Essay Topic: Should the Australian Government privatise Medibank?
Medibank is one of the government-owned private health insurers in Australia. The Whitlam Government established the organisation in 1975 through the Heath Insurance Commission which is now known as Medicare Australia.
The company has 30% market share and with 3.6 million members, it is the largest health insurance provider in Australia. The organisation was basically established for providing a competition to the health funds that are privately owned and are for profit.
Although the company is owned by the government, the bank has paid dividends and taxes under a similar regulatory regime to any other commercialised business or registered private health fund since 2009.
The fund was designed to pressure other health funds by regulating premiums and keeping them at a reasonable level.
There has been continuous debate regarding Medibank’s privatisation. The Coalition Howard government announced in 2006 that if they won the election, Medibank would be sold in a public float (Medibank.com.au, 2014).
They lost the election to the Australian Labour Party under Kevin Rudd, who promised to keep the institute government-owned. Similarly, in the 2010 election, the Labour Party defeated Tony Abbott, who made the same pledge of privatising the bank.
Finally, on 26 March 2014, Mathias Cormann, the Minister of Finance, announced that the organisation would be sold through an initial public offering in the 2014-2015 financial year.
The main aim of the essay is to provide various arguments regarding whether Medibank should be privatised by the government and then draw conclusions from these arguments.
Medibank is the market leader in the industry for providing health insurable service to the consumers. The Woollonging based insurer Australian Health Management (AHM) was acquired by the Medibank in January 2009 and after the merger a Health Solution Division was created.
The division mainly focused in the health coaching programs for helping the people with health conditions, preventive treatments like flu and travel vaccination, providing occupational health services like injury treatment and employment medical examination etc (Petrovi\’c, 2011).
The services are offered under the Travel Doctor brands and Medibank Health Solutions. The company is one of the best service providers in the market which provides health insurance as well as health services.
The company provided online and telephone health management programs and it also established consumer benefits for various services.
The company continued to expand its operations and services, and it also gave competition to privately owned companies. The company tried to provide a minimum premium rate for consumers, and thus, it has a significant client base.
Privatisation can be referred as the transfer of ownership of a business or an enterprise from the public sector or the government sector to the private sector. It can also be referred as the transfer of ownership from a profit to a non-profit organisation.
After globalisation, various financial institutions like the IMF and World Bank have been more involved in promoting privatisation to induce competition in the industry.
Medibank is known as a government organisation, and thus, various efforts were made to make the company privately owned so that it could operate more competitively and earn higher profits (Szakiel, 2010).
Now, the main reasons for selling Medibank to private owners can be discussed. Firstly, privately owned businesses are more efficient and competitive than government-owned organisations.
Thus, the government decided to sell Medibank to make the organisation more viable, competitive, and efficient in the industry (Corporate.medibank.com.au, 2014). Secondly, it promised that the private employees of the organisation would be treated fairly after the sale.
It is ensured that the accrued entitlements will be preserved after the sale. Thirdly, it is also ensured that the quality of the service provided to private customers will be maintained at a specific level and that consumers in rural Australia and regional areas will not suffer due to privatisation.
Fourthly, the privatisation process can increase the sales of the company in terms of the objectives set for the company (De Voe and Short, 2003).
It is known that many probable elective parties pledged to sell the company, but the order was not completed as they lost the election. After the retirement of Paul McClintock, the private chairman of Medibank, the company was called for privatisation.
But the privatisation was delayed and was a topic for debate. Joe Hockey claimed that the company would raise $4.5 billion if it was privatised. The amount exceeded the company’s book value, which is only $1.6 billion. The company also recorded around $200 million as an annual operating profit. Most of the profits go to the government as dividends (Finance.gov.au, 2014).
In pure financial theory, it can be said that the decision should be neutral regarding whether the organisation should be sold to private ownership as it is one of the profitable companies. The sale can create problems for the shareholders as the dividend stream will be stopped.
However, public finance is basically guided by immediate budget projections and impacts, particularly in an election year as it goes out for only three subsequent years. Thus, it was calculated that the realisation of $4 billion will significantly contribute to the company’s operations and will also benefit the government (Harper, 2003).
Thus the economic case makes sense and it can be said that privatising the company is the correct decision. In economic terms, it is evaluated that the government can be an active player in the market, but there is no reason why Medibank should still be under government ownership.
However, certain arguments can be presented for the company’s public ownership. Medibank leads the industry by only a small margin. That means it is the largest health insurer in Australia by only a minimal margin. The company neither leads nor dominates the market.
The company is efficient and competitive in its operations. It was also engaged in “benchmark competition,” which was governed by the public owners. Medibank was involved in such competition with privately owned businesses (Szakiel, 2010).
One of the two main reasons the Fraser government established Medibank Private was to establish a government insurer that could bring some discipline to other funds as well. But that form of intervention gave way to the national competition policy.
There was a strong regulatory mechanism that the government promoted for maintaining a lower premium rate for the company.
Another reason for establishing the company was a political one (The Conversation, 2013). It was realised by the Fraser government that a single public insurer in its original inception will be a popular scheme and it was believed that some of the voting will be appeased keeping the company a publicly-owned and by retaining the name.
Thus, in terms of political reasoning, there is a strong opposition to privatisation. The public opinion polling also showed a resistance towards privatisation. The political parties have also opposed the privatisation of the company.
In this context it can be asserted that the response of the public is more of a visceral response rather than an economically feasible or rational response. It can be said that certain economic criteria should be established for providing a clear division of the public and private ownership.
In terms of the economy the public goods should be the ones which the market cannot efficiently provide. On the other hand when there is a room for only one suppler then there should be natural monopoly in the market (the Guardian, 2013).
These cases provide a stronger case for the ownership of infrastructural facilities like public transport, power, roads etc. However, these arguments are ineffective in the case of the privatisation of a company like Medibank. In this regard, one of the simplistic ideas can be implemented in this context, which is the reduction of public debt and improving the efficiency of operations (Australian, 2014).
Thus, in conclusion, it can be said that there have been arguments regarding whether Medibank should be privatised or not. In the essay various implications have been presented for enlightening on the topic. The arguments for and against the privatisation of the company have also been given.
Here, the benefits that will be received by the government and society if the company is privatised have been presented in terms of the reduction of public debt and improving efficiency. It will also improve the performance of the government owned business enterprise that is undercapitalised and overstaffed.
But it can be said that the arguments are weak as there are counter arguments for every point. The organisation is competitive and the performance and the quality of the service have been excellent over the years.
Thus it can create problems if the asset of the company is sold especially the collectively owned government assets for financing the present outlays. Thus it can be said that it is one of the unnecessary and bad privatisations conducted by the authorities.
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