Privatisation may push policyholders to consider legal action

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.

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 officer of the non-profit health insurer Westfund, said Medibank members were already short-changed by the Labor government extracting large dividends since the insurer converted to "for-profit" status in 2009.

Mr Danaher said the proposed sale by a Coalition government was "not as easy as it sounds".

"I'd say 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. The Future Fund has been named as one potential investor.

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," he said.

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

Mr Danaher added that a sale of the market-leading 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 didn't "see any reason in principle why you still need to have a government-owned private health insurer".

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