Minister sets out scoping study to sell Medibank

The federal government has called for tenders to advise it on key aspects of the controversial sale of Medibank Private, including the potential removal of an ownership cap if it proceeds with a trade sale instead of a sharemarket float.

Tender documents show the scoping study, which will pave the way to a sale, must "contribute to an efficient, competitive and viable private health insurance industry" while maintaining service and quality levels in country Australia.

It must also ensure Medibank's 4800-plus employees are treated in a fair manner, reduce post-sale risk and liabilities to the federal government, and maximise net proceeds, according to the Department of Finance documents.

A trade sale would require the Medibank Private Sale Act to be amended to remove a 15 per cent ownership limit.

If the government chooses to list Medibank on the sharemarket, the business adviser is asked to review advice from the selling syndicate regarding offers to Medibank's 3.8 million members.

A sale of Medibank has been considered controversial given its capital base has been built almost entirely on taxpayer contributions.

Medibank has a 29 per cent market share in the health insurance insurance sector, with more than 120 branches.

Almost a third - or more than 1500 - of its employees are doctors, nurses, counsellor, dentists and other health providers.

The Australian Medical Association has warned a sale could increase health insurance premiums by decreasing competition. But Health Minister Peter Dutton recently said it would put "some downward pressure on premiums".

The scoping study, which will report to the government before the 2014 budget, will provide recommendations on sale method, timing, regulatory issues, readiness and estimated proceeds.

The successful bidder will not be able to participate in any initial public offering. The department stressed a sale was not assured, and there could be a gap of at least 12 months between the scoping study and a sale - meaning it would proceed in 2015.

Mark Fitzgibbon, the chief executive of the country's only listed health insurer, NIB, has said Medibank Private could emerge as a takeover target if privatised.

Mr Fitzgibbon said an initial public offering was likely rather than a sale to another business, because previous demutualisation of insurers - including NIB - had given members the cash.