A merger not a privatisation

A report today suggested that Medibank Private might be sold by the government to another health insurance company. The argument is that the government could earn more from the sale by doing this.

First of all, this argument is likely to be wrong. Yes, it earns more from the asset sale but remember that the Federal government also rebates 30 percent of health insurance premiums. This means that if the merger reduces competition it will cause them to have a larger handout. So it will bite them back in the future.

Of course, they might use their regulatory muscle to stop this but in the past they have proven very weak on this. (See my earlier post).

Also, the government might expect the larger fund to squeeze private hospitals further. Again, if this reduces their quality, people will opt out of the private system and back into the public one. Another problem for the government.

In any case, what is being talked about here is not a privatisation but a merger. Moreover, given Medibank’s market share, unless it is sold to another smaller player, it will likely raise competition concerns that one hopes the Federal Government will go through the ACCC for. There is uncertainty over that because governments face exemptions from some anti-competitive actions under the Trade Practices Act. So they may have a free hand here to grab short term funds for long-term cost.

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