Speeches

Speeches Chris has made in the Australian Federal Parliament.

MEDIBANK PRIVATE SALE BILL 2006 Second Reading

November 01, 2006

Mr HAYES (Werriwa) (6.09 p.m.)—This government loves delivering choices.
Mr Dutton—Hear, hear!
Mr HAYES—Along with a number of choices—I am glad the minister at the table is
joining in—we have seen a number of so-called reforms that this government plans to
bring in, but certainly so far the choices have not been on subjects confronting the
Australian public. At the next election voters will have a whole range of choices when
they come to the ballot box. They will get a choice between the government’s extreme
industrial relations policy—which the government packaged as reform—and a system
based on fairness and decency, which will be taken to the election by the Australian
Labor Party. They will also have a choice between the government and the opposition on
Australia’s involvement in Iraq. Again, this week has seen much debate on that matter
played out in this parliament and in the country’s newspapers. That will be a very clear
choice for the Australian public when they go to the ballot boxes some time late next
year.
More to the point, they will have a choice between the vastly different approaches to
combating things such as climate change and they will have choice between the
proposals of this government and the opposition in relation to the sale of Medibank
Private. Let me make it very clear that I and all members of the Labor Party stand quite
opposed to the sale of Medibank Private. Labor is not convinced by the government’s
argument as to the Medibank Private Sale Bill 2006 that the sale of Medibank Private is
good for competition, that it will be good for existing Medibank Private members or, for
that matter, that it will be good for future customers of Medibank Private. That is why
Labor is pledging to keep Medibank Private in government hands at next year’s election.
Unlike the government, Labor is in touch with the views of the Australian public on this
matter.
Mr Deputy Speaker, as you and no doubt every member of this chamber are aware, at
this stage polling shows that the punters out there do not support the sale of Medibank
Private. They do not believe the government when it says that people are going to be
better off and they certainly do not believe the government when it says that the
privatisation of Medibank will result in downward pressures on premiums.
Possibly the most interesting aspect of this debate is the heated dispute that has
emerged over the rights of existing Medibank Private members. I am sure the
government is aware that Medibank Private members have played a huge part in building the value of Medibank Private. It is quite true that the government injected $85
million into Medibank Private in May 2004, but the main value of Medibank Private is
derived from the reserves contributed by members over a significant period of years.
The members have assisted with the dramatic turnaround of Medibank Private as a
company: losses of $175.5 million four years ago turned into an operating profit of $220
million last year, which obviously makes it very attractive to equity investors at the
moment.
Of course the business side of the equation is one thing but what has received
considerable attention is the legal aspects of the sale. Following the announcement that
the government intended to put Medibank Private up for sale, there has been much
debate about who actually owns it. I would have thought that this would have been a
first-order question—that, when you are going to contemplate disposal of an asset, you
should actually first make sure that you are the person who has proprietary interest over
that asset. It is a reasonably straightforward proposition: any seller has to make sure
that they own a thing before they go out and sell it, otherwise a lot of my former clients
in the constabulary might take an interest. And the Minister for Revenue and Assistant
Treasurer, who is at the table, might have a view about people selling things that they
did not quite own.
It seems that the government might be looking to bypass this basic rule when it comes
to Medibank Private. Once this matter came on for public debate, the Parliamentary
Library commissioned a research paper. It took it upon itself, under its independent
charter, to investigate what rights the members of Medibank Private had in this fund.
One conclusion reported in its brief was that members may have the right to the surplus
assets of this fund. That is not an insignificant conclusion by this independent body.
According to the library, the sale could give rise to a claim against the Commonwealth.
This put the government in a bit of a tailspin, and it rushed out and did what it normally
does in these sorts of circumstances. You might recall that in the industrial relations
debate the first thing that the minister did was to run out and engage a plethora of legal
advisers from the private sector to play a role in helping formulate the government’s
position on Work Choices. But what the government did on this occasion was to go and
get separate advice—in the hope, I suppose, that it would be advice which would
actually give them something to hang their hats on when it came down to the issue of
ownership.
The advice that they obtained was from Blake Dawson Waldron. It was tabled by the
Minister for Finance and Administration in early September. And that advice indicated
that the Commonwealth was not liable to pay compensation. No doubt, it was a bit of
reprieve for the minister to receive that advice.
Well, which is it? Will we be liable or will we not? The question is yet to be answered in
any decisive way. When the library considered the advice from Blake’s—and, again, this
is on record—it considered that advice, for various reasons that it articulated, to be
wrong. It pointed out a range of problems with the advice and hence it seriously
questioned its conclusions.

The $653 million question, when it comes to the sale of Medibank Private, is: who
actually owns it? The government claims that it does, and it has produced this legal
advice to back up its assertion. The Parliamentary Library seriously doubts the
conclusions contained in that advice. So most of us are really left none the wiser on that
fundamental question of who actually owns Medibank Private.
Despite the fact that the Commonwealth is sticking to the advice offered by its hired
guns in this matter, it has hedged its bets. It has inserted a provision in this bill that
seeks to remove the Commonwealth from any compensation claim that may arise as a
result of this sale. It has also indicated that it intends to recognise existing members, through an entitlement as part of the public offer structure. So while the government on
one hand is sure that it has the right, and is sure that it actually owns Medibank Private,
it still seems to feel the need to hedge its bets against any adverse findings of ownership
by removing itself from any liability for compensation and has sought to placate the
existing members through a yet to be detailed entitlement in the public offer.
If the government is willing to go to all those lengths to make sure that it is far removed
from any possible future legal action taken by any one of the members of Medibank
Private, one can only conclude that the government has little confidence in the legal
advice it has received from its solicitors in this regard. If the government does not have
confidence in its legal advice on this occasion, if it is nervous about the sale, if it needs
to go to these lengths—of putting all these hedging positions into this bill to protect itself
into the future—then this sale should be stopped, and it should be stopped now, because
the fundamental proposition as to who owns it is yet to be determined. It is a simple
proposition: if you are not sure that you—as the minister—are the person who actually
owns the residual assets in this organisation, then you should not attempt to sell it.
The biggest concern for most people is the impact that this sale will have on industry
competition and on premiums. There is a very deep concern among the public—as was
the case with the sale of Telstra and other privatisations—that this will be nothing more
than another trip down the ideological highway; a trip that, quite frankly, the majority of
Australians do not want to take. As a recent ACNielsen poll on the privatisation of
Medibank found, nearly two in three respondents wanted the insurer to remain in public
hands. Only 17 per cent—that is, less than one in five—actually supported the sale of
Medibank Private. This is a pretty significant finding although, as we have seen with this
government as it pursues its various ideological agendas, nothing is going to be allowed
to stand in its way: not public disquiet, not expert objection—nothing.
The only thing in the past that has stopped this government’s agenda when it comes to
privatisation—and I should not have said there was nothing, because there was
something—has been Alan Jones. You may recall that when it came to the sale of Snowy
Hydro it was the objections of Alan Jones, and the opportunity that the government saw
to score points against the Victorian and New South Wales governments, that stopped
the privatisation objectives of the Howard government. On this occasion, despite the fact
that Alan Jones has labelled the sale of Medibank as immoral, the government does not
seem prepared to back down. So, given that the Commonwealth will not back down,
what are the impacts going to be?
Medibank Private has about three million members and accounts for about 30 per cent of
the private health insurance market in Australia. It has to be considered the most
significant player in that market. The nearest insurer in terms of market share is MBF,
which accounts for nearly 20 per cent of the market. Given the size and relative market
strength of Medibank, serious consideration has to be given to the impact on the market
and on competition of its change from being a not-for-profit organisation to one which is
profit focused. Labor has a real and serious concern that privatisation is going to result
in higher premiums, lower service levels or limits on claims—or, in the worst possible
scenario, all of the above.

While the Minister for Finance and Administration continues to stick by the line that the
privatisation will place downward pressure on premiums, no-one else seems to be
convinced and no-one else whom I have heard speak has rushed out to agree with him
on this. No-one who has spoken in this debate, from various philosophical positions, has
rushed to speak in support of the minister in his claim that this is going to lead to
downward pressure on health insurance premiums. Even the Minister for Health and
Ageing, who has been responsible for increase after increase in private health insurance
premiums, has conceded that following the sale of Medibank Private premiums are
bound to rise.

The minister for health—a man who has approved health insurance increases—when
asked recently about the period post Medibank privatisation, said that he would have no
hesitation in approving higher premiums. That really comes as no surprise as the
minister for health has hardly been a picture of self-control when it has come to
approving premium increases in the past. Why would he exercise some self-control at
this stage when it comes to increases in health insurance premiums? So the official line
is that there will be downward pressure on premiums, while the health minister believes
the exact opposite. With such divergent views within the government it is probably best
that people consider the views of others to gain some insight as to what might happen.
The Age recently reported the comments of an investment banker as follows:
One investment banker stressed that whoever won control of the asset would be planning to extract value
using some combination of cutting costs, limiting claims and raising premiums. The owner would hope to make
its money in two or three years, the banker said. After that Medibank would probably be sold—either whole or
in pieces.

It seems that downward pressure is the last thing that is going to be exerted on
premiums. It is incumbent upon the government, should it be successful in getting the
privatisation bill through, to provide some sort of assurance to existing Medibank
members rather than just throwing them and their premiums to the breeze. The
members need some certainty about what is likely to happen to their premiums. That is
not being addressed. It is certainly contrary to the position that has been asserted by
the Minister for Health and Ageing in this regard.
Health and health insurance are vital areas when it comes to public policy. Changes to
Medicare, the subsidisation of the private health insurance industry through the 30 per
cent health insurance rebate and the dogged determination of this government to inject
the private sector into health care while it extracts itself make the sale of Medibank all
the more important. The sale of Medibank will not result in better service. In itself it will
not lower administrative costs. It will not reduce the regulatory burden and it will
certainly not put downward pressure on premiums. It has certainly become clear that
the sale of Medibank will do everything but put downward pressure on premiums. For
the doubters out there, the government’s record on premiums stands in stark contrast to
its assertions that this sale will place downward pressure on premiums.
People need only remember that since 2001 health insurance premiums have increased
by 40 per cent. A change in the primary motivation of Medibank from being a not-forprofit
organisation to an organisation motivated by profit—one where the operator will
necessarily be geared to generating a profit and return to shareholders—will give an
entirely new complexion to the industry. We should bear in mind that Medibank Private
at this stage accounts for 30 per cent of that industry. Once the largest operator in the
market is let lose—having to placate shareholders and having to generate profits—it will
not be long before it starts to place considerable pressure on the government to increase
premiums regularly and probably significantly. Naturally Medibank’s lobbying will be
supported by the rest of the industry, placing even more pressure on the government,
and before you know it the health minister will have his rubber stamp out once more to
approve further premium hikes and meet the wishes of the health insurance industry.
Even the best companies in the most homogeneous industries find it difficult to balance
the competing motivations of profit, service and competition. So how can anyone really
expect it to be any different when it comes to the health insurance industry? I oppose
this bill. I think any members who consider the welfare of private health insurance
holders should equally oppose this bill. (Time expired)

WE'LL PUT PEOPLE FIRST