It depends on what you plan to do with health insurance in general. As long as you have a tightly regulated industry with regulated charges I think there’s an argument for having at least one publicly owned firm in there so you can keep an eye on what’s going on in some sense.”

Professor Quiggin said that it gives the government a better understanding of the industry.

“It gives you a better chance to get the regulation right.”

Professor Duhs, on the other hand, said he understands the argument Professor Quiggin has made but states that it is possible to keep a “regulatory body with teeth”.

“There can still be meaningful competition between alternative providers with no issue of monopoly and there can be regulation provided by a public body with teeth if they want.

“You could privatise it and still retain some public commitment. You can privatise it subject to obliging private suppliers of health insurance to do certain things which will be regarded as community obligations,” he said.

The government’s study found no evidence that premiums would increase as a result of the sale of Medibank Private.

The government predicts that Medibank Private will continue to compete against other funds for policyholders and that it will continue to comply with relevant regulatory requirements around changes in premiums after the sale.