Privatization of Medibank - Case Study Example

Medibank Name: Institutional Affiliation: Medibank Introduction Medibank is an Australian based government owned insurer that was established in 1975 by the health insurance commission commonly referred to as Medicare Australia. It is currently the largest health insurance provider in Australia and owns over 30 percent of the health insurance market share [Med14]. The main reason as to why it was set up was to counter competition from the country’s private health fund [Med14]. Privatisation refers to the transfer of ownership of an institution, organization or even an industry from the government to the private sector [Cro12]. It is important to understand what privatisation entails and the advantages and disadvantages associated with it so as to determine whether Medibank should be privatised or not [Cro12]. This paper is going to analyse the factors that will determine whether to privatise Medibank or not. The privatisation of Medibank has torn the Australian government into two, with the main government pushing for the privatisation of Medibank and the opposition, opposing the privatisation [Gua13]. The privatisation of Medibank defies the very reason as to why it was established in the fast place. Because thorough evaluation must be carried to determine whether privatisation of Medibank is the best move for the Australian citizens. It is important to understand that this is not the first time there has occurred an initiative to privatise Medibank. The first privatisation move occurred in the year 2006 under the Howard administration. This saw the passing of the “Medibank Private Sale Authorisation Act” [For06]. The act was able to pass swiftly since the administration had the majority in both of the houses in parliament. However, the Institution was never privatised immediately considering the fact that Howard assured Australians that the act would only be applied if the government was given mandate after the 2007 elections [Gua13]. There exists several negative factors that accompany the privatisation of Medibank. These factors are likely to follow if the Australian goes ahead and issues the Initial public offer in December [Kin14]. Some of the main disadvantages that are likely to relate privatisation of the Medibank Institution include; Increased taxation, concentration of wealth, Exploitation by the private sector, Loss of jobs, Abuse of public interest. Increase in Taxation Privatization of Medibank will directly affect the level of taxation to the Australian citizens. This is brought about by the fact that there will be a decrease of revenue form the government side, and because of this, the government will do everything to maintain the level of revenue collected so as to fund its expenditures [Gua13]. In 2009, Kevin Rudd made the insurer private for profit and this allowed the Australian government to obtain revenue from Medibank Corporation [ABC14]. Considering its customer base and the performance of the company, the government was able to obtain a significant amount of revenue from the corporation as dividend. By doing this, Rudd had effectively established a working asset for the Australian government which contributed to its revenues. This step caused a ripple effect which saw the reduction in taxation levels and at the same time maintaining the same level of government services. Unlike the Howard government, the Rudd and Gillard government tax Australians significantly less due to this initiative [Kin14]. If the present government therefore takes the initiative to privatise the Medibank Corporation then it means that its stream of revenue is likely to go down. The initiative of increasing the levels will see the Australian citizens bear the tax burden. At this economic times, further taxation levels only reduce the purchasing power of most Australian citizens thus affecting the standard of living for numerous Australians [Wat14]. Thus the government should analyse effectively how it is going to cushion its citizens from such shocks that will be brought about by the privatisation of Medibank Corporation. Taxes have significant effect on the citizens of any nation. Concentration of Wealth In most times, privatisation tend to impact the concentration of wealth in the country [Cro12]. In what way does privatisation of wealth impact the concentration of wealth? This occurs in that privatisation of units and big corporations such Medibank tends to tend to shift and increase the concentration of wealth to the private hands. This will result to the rich individuals enjoying the fruits brought about improvement in the financial sector. This also has a long effect of dividing them into two parts, “the haves and have not” [Kou131]. This is the same situation that is likely to be witnessed in Australia after the privatisation of Medibank. This will see the rich individuals have greater control of the Insurance industry and thus influence the industry as they want. Just like the level of taxation, this is likely to affect the middle class level and individuals in the lowest social class loose the control of wealth. The wealth has the effect of enhancing inequality in Australia a factor that has been dealt with for decades now. Australian being a developed country, should formulate policies that encourage equity among the citizen such that the gap that exists between the rich and poor is reduces [Kin14]. Equality in distribution should be the main target of the present government and not formulation of policies that encourage the unequal distribution of wealth in the country. There is no doubt that the privatisation of Medibank will only lead the concentration of wealth among the wealthy in the society and further lead to the oppression of most Australians, considering the fact that Medibank has the largest share percentage in the industry [Med14]. Exploitation by the Private Sector Privatisation of Medibank will be against the very reason for its establishment. As stated Above, Medibank was mainly established so as to be able to counter the competition from the “for profit” insurers in Australia [Gua13]. Medibank is applauded for the provision of cheap health insurance for the Australian population. For several decades, the corporation has provided the Australian population barring the private insurers form extracting outrageous profit from the Australians [Med14]. The other advantage is that Medibank forced the private competitors to reduce their prices [Med14]. This is because if the other private competitors couldn’t reduce their prices to Medibank levels, then there were chances that the all the other competitors could be wiped out completely or remain with very small percentage of the market share. In order to fight back, the private insurance providers reduced their prices by significant percentage and the greatest benefactors were the Australian population [Kin14]. In most instances the greatest benefactors of the price wars in any market or industry are always the customers. The other factor is that the private sector is rarely driven by the customers’ needs but rather driven by profits. Because of this, the private sector tends to charge higher prices for the goods and services that they provide. This will ultimately lead to the exploitation of the Australian population. Thus it can be inferred that the privatisation of the Medibank will only lead to further exploitation of the Australian population and will have less positive impact on the population if not none [Par061]. Therefore it is crucial that the government considers the effects privatisation of Medibank will result to with regards to exploitation of the Australian population, by the private sector. Loss of Jobs One of the biggest worry associated with the sale of Medibank is the fact that there might be the loss of Jobs upon the privatisation of the institution. This fear is greatly with the employees and the public dominion at large [Gua13]. There has been no form of assurance from the government that there will be job security for all the employees that currently work at Medibank. It is important the welfare of the employees is looked at before the initial public of the Medibank Corporation. As stated earlier the private sector always aims at maximising profit and minimising costs as much as possible. Because of this there is fear that upon privatisation of the institution, some of the employees are likely to be laid off [Kin14]. This idea is shared by most investment analyst who see future job cuts at Medibank. They argue that the private investors would want to see Medibank operate efficiently and this would only be achieved through job cuts and setting up higher premiums for the Australian population. According to David Walker, in order to attain dividend growth and improvement in cost saving initiatives, job cuts and other business process reengineering is crucial in attaining such growth [Wat14]. Abuse of Public Interest One of the main functions of most governments is serving the interests of its citizens. This is a very crucial factor to be considered by the current government. They should determine whether the sale of Medibank Corporation is in the best interest of the public and not only serving their interest. Analysis from a study carried throughout Australia showed that only 22 percent of Australian wanted to see Medibank privatised, implying that a significant number is not for the privatisation of Medibank [Gua13]. The other factor is that there is little support for the sale of Medibank among the coalition partners [Par061]. This shows that the privatisation of Medibank is likely to be very unpopular among the Australian population and that the government should try as much as possible and respect the interest of the public in the best way they could. Interest groups that are against privatisation argue that public utilities should not be privatised since they serve the public interest [Par061]. Conclusion From the analysis of factors stated above it is vivid that the privatisation of Medibank will have significant negative effects both to the insurance industry and the general public at large. The other factor is that this is likely to lead in the establishment of natural monopoly that which is harmful for the industry. It is important that regulators are established so as to ensure that the privatised monopolies their customers liberties in any way. Thus I feel that the government should not privatise Medibank Corporation. References Med14: , (Medibank Private Limited, 2014), Cro12: , (Crowder, 2012), Gua13: , (Guardian News and Media Limited, 2013), For06: , (Forshaw, 2006), Kin14: , (King, 2014), ABC14: , (ABC, 2014), Wat14: , (Watson, 2014), Kou131: , (Kousadikar & Singh, 2013), Par061: , (Parliament of Australia, 2006), Read More