Should the Australian Government Privatize Medibank - Essay Example

Should the Australian Government privatize Medibank? Medibank is the largest health insurance provider in Australia (Hurst & Medibank . The organization enjoys about 29% of market share with up to 3.8 million subscribersas noted by Foley and Scott (2014). Following a study that the Australian government undertook in November 2003, it announced the privatization of Medibank. This move, though welcome by Medibank itself, will see the cost of health premium go up according to different analysts. According to the Minister of Finance, Mr. Matias Corman, the government is to conduct the sale through an initial public offer in the 2014-2015 financial year. The price of the organization’s stock will depend on the market rates. The controversy surrounding Medibank is not a new thing in Australia. As stated by Boxall (2014), the universal health policy implementation was one of the fiercest and most controversial policy battles Australia has ever seen. The proposal for the insurance policy known as Medibank was rejected twice by the Senate but in May 1974, it was passed in the first and the only joint sitting by parliament. Among its opponents were private health insurance firms, members of public, private hospitals, and catholic hospitals. Those opposed to Medibank included doctors under the Australian Medical Association (AMA) and General Practitioners Society of Australia (GPSA). They put a lot of effort toward the downfall of the organization. In their efforts, they started a freedom fund and used surgeons to campaign through posters, fliers and bumper stickers with the aim of luring patients away from Medibank. According to AMA the “socialized medicine” was a danger. AMA called on doctors and general practitioners to be politically vocal in radio talk shows and public meetings. The organization also urged doctors to make use of their secretaries and spouses to spread the message against Medibank. The GPSA had an even fiercer fight against the public institution. Members of the GPSA claimed that the fight was not just for the doctors but for every person in Australia. Regardless of the efforts by the opposition, Medibank was introduced in 1975 a few months after the dismissal of the Whitlam Government. The support from the public was so strong enough to push Malcom Fraser to quit the party that was opposed to it during the 1975 campaigns in a bid to maintain Medibank. The Fraser Government, however, did not live to its word and after gaining power they embarked on a mission to bring it down. By 1981, the country had seen the collapse of Medibank. This saw Australia become the first nation to implement a universal health insurance then later dismantle it. The year 1984 saw the resurrection of Medibank through the Hawke Government, soon after its election. This time the bitterness was not as passionate as it was before. The Medibank was to be funded by the commonwealth government as it was to reimburse patients on whatever costs they incurred on medication. The costs included those incurred on both public and private hospitals, whether in-patient or out-patient services were provided. The commonwealth government would pay 50% of the bill while the states would meet the deficit. Private hospitals also got a $16 subsidy, the same as the public hospitals (Australia Academy of Medical Surgery, 2014). A number of reasons have led to the decision by the government to privatize Medibank; both financial and political. From the first glance one can easily get surprised that none of the political sides (neither the government nor the opposition) called for the privatization of Medibank. Before his retirement the then chairman of Medibank, Private Paul Mcklintock, proposed its privatization. This was opposed by the then Finance Minister, Penny Wong, who stated that the government had no such intentions. On the other side, the opposition led by Tony Abbott claimed that there was no substantial reason as to why it should be kept in the hands of the public and a sale would be appropriate. The opposition’s statements were echoed when the green health spokesman, Senator Richard Di Natale, had questions on the government being a player in the private insurance industry (The Conversation 2013). One of the reasons behind the sale was related to finance. During the 2010 campaigns, the coalition was so outspoken regarding the privatization as the shadow treasurer claimed its sale would raise $4.5 billion. This was way above its books value set at $1.6 billion but seemed realistic for an entity that had earned about $200 million in profit for the previous two years. In comparison, the NIB is just a quarter in size of Medibank and yet its value is about $1 billion (McAuley 2013). What guides public finance is the budget’s immediate projection and impact, especially during election periods. Considering the projection of $4 billon, the sales contribution to the budget on account of Medibank’s privatization will raise $1.6 billion for four years as compared to $0.4 billion as a result of savings from the recent superannuation changes. While the latter has been a cause of pain to the government politically the former is a great deal. The other reason for privatization is with respect to economic factors. Although there are situations that call for government involvement, there is no reason as to why the government should do so with Medibank’s privatization. For a European style single national health insurer, there is a need for the government’s involvement, but the case is different for Medibank as it is just among the 35 competitors in the market. Despite the fact that it is the largest insurer, by a minimal margin, that does not establish it as a leader in the market. The idea of having a government businesses operating along side private ones is majorly for discipline as is the case with the Commonwealth bank and Australia Airline. The position of Medibank as a leading health insurer gave the national government an upper hand in coming up with policies and regulations related to health insurance. Originally, Medibank, in the Fraser government being a single insurer, was used as a political scheme as it was popular. The government was convinced that a number of voters would be impressed to keep the name Medibank and retain its public ownership. In recent days this role has changed as there are other insurers in the market (The conversation 2013). On the other hand, there are those who feel that the privatization is a wrong move by the government. On the opposing sides are two key players in the founding of Medibank in 1975: its first general manager, Ray Williams, and Co-founder, John Deeble. As described by Ray Williams, the sale is tantamount to theft as it the contribution by the members that created Medibank and the government have very little stake in it. To support his position, Deeble says the entity should remain in the hands of the government as this lets the window open for the industry to grow (Duckett 2014). Some argue that it should remain government property so as to moderate the insurance premium rates. Others argue that Medibank is a source of income for the government, and hence it should not be sold. Another argument is that Medibank is among the few businesses that are owned collectively, and this helps reduce the burden of paying taxes by workers. The privatization is also seen to be adding more income to capital hence increasing wealth inequality (theguardian.com 2013). Statistically speaking, the privatization of Medibank has failed to gather enough support from the public. As noted by Essential Reports (2013), those who totally oppose the sale make up about 43% of the population while only 22% support the sale fully. The remaining 35% ,which is higher than the percentage of those who support the sale of the organization, do not know whether or not to support the move. Those who were most likely to support the privatization were majorly men at 31% and are mainly liberals. Currently, the government owns Medibank as the sole shareholder. The government of Australia recently announced the sale of Medibank private, a government own medical insurance provider. It is the largest service provider in Australia with about 29% of market share. Its annual profit for the past two years has been around 200 million dollars and it is valued at $1.6 billion. The government claims there is no justified reason as to why it should control the entity, besides some of its reasons are financially instigated. The sale of Medibank is expected to raise about $4 billon for the government. This should help the government offset some budget deficits in four years. The other reason is that the insurer has operated among other competitors as it is not the only service provider, besides the entity no longer serves the purpose of controlling and regulating premiums. The government has put policies in place that deals with regulations. Opponents of Medibank’s sale on the other hand feel that the move will rob the public of a few privileges. Among them being factors such as wealth equality and tax reduction. Other feel the entity is used to moderates rise in premium. Statistically speaking, few Australians support the privatization. Only 22% fully support while 44% fully oppose the move. Going by the statistics the sale will be seen as defying the will of the people of Australia. Though the sale my have good intentions, these factors must clearly be addressed before the move is undertaken. References Australia Academy of Medical Surgery (2014). History of medicine: The Whitlam Period 1972-1975 Short-lived Medibank, [online] Available:http://www.aams.org.au/contents.php?subdir=library/history/funding_prof_med_au/&filename=1972to1975 [Accessed 8 May, 2014] Boxall A. (Jan, 6, 2006) Did you know? Medibank, [online] Available: http://cpd.org.au/2006/01/did-you-know-medibank/ [Accessed 8 May, 2014] Duckett S. (April 2, 2014) Medibank sale doomsayers are off the mark, [online] Available:http://www.abc.net.au/news/2014-04-02/duckett-medibank-sale-doomsayers-are-off-the-mark/5360732 [Accessed 8 May, 2014] Essential Reports (2013) Privatizing Medibank Private; Do you support or oppose the Government’s plan to privatize Medibank Private? [online] Available: http://essentialvision.com.au/privatising-medibank-private [Accessed 8 May, 2014] Foley B. & Scott J. (April 17 2014) Australia Appoints Macquarie, Deutsche, Goldman for Medibank IPO, [online] Available:http://www.bloomberg.com/news/2014-04-17/australia-appoints-macquarie-deutsche-goldman-for-medibank-ipo.html [Accessed 8 May, 2014] Hurst D. (26 march 2014) Medibank Private sale to go ahead as government announces share float [online] Available:http://www.theguardian.com/world/2014/mar/26/medibank-private-sale-to-go-ahead-as-government-announces-share-float [Accessed 8 May, 2014] McAuley (23 April 2013) Why privatizing Medibank is good policy, [online] Available:http://www.businessspectator.com.au/article/2013/4/23/health-and-pharmaceuticals/why-privatising-medibank-good-policy [Accessed 8 May, 2014] Medibank (2014) privatization of Medibank, [online] Available:http://www.medibank.com.au/about-us/privatisation/ [Accessed 8 May, 2014] The conversation (April 23 2013) Privatizing Medibank: good business hamstrung by bad politics, [online] Available: http://theconversation.com/privatising-medibank-good-business-hamstrung-by-bad-politics-13526 [Accessed 8 May, 2014] Theguardian.com (13 Dec 2013) Is selling Medibank a good idea? It remains to be seen, [online] Available: http://www.theguardian.com/commentisfree/2013/dec/14/is-selling-medibank-a-good-idea-it-remains-to-be-seen [Accessed 8 May, 2014] Read More