Medibank Private holders should 'act' if Coalition sells fund

Medibank Private's 3.8 million policyholders should be up in arms over the Coalition's plans to privatise Australia's biggest health insurer and could launch legal action if they are not "compensated for their loyalty", an industry veteran says.

Grahame Danaher, chief executive of the not-for-profit health insurer Westfund, said Medibank members were already shortchanged by the Labor government extracting large dividends since the insurer converted to "for profit" status in 2009. He said the proposed sale by a Coalition government was "not as easy as it sounds".

"It's not palatable to sell it to an overseas health fund, especially a for-profit one," he said. "And you couldn't sell it to another fund here because of competition issues."

There are 35 health funds in Australia, but the two largest - Medibank and Bupa - have more than 50 per cent of the market.

Medibank is one of seven government business enterprises. Its total dividends to the government will top $850 million if a mooted "special" dividend of $300 million is approved by the board this financial year. The Medibank Sale Act is through Parliament but does not stipulate a method of sale. A sharemarket listing is considered the most likely option, and is estimated to raise up to $4 billion.

Mr Danaher said Medibank's policyholders would expect "recognition for their loyalty" if the insurer was floated. Failing that, "anything can be raised in the courts".

"I know there has been anger in the past in regard to members seeing Medibank as very much their own institution, and that any sale would give rise to some discontent."

Members of MBF and Manchester Unity received cash according to the type and length of their membership when the businesses were acquired. Members of NIB, the only listed health insurer, received shares when it floated.

Mr Danaher said a sale of Medibank would likely help smaller funds such as his, if policyholders lost confidence about services under the new ownership and the removal of government backing.

Opposition Leader Tony Abbott said in April that the Coalition did not "see any reason in principle why you still need to have a government-owned private health insurer". This view is backed by the Greens, which say it could support a sale if the proceeds went to public health. Labor does not support a privatisation.

But an industry source has told BusinessDay that a sale is not unanimously supported in the Coalition, with one prominent Liberal believed to favour holding on to Medibank for its dividends.