Medibank Private: Government announces sale through IPO, subject to market conditions

Updated

The Federal Government and Opposition are at odds over the merits of the proposed sale of Medibank Private, including whether it will lead to a rise in insurance premiums.

Finance Minister Mathias Cormann has announced the government-owned company will be sold through an initial public offering in the next financial year, 2014-15.

The Opposition believes the insurer should stay in public hands and has raised concerns about premium increases and the future of Medibank Private employees.

Senator Cormann said the details were yet to be finalised but that an independent scoping study had found no evidence that premiums would rise as a result of the privatisation.

The Government has previously said it wanted to sell Medibank Private at the "right time" to maximise the sale price.

But Senator Cormann would not say how much he thought the insurer was worth.

"It wouldn't be appropriate for me to speculate on what sale price may or may not be achieved," he said.

"I'm not going to put a figure on it. Obviously, our objective is to maximise net proceeds from the sale."

He said that no one investor would be able to buy more than a 15 per cent share in the insurer, as stipulated in the Medibank Sale Act passed by Parliament in 2006.

Medibank was valued then by the Howard government at more than $4 billion, but the price has more recently been estimated at around half that.

Whatever the proceeds, Senator Cormann said the Government wanted to spend the earnings on infrastructure.

"Our stated intention is to recycle the capital that is freed up from the sale of Medibank to invest in productivity-enhancing infrastructure," he said.

But the proposed infrastructure would be revealed only in the May 13 budget, he added.

The Minister also left open the possibility that the timing of the sale could shift, depending on the market.

"We of course need to maintain some flexibility in particular with a focus on evolving market conditions," Senator Cormann said.

"We'll make a judgment and when we're satisfied that the most appropriate window for sale is present ... then we'll move ahead."

Labor raises concerns about impact on staff, policy holders

Labor's health spokeswoman Catherine King said the Opposition has concerns about the impact on the insurer's 4,000 staff members and its 3.8 million policy holders.

"It's really up to the Government to guarantee that this won't lead to an increase in private health insurance premiums," she said.

"And counter to that I would actually say it's up to them to show people that it in fact will lead to downward pressure on private health insurance premiums."

The Opposition also said the sale would increase the budget deficit, because the Government would lose Medibank's annual dividend payment of up to half a billion dollars.

It would also not, under budget rules, be able to mark the eventual sale price as a budget gain.

Medibank's chairwoman, Elizabeth Alexander, has welcomed the Government's decision.

"To our many customers, please be assured we remain focused on delivering excellent value and service," she said in a statement.

Senator Cormann said the scoping study had confirmed the Coalition's view that there was no "compelling" reason for the Government to be in the health insurance business.

He said it also would remove the "inherent conflict" posed by the Government's involvement as both market regulator and market participant.

Senator Cormann said the Government wanted to ensure that Medibank customer service and staff did not suffer as a result of the sale, emphasising that it wanted employee entitlements to be retained.

Topics: health-insurance, business-economics-and-finance, federal-government, australia

First posted