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Parliament House, Perth: transcript of doorstop: Medibank Private, medical indemnity insurance reforms.

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Stephen Smith MP Member for Perth Shadow Minister for Health and Ageing


E & OE

Subjects: Medibank Private, medical indemnity insurance reforms

SMITH: Well, the Government should immediately indicate today whether it knew about the reported $100 million dollar Medibank Private losses prior to approving substantial increases in Medibank Private’s health insurance premiums earlier this year.

We’ve seen overnight reports that Medibank Private has lost more than $100 million on foreign exchange investments. This is reminiscent of Peter Costello’s $5 billion casino losses. So the Government should urgently indicate today whether it knew about these losses prior to approving those premium increases.

A $100 million loss for Medibank Private is over $30 for each individual Medibank Private member. If you recall that the increases were in the order of $150-$250 per family per year, this is potentially a substantial part of the Medibank Private premium increases. So, the Government should urgently indicate today what it knew and when it knew it.

Medibank Private should also indicate publicly whether it was aware of these losses or part of these losses when it approached the Government for a 13% increase in the last round.

The end result was a 9% average increase for Medibank Private, a 16% increase for its most popular product and a 66% increase for excesses. So the Government needs to tell us what it knew and when it knew it.

JOURNALIST: [inaudible]


SMITH: I’m not suggesting that there’s a cover-up, but what we see are overnight reports that Medibank Private has lost over $100 million on foreign exchange investments. The Government needs to urgently indicate whether it knew about these losses when it approved an average 9% increase for Medibank Private’s health insurance premiums this year. Those approvals were given earlier this year. They took effect in April and May. These losses cover the current financial year. So, did Medibank Private know about these losses when it approached the Government for its increase and did the Government know about these losses when the increases were approved? It was a $150 to $250 per year slug on families. If Medibank Private has lost $100 million, that’s over $30 for each individual Medibank Private member.

JOURNALIST: … public liability crisis … [inaudible]?

SMITH: Well, there is no doubt that insurers across the board are having difficulty and I might just take that opportunity to digress to indicate a couple of comments on the report that Senator Coonan has received today.

My colleagues will handle the public liability and the insurance issues generally. But, on medical indemnity insurance, the report indicates a need for uniformity. I strongly support that. The Government has not been working hard enough to try and secure a uniform tort law reform approach so far as medical indemnity insurance is concerned. Secondly, the Report indicates that rather than there being a 21-year period of limitations in which individuals can bring a claim against their medical practitioner, it’s suggesting a 3-year period. Now, 3 years might be too short but certainly 3 years or 5 years or 7 years is much preferable than the very long period we have now, so, I’m open to a discussion on that.

And thirdly, the report indicates that medical practitioners should be judged on the standards of their peers at the time the instance occurs and as a general proposition I think that’s right. Again, what we see is the Government not putting its shoulder to the wheel strongly enough on medical indemnity insurance and also there’s no focus whatsoever on another very important aspect of medical indemnity insurance, and that’s improving clinical outcomes and reducing clinical risk.

So, having taken the opportunity of that digression, now let me come back to Medibank Private.

These losses are reported to come from overseas investments. One of the worrying features which emerges overnight is that it appears Medibank Private’s investments in this area are nearly twice the range of investments by comparable insurers. That’s why we need a detailed report. Have all of the required regulatory, prudential and supervisory arrangements been put into place and effected properly? That’s one issue.


Secondly, what was the prudential or the commercial sense of the amount of the investment? Was it disproportionate compared with other private health insurers in Australia and elsewhere? And most importantly, so far as individual Australian families are concerned, and families under financial pressure who want to ensure they get value for money out of their private health insurance, were these losses in any way linked to the substantial increases in private health insurance premiums that the Government approved earlier this year?

JOURNALIST: [inaudible]

SMITH: Well, certainly one of the reasons I’ve called for the Government to report in a detailed way urgently today is that this may well have repercussions not just for past premium increases but also adverse consequences for future premium increase approaches that Medibank Private may make in the future to the Government. So we need to satisfy ourselves that these losses won’t in any way impact adversely on future recurrent activity of Medibank Private and will they in any way form part of the next round of premium increases so far as Medibank Private is concerned.

That’s why the Government should be out there today with a detailed report indicating what it knew and when it knew it, and Medibank Private should also be out there explaining whether these losses have anything to do with Medibank Private’s application to the Government for a 13% across-the-board increase in its premiums earlier in the year.

JOURNALIST: If it did know before the premiums, what could the Government have done to prevent the losses?

SMITH: Well, firstly if the Government knew at the time, it should have said so. If part of the Government’s consideration in approving such increases were $100 million losses that Medibank Private had incurred as a result of investment in foreign exchanges, then it should have let the Australian people know at the time.

You’ll all recall the Government in the run-up to the last election saying that as a consequence of its policies, private health insurance would become more affordable, would be more attractive for consumers, would be more affordable.

Now, we see in the aftermath of the election a 9% increase across-the-board for Medibank Private, a 16% increase for its most popular product, a 66% increase for excess arrangements and now we see over $100 million lost in a Peter Costello-type foreign gamble. We need to know whether these two are linked in any way and we need to know whether the Government knew about these losses at the time the premium increase approval was granted.

JOURNALIST: So, you’re saying householders having to pay more for something that was doomed?


SMITH: Well, that’s what I’m sure that the 3 million people insured by Medibank Private will want to know today. Are these losses in any way linked to the $150 to $250 extra per year that Australian families have been forced to pay as a result of private health insurance premiums approved by the Howard Government earlier this year.

JOURNALIST: [inaudible]

SMITH: The Government is absolutely, ideologically committed to flogging off Medibank Private. I don’t believe that’s a sensible thing to do. Medibank Private is the dominant market player, it’s the national leader, and it’s the only genuinely national private health insurer that we have.

If you flog off Medibank Private, in my view, you’ll have the same adverse consequences that we’ve seen with the partial privatisation of Telstra where the Government flogged off in part the national leader, the dominant player, prior to making a whole range of competitive and regulatory changes that might have fixed up the industry.

So, if you flog off Medibank Private you will be essentially unleashing into the marketplace a dominant player, a national player, without first having addressed a whole range of regulatory and competitive issues that go to private health insurance.

That puts to one side, whether given the difficulties that we have in an ongoing way with private health insurance, we will be assisted in any way by flogging off the market leader. One of the levers that the Government currently has to try and ensure that consumers can get value for money is the impact that it can have on the dominant player, the market leader, the national insurer - Medibank Private.

In terms of this result, I think Australians today would look and say to themselves, if there can be over $100 million of losses to Medibank Private on foreign stock exchanges when it’s in Governments hands, how much worse would it be if Medibank Private was flogged off?

JOURNALIST: [inaudible]

SMITH: Well, I must I say that I heard that argument and smiled with wry amusement. I can’t in any way see how over $100 million worth of losses on foreign overseas markets can add to the argument that Australia’s leading private health insurer should be flogged off.

On the contrary, I think that Australians today would be saying to themselves, if Medibank Private has lost over $100 million as a result of Peter Costello-style overseas foreign gambling on stock exchanges, how much worse would it be if Medibank Private wasn’t subject to any Government ownership, regulatory or supervisory arrangements whatsoever? How much worse would it be if Medibank Private was just another company like HIH or Ansett?


JOURNALIST: [inaudible]

SMITH: What I’ve said is that the Government should immediately release today a full report on the circumstances relating to these over $100 million losses. The losses have been reported overnight. We need a full report, a comprehensive report from the Government today detailing the nature and extent of those losses, the extent of the Government’s knowledge. Did the Government know about those losses when it approved Medibank Private’s private health insurance premium increases? We need a full report so that all the relevant questions can be asked and that all the relevant questions can be answered.

Why, for example, did Medibank Private appear to be investing almost at twice the rate of other comparable insurers in overseas foreign exchange markets are concerned? There are a series of relevant questions the Government should tip out the details today to enable the Australian public to be aware of the details and to make appropriate judgements.


Contact : Andrew Dempster - 0407 435 157 or 02 6277 4108