The Liberals have announced that if they take government, they will quickly move to sell Medibank Private and use the money to pay off government debt. This is another simple sounding “we are fiscally responsible” proposals from Abbot’s team that is meant to gain them populist support from Joe Six-packs that have to live within their family budget, and therefore see the model easily extrapolated to the government finances. The truth is that the sale of Medibank Private would have almost no effect on government finances, according to all independent experts surveyed, and will lead to the worst effects on the finances of the middle class over the medium to long term of almost any change the government could make.
Currently, competition in health insurers in Australia is very high, with many providers (30) nationally and 5 of them being larger companies, but none of which has a dominant position and all with highly competitive offers characterised by lots of attempts to differentiate form one another through minor tweaks in their plans, and lots and lots of spending on advertising. The Australian health insurance market would be the envy of places like the US with respect to competition, if their consumers were to examine it.
The Liberals have announced the industry is healthy, as well as competitive, so there is no continual need or interest in maintaining its ownership in one of the large health insurance companies. Their earmarking of where the funds raised from the sale would go may have some populist support, but their long term economics are also bad for the public purse. Once again, I think you need to see who is for this type of thing to fully evaluate it. Large health insurance company CEOs, like NIB’s CEO, are all for the sale, and he says that the government has no real role in the industry. He has lots and lots and lots of interest in a possible sale of Medibank, so he is not an independent observer, but his opinion is where the Liberal’s opinion comes directly. I don’t know, but I would suggest that his company so spends as much on lobbyists for its position as it clearly spends on advertising to convince you it has the best deal.
If the sale took place, the Liberals estimate that it would raise about $3.5-4.5 billion dollars in revenue. Independent estimates put the value down closer to the $2 billion dollar mark. But really, neither amount seems like a big deal as far as the government’s budget, or in the wider market of a $1.2 trillion dollar economy (US$1,055 billion[1]). More importantly, it will remove something I will call “the public option”, from the marketplace.
The public option company, Medibank Private, doesn’t exist to dominate the market, pay excessively large salaries to it executives, and even though it makes a tidy $120 million after tax a year, to turn the most fantastic profit, given that it should really be spending the whopping majority of its budget on paying actual medical claims from its subscribers. I mean come on folks, isn’t that what you buy into one for, the catastrophic assistance, along with your glasses and physio? So, if the government is going to allow the silliness of private health insurance to exist, it has to participate. And it has to compete and even spend as much on advertising, on average, as the private insurance companies, and continually try to rebrand its product as better than the others, when all of them are essentially only selling statistics.
If the proposal were to go forward based upon the Liberals winning government at the next election, Medibank would probably be broken into two smaller private companies through IPOs in order to make it look like they will further maximise competition. In fact, the lack of a public option company in the marketplace would (I think) lead to very fast consolidation of these highly competitive medium-sized companies and their tiny brothers. Whatever money is required to be spent in the short term by this all-private marketplace will be spent in order for companies to cannibalise and join with others in order to gain the largest market share possible. Following that, maybe 3 years later, and maybe as many as 10, we will then start to see the kinds of rapid rate rises in premiums that we see in the USA, where a very small number of insurers hold near monopoly power over US consumers.
An essentially not-for-profit supplier is what keeps cost down in health care in Australia, and this is exactly what the “Public Option” is in the debate in the USA over health reform. The public option there has amazingly stable public popularity throughout the acrimonious debate there since August (56% presently and as much as 80% over all the polls in the last 7 months [averaging somewhere in the 60s]), despite a huge amount of disinformation and outright lies by those who oppose health care reform in the USA. Major health care and insurance companies will spend hundreds of millions of US$, maybe even billions, by the time the argument is finished there, to defeat a public option from coming into being.
The bottom line though is this; these companies provide to consumers a service that you cannot live without sometimes, health care. And while I will not oppose those who wish to waste their money doing so, I personally will never voluntarily participate in a system where a private company with a profit motive can sit in judgement over whether I get a specific piece of health care, or not.
[1] CIA World Factbook