Should the Australian Government Privatize Medibank - Case Study Example

Title: Should the Australian Government privatise Medibank? Name Unit Class Introduction Medibank Private was established in 1974 by Australian government through commonwealth fund. The health insurer has been under full government ownership as a business enterprise from 1988. Medibank became the largest health insurance provider (private) through merging with Medibank private and health services. There has been intent of selling the Medibank Private for a very long time generating different views from the public and government. The debate has been looking at the appropriateness of privatization of the Medibank Private and its effects on the stakeholders. There have been debates that have looked at both merits and demerits that are associated with privatisation. Other has looked at ways in which the government can get the most from the privatization by maximizing on their offer (Ian, 2013). This is due to fact that the privatisation of the Medibank Private should lead to the best results possible for the Taxpayers. The sale of government owned enterprises is in most cases determined by the competition laws or audit results. The main argument behind those who want the sale of medibank are based on the fact that the Medibank private market operation is purely commercial in a field of private owned health insurers. This essay will justify the Australian government on privatisation of Medibank. This will be based on the media reports and the concepts that have been learned (Medibank Private Limited, 2014). The operation of Medibank poses no interest to the Australian public due to government intervention. There was no need for Medibank Private to remain under the Australian government due to fact that the premiums were regulated by the same government that regulates those for the competitors. This can lead to a situation where there is conflict of interest. Remaining under the public ownership acted in distorting the market. This is due to government acting as both the owner and also regulator in a competitive enterprise. Privatization of state owned enterprises in most cases leads to improved growth both financially and economically. The reduction of political ties between institutions improves its financial performance. In most cases, privatisation acts to improve the financial development of a country (Asia One News, 2014). It has been proved that for privatisation to be successful there is need for strong political commitment. This is important in helping to overcome any existing bureaucracy. The process of privatisation in most cases is composed of internal conflicts between the government departments. The sale of Medibank needs a strong political support for it to be successful. By selling Medibank Private, it will be possible to maintain high quality services to medibank private contributors. Medibank Private performance has been rated to be at par with the industry standards. This is through the comparison with other players in the industry. The sale of medibank Private will enable the members’ interests to be fully catered for. The only problem lies on the type of sale that the bank will go through. If the bank sale is sold on for profit sale, there would be less focus on the interests of the members. This has been the reason why medibank have remained as not for profit for a long time. The members’ main benefits occur when the services are offered at a lower price. The main benefit for not-for profit operation is through the profit funds being returned to the shareholders in form of low prices (Stephen, 2014). Members’ interest is the main issue that is behind the sale of Medibank Private. The insurers are expected by the bank to uphold the members’ interests in making the payments for their health services. This is due to increase of the cost of financing the health care through implementation of for profit health services. According to Ben (2014) the sale of medibank can only cater members’ interests if it is done through not for profit scheme. One of the main disadvantages with the sale of the Medibank private is loss of broader role of public interest that was played by Medibank private earlier. This is due to the fact that the medibank had maintained operations which ensured that public interests upheld. Medibank had upheld key features which recognized the welfare of the public. These features include recognition of social welfare, acting as a controlled entity and operating as a free market. This shows that the bank was more inclined in provision of community advocacy. The sale of medibank Private may lead to a situation where the bank cannot be able to cater for wider community good. There is an argument that sale of medibank private will enhance competition. One of the main objectives for the sale of Medibank was to enable a competitive market for the health insurance. The sale of medibank Private has the capability to enhance the competition dynamics in the health industry. The sale may lead to increase of the size of the available health services. This is due to the fact that sale of Medibank Private may lead to its increase in size (Adrian, 2013). A larger insurer has the capability of making other insurers to increase their size so as to compete. This is an issue that will depend entirely on the type of sale that is carried out. In reaction to this objective, there have been claims that sale of medibank Private will impact the role that is played by the fund in creating competition in the health insurance sector. The creation of medibank was meant to enhance competition in the private health sector. This is mainly due to innovation and efficiency (Medibank.com, 2014). One of the main concerns against maintaining Medibank private as a government controlled entity was cost containment. Sustainability of the industry under the government management was a main concern. The size of medibank private has helped it in negotiating for the prices for its products. This has led to provision of low cost services to the consumers. Selling medibank private through a method that will reduce the size and national presence of Medibank private will lead to reduced market power. The sale method that has to be used must lead to increased size so that Medibank Private can challenge other healthcare providers. Ownership in some cases determines the cost containment in an industry (Byron, 2014). Despite all these, there have been no evidence that have shown that privatization of Medibank Private will lead to higher efficiency. The issues relating to competiveness and cost containment of Medibank in the industry have not also been proved. The offer through IPO can ensure that the government is able to achieve a lot through the sale (Paul, 2014). Selling Medibank through private equity would have led to a situation where the company will be sold in the near future again. A sale to a private equity would also lead to a loss to the Medibank Private members. The main issue on the sale for medibank lies on the fact that in most cases, the government sells the assets at less than their value. This can lead to a loss for the stakeholders and shareholders. This sale of Medibank private should be carried in the manner that can lead to mutual benefit for both government and the public (Adrian, 2013). The Australian government has opted to sell Medibank Private through IPO (Minister for finance, 2014). This is after failing to sell the entity through trade sales or private equity sales. The option was the best since it provides an opportunity for the Australian public to buy shares on the privatized company. This will enable them to have part of the company ownership. This method has a main challenge on determining the price which will give the reasonable returns on the sale. This is due to fact that price set through IPO depends on the latest earning from the company (David, 2014). Conclusion The sale of Medibank Private has been on discussion for a long time. The ownership of Medibank can be said to be owned by the government through management of the common wealth fund. The sale of the organization outcome will depend on many factors. These includes whether it will change from for profit to not for profit and the size after sale .the government move to privitise medibank can be taken as positive. This is due to the nature of government controlled organizations being in most cases affected by the conflict of interests and politics. There have also been changes in legislation which have favored privatisation of the entity. One of them is change from not-for profit to for profit. These changes legislation have made it more favorable for Medibank Private to be privatised. There was need for Medibank Private to change to a private company. This is also supported by the fact that Medibank was operating on a purely commercial market with its competitors who are privately managed. The fact that Medibank Private Premiums are regulated by the government makes it more advisable to privitise it. Hence the Australian government should privitise Medibank Private. References Adrian, R. 2013, Australian Medical Association, Medibank sale could force up premiums AMA, 4 November 2011, Viewed 4 April 2014, https://ama.com.au/ausmed/medibank-sale-could-force-premiums-ama Asia One News, 2014, Australia to sell biggest health insurer, 26 March 2014, viewed 4 April 2014, http://business.asiaone.com/news/australia-sell-biggest-health-insurer Ben, P.2014, ‘Medibank sale raises members’ rights’, The Australian Financial Review, 31 March 2014, Viewed 4 April 2014, http://www.afr.com/p/business/healthcare20/medibank_sale_raises_members_rights_R6LbJaIan9URjBgKjPiYRK Byron, K. 2014, UPDATE 1-Australia to sell insurer Medibank Private in IPO, Reuters, 26 March 2014, viewed 4 April 2014,http://www.reuters.com/article/2014/03/26/australia-medibank-idUSL4N0MN16420140326 David, C. 2014, ‘Medibank sale funds go to roads’, The Australian, 27 March 2014, Viewed 4 April 2014, http://www.theaustralian.com.au/national-affairs/policy/medibank-sale-funds-go-to-roads/story-fn59nokw-1226865880454#mm-premium, Ian M, 2013, Privatising Medibank: good business hamstrung by bad politics, 23 April, viewed 4 April 2014,http://theconversation.com/privatising-medibank-good-business-hamstrung-by-bad-politics-13526 Medibank.com, 2014, privatisation of Medibank, viewed 4 April 2014, http://www.medibank.com.au/about-us/privatisation/ Medibank Private Limited. 2014, Viewed 4 April 2014, http://www.medibank.com.au/About-Us/Corporate-Information/An-Overview.aspx Minister for finance 2014, Press Conference - Sale of Medibank Private Transcript, 26 March 2014, Viewed 4 April 2014, http://www.financeminister.gov.au/transcripts/2014/0326-sale-of-medibank-press-conference.html Paul, D.2014, ‘Privatising Medibank: will an IPO deliver for taxpayers?’, The Conversation Media Group, 31 April, viewed 4 April 2014, http://theconversation.com/privatising-medibank-will-an-ipo-deliver-for-taxpayers-24848 Stephen, D. 2014, Why selling Medibank Private won't hurt the health sector, Gratttan Institute, Viewed 4 March 2014,http://grattan.edu.au/publications/news-and-opinion/post/why-selling-medibank-private-won-t-hurt-the-health-sector/ Read More