In my blog of August 14 I examined the question of who owns Medibank Private (MBP) particularly in light of the Abbott Government proposal to privatise the business. This is not an idle question or an academic issue only. MBP has 3.5 million members and the government has estimated its sale value at $4 billion.
The Government has now announced that MBP will be sold by Christmas
It is clear that for many years it was assumed that the policy-holders/members owned MBP. That is clear from an examination of the accounts and the comments of a former chairman of MBP. John Deeble who was an architect of Medibank/Medicare and who was a director of the Health Insurance Commission which operated MBP put the issue as follows ‘The question of ownership in 1976 (when MBP was established) wasn’t raised because it was never considered that the government owned MBP.’
The Commonwealth Government put $10 million as seed capital into MBP. This amount was repaid. The operating capital of MBP over the years was then contributed by the members through accumulated profits… No further capital contribution by the Commonwealth Government was made until 2005 when the Howard Government injected $85 million into the business. This amount has remained unchanged for nine years. Last year MBP paid a dividend of $450m to the government. In one year the government received in a dividend more than five times what it had contributed in equity.
In addition to the policy issues, it is also important to consider the legal advice which has been offered to the Commonwealth Government.
In 1981 the Fraser Government considered selling MBP. According to Cabinet documents that have been released, the issue of selling MBP was considered by the Fraser Government’s Expenditure Review Committee – ‘the razor gang’. Members of this committee were Phillip Lynch, Margaret Guilfoyle and John Howard.
The government’s legal adviser was the Attorney General’s Department which together with the Government Actuary and the Department of Health advised the ‘razor gang’ that the Commonwealth government did not own the assets of the Health Insurance Commission. We know from publically released Cabinet documents that on 19 March 1981 the Expenditure Review Committee decided that ‘the Commonwealth does not in any legal sense have equity in the Health Insurance Commission or its assets’.
Three days later the Committee recommended to Cabinet that the proposed sale of MBP be abandoned. And it was abandoned.
In 1988 the Hawke Government was contemplating the sale of MBP. The chairman of the Health Insurance Commission set out clearly in the authority’s annual report at that time that the Commonwealth had no beneficial rights in the fund’s assets.
It is hard to see that anything has materially changed since 1981 when the clear view of the Fraser Government, based on legal advice was that MBP was owned by its members and not the Commonwealth government.
The 3.5 million members of MBP have a major interest in this business which the Commonwealth Government now values at $4 billion.
According to Peter Martin in the SMH today, policy holders are petitioning the government for ‘free shares’. This would seem essential but will it be fair? We know that there are a lot of hanger’s on clipping the ticket- co-lead managers, co-managers, brokers, advisers, lawyers and MBP executives. They will all be making a motza. But as for the members!!
I am indebted to George Lekakis and The New Daily for the work they have undertaken on the ownership of MBP.