Medibank Private could emerge as a takeover target, particularly for an overseas insurer, once listed on the sharemarket, rival NIB says.
"I'd be surprised if it's not the subject of overseas interest once it's listed," NIB chief executive Mark Fitzgibbon said, as the government announced a scoping study into the long-mooted sale.
Asked whether NIB would be interested, Mr Fitzgibbon said it was not part of the insurer's strategic plan but "never say never".
NIB is Australia's only listed private health insurer, with more than 470,000 policyholders, and has gained profile among investment banks in expectation of the Medibank sale. NIB has 18 branches, Medibank has more than 120.
Medibank is one of two big private health insurers, alongside Bupa. It recently reported a jump in annual profit to $232.7 million, on revenues of $5.34 billion.
The three-month scoping study, which will report to the government before next year's budget, will provide recommendations on the sale method, timing, regulatory issues, readiness and estimated proceeds.
The selloff has long been considered controversial given Medibank's capital base has almost entirely been built on taxpayer contributions.
Mr Fitzgibbon said a float was more likely than a trade sale because previous demutualisations of insurers, including NIB, had given members the cash.
"When they sell it, members will say, 'How come we're not getting the money?' They will be a bit pissed off about that."
It is suggested Medibank's 3.8 million members will receive some form of preferential eligibility or discount in a float.
As reported in Fairfax Media, the sale is not expected until late next year, or even 2015.
Amid rumblings that Medibank is not in peak condition for a sale, Mr Fitzgibbon said investors made decisions on what a business would do, rather than what it had done.
Finance Minister Mathias Cormann said the sale proceeds would "allow the government to fund other policy priorities or pay off debt", and the government had not made any decisions about the timing and structure.
Medibank Private chairman Elizabeth Alexander said the insurer looked forward "to working with the government on the future of the company".
The former Labor government extracted hundreds of millions in dividends from Medibank since it converted to "for profit" status, including a $300 million "special" dividend paid in August.