Study begins on sale of Medibank

The federal government has started the process for the privatisation of Medibank Private, calling for tenders for advice on what shape the sale should take.

Tender documents show the scoping study, the first step in the privatisation process, will consider whether the government should proceed with an initial public offering or a trade sale, which would require legislation to remove an ownership cap.

A sale of Medibank must "contribute to an efficient, competitive and viable private health insurance industry" while maintaining service and quality levels in country Australia, the documents say.

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

A trade sale would require the Medibank Private Sales 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 Medibank's capital base has almost entirely been built on taxpayer contributions.

Medibank has a 29 per cent share in the health insurance market, with more than 120 branches. Almost a third - or more than 1500 - of its employees are doctors, nurses, counsellors, dentists and other health providers.

The Australian Medical Association has warned that a sale could increase health insurance premiums by decreasing competition. But Health Minister Peter Dutton said recently that a sale 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 that 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 will proceed in 2015. Mark Fitzgibbon, the chief executive of the country's only listed health insurance NIB, has tipped Medibank Private could emerge as a takeover target if privatised.