Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 29 September 2014
ROSS GREENWOOD: Over the weekend, you would have all heard by now that Medibank Private, which of course is owned by the Australian Government, is going to be sold via a public float and you’ve got the chance yourself, whether you’re a customer of Medibank Private or not, to register for a prospectus. Now just so that you understand, that does not mean that you have to buy the shares, it simply means that you will receive a prospectus when it is finally issued. Now also on top of this, if you are a customer of Medibank Private, clearly there are some preferential treatments that are given to you. But again, nothing will happen if you don’t register your interest in the first place. But the question is, what do we as taxpayers get out of this? Well clearly there is the sales proceeds. It is said to be potentially between $4-5 billion. It is going to be one of the biggest floats that Australia has seen. Certainly the biggest Government privatisation and float since Telstra, going all the way back. Let’s now go to our Finance Minister responsible for this sale, Mathias Cormann who is on the line right now. Many thanks for your time Mathias.
MATHIAS CORMANN: Good evening, good to be here.
ROSS GREENWOOD: Look can I just ask one thing here, a lot of people right now are just raising questions about is this the right time for Medibank Private to be let go. What’s your gut feel on this?
MATHIAS CORMANN: We’ve had a long standing policy to sell Medibank Private and the reason for that is really in 2014, the Federal Government should not be involved in running a private health insurance business. This is a very competitive, well functioning, well regulated market. Medibank Private operates as a commercial business in that market. The Government right now has a conflict of interest in that we’re both the regulator and the largest market participant in that same market. There is an opportunity here through privatisation to help Medibank Private reach another level and deliver even better benefits for its customers while also releasing the capital that taxpayers currently have tied up in Medibank so that we can use that for other purposes.
ROSS GREENWOOD: We’ve heard from a range of different organisations, the Australian Medical Association for one claims, that there might be increases in premiums if Medibank Private is now trying to seek even higher returns for its shareholders in the future. You’ve in the past indicated you don’t believe premiums should rise out of order, of course there is pressure on those private health insurers to raise their premiums any way because of the increasing claims that are taking place.
MATHIAS CORMANN: I don’t accept at all any assertion that somehow premiums will rise by more because of privatisation. The ownership status of Medibank Private is completely irrelevant when it comes to the level of premiums they charge. Firstly, Medibank Private in private ownership will continue to operate in a competitive market, will continue to have to compete for its customers with other health funds and if they were to charge too much obviously it would lose customers to other funds. Secondly, premium changes are regulated in Australia and those regulatory arrangements don’t change. And finally if you want to look at the impact of dividend payments, if people believe that dividend payments to shareholders have any implications for future premium increases, well over the last few years under the previous government as the shareholder, imposing one special dividend after the other on top of the ordinary dividends, well I believe there will be a more orderly process and less exposure to the cash needs of the Government of the day, with Medibank in private ownership.
ROSS GREENWOOD: One thing that can be proven and can be seen and some of the work that has been done by Morningstar and others does show that the management expense ratios and some of the costs and even the margins inside Medibank are not as, shall I say, attractive as what some of those other private players are, in particular BUPA which is the big UK based operation, MBF as their operation, but NIB which is the stock market listed private health insurer. Some of their margins are clearly stronger, some of their cost expenses are clearly lower. Is that the upside that the shareholders are buying into?
MATHIAS CORMANN: That is part of the upside not just for shareholders it is also a part of the upside for Medibank policyholders into the future. The truth is, and that is what I was saying earlier, that we believe that Medibank Private in private ownership will be able to perform even better than they have as a Government owned business. That is, because they will have better flexibility in terms of pursuing some of their growth strategies but also in terms of making sure that they provide their services and provide their benefits in the most efficient way possible. Government owned businesses obviously face some restrictions that privately owned businesses don’t.
ROSS GREENWOOD: One issue that many Medibank policyholders as you are well aware, it is not only the fact of the ownership of Medibank Private which was, as I have indicated before, was almost settled by the Howard Government in many ways even though there are ongoing disputes about whether the policyholders have contributed to this or whether in fact it’s the Government that’s contributed to the growth of Medibank Private. There’s a second factor, why is it that the policyholders of Medibank Private have not received either a) some special allocation of shares here, at least in acknowledgement for the funds that they have helped to create?
MATHIAS CORMANN: Firstly, any customer of any business obviously helps to grow a particular business. But if you buy a product or a service from a business you don’t then become an owner of that business or a part-owner of that business. So that is the same with Medibank. Medibank Private policyholders purchased private health insurance. They purchased private health cover. They don’t purchase a share in Medibank Private. The shares in Medibank Private ...interrupted
ROSS GREENWOOD: So you’re saying that’s where it’s different to say NIB or some of those other demutualisations and privatisations that have taken place. In that case they were not only the customer but they were the owner. You’re saying in this case you are the customer but you are not the owner?
MATHIAS CORMANN: NIB and AMP just to point to two examples, they were demutualisations. With Medibank Private, Medibank Private is a for profit company which pays dividends to its shareholder. Right now the shareholder is the Australian Government on behalf of the Australian taxpayers. And yes, as I have indicated Medibank Private policyholders purchase private health cover they don’t purchase a share in the company. Now having said all of that we obviously do acknowledge and recognise the loyalty of Medibank Private policyholders and we have recognised their importance in the pre-registration arrangements giving an undertaking to Medibank Private policyholders that should they pre-register they will be able to secure a greater share of Medibank Private shares should they wish to apply for those than members of the general public.
ROSS GREENWOOD: I can also understand, you would be watching very closely the stock market. As you are aware it has come off the boil and you know the losses in the last three or four weeks have been the best part of 8 to 10 per cent now. It almost seemed as though you were hitting the market at exactly the right time. What do you think the appetite will be like for these shares?
MATHIAS CORMANN: We believe there will be strong public interest and strong demand. Individual investors have to make their own decisions, carefully considering the information in the prospectus when it comes out and seeking advice as appropriate from their financial adviser. But having said that as the seller of Medibank Private, we have been taking advice from the experts and the consensus advice was that market conditions are right to achieve an appropriate return from the sale for taxpayers. We will continue to monitor that situation moving forwards. But even in recent weeks as you say, when the stock market was coming off a bit, if you look at the performance of health care related stocks we have certainly been very encouraged with the way they have been performing as part of the broader stock market.
ROSS GREENWOOD: Mathias Cormann, the Finance Minister of Australia, whose responsibility it is to get the most for this asset for the Australian taxpayers and to help pay down some of that Government debt. Mathias Cormann we appreciate your time on Money News tonight.
MATHIAS CORMANN: Always good to talk to you Ross.