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Making private health insurance work for Australian families: speech at the HESTA lunch, Melbourne.

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Speech by Julia Gillard, MP

Shadow Minister for Health

HESTA lunch

Melbourne 8 September, 2006





It is pleasure to join you here today at what is the second in a series of speeches I am

giving around Australia that are hosted by the Health Employees Superannuation Trust of


Last week I was in Darwin and I will be giving future speeches at HESTA events in

Sydney, Adelaide and Canberra.

Can I take this opportunity to congratulate HESTA on the work it does in meeting the

superannuation needs of the 550,000 members who work in health and community

services for 45,000 employers right around this country.

We should not forget that one of the most profound reforms of the Hawke and Keating

Governments was the introduction of compulsory superannuation. Labor had the

foresight then to recognize that with an ageing society, Australia was only going to thrive

in the future if employees saved during their working years for retirement.

Superannuation was a classic case where a society-wide problem was identified and a

visionary solution implemented.


Today, I want to talk to you about the need for a comparable boldness to secure the future

of our health care system, and in particular to ensure that the private sector plays a

valuable role within that system.

Because while Labor has always, and will always, fight fiercely for the continuing

strength and universality of Medicare - the system Labor set up, we have always seen a

role for the private sector.

But both the public and private sectors are being placed at risk by the current Howard

Government’s sale of Medibank Private.

Australia needs both public and private health care systems to thrive

Australians love their Medicare. Everyone - well except John Howard when he is being

honest - accepts Medicare as the bed rock of the Australia health system.

But over 42 per cent of Australians have private hospital cover. The private health sector

is embedded in our health system and is part of our mixed health landscape.

While total demand for hospital care has grown in recent times, and the private share of

hospital separations growth has been greater than the public sector, this does not mean

there has been a clean shift from the public to private.

Australians well understand that private hospitals provide a range of specialist surgical

and elective procedures while typically, public hospitals treat and will continue to

shoulder the burden of emergency patients and patients with acute conditions.

This means Australians need both the public and private sectors to thrive. A policy

maker who has thrown up their hands in despair at the public system cannot turn their

back on it and focus purely on the private system to solve the mixed system’s



But under the Howard Government, we have seen our public hospitals struggle as a result

of $1 billion ripped from the Health Care Agreements with the States and Territories,

workforce shortages that result from a failure to make the needed long-term investments

in education and training, and a vicious cycle of cost and blame shifting.

At the same time, the private system is also facing financial constraints as they struggle to

juggle rising costs and increased demands in the face of ever-increasing restrictions from

the private health funds.

The Sale of Medibank Private

Rather than address the real policy challenges required to create thriving public and

private hospital sectors, the Government is obsessed with selling Medibank Private.

The Government gives as its reasons for the sale of Medibank Private that there is “no

good public policy reason” for the Government to own a health fund and that “a

privately-owned fund would be able to be more efficient”, with the possibility that this

may lead to lower premiums for members.

It’s possible to dismiss these reasons pretty swiftly.

When Tony Abbott just ticks off every request for premium increases in a pro forma

fashion, and pays no attention to ensuring that Medibank Private provides the services

that members want and need, then the Government is failing to use its asset to set the

public policy standards for the industry.

Certainly that’s not how the Fraser Government saw it when Medibank Private was

established in 1976, specifically to help bring greater competition to the private health

insurance sector.


There is no evidence to support assertions that a privatized Medibank Private would be

more or less efficient and competitive, with any greater control over costs and thus any

financial benefits for consumers.

And I can only assume that the Government’s invocation of the possibility of lower

premiums for members has the same standing and likelihood of eventuation as the Prime

Minister’s 2001 election promise that he would keep private health insurance affordable

and put downward pressure on premiums. Five years later most Australian families have

seen their premiums rise by close to 40 percent.

The Howard Government will ignore the rights of Medibank Private members

A recent Research Brief prepared by the Parliamentary Library looked at the legal issues

relating to the ownership of Medibank Private.

The Brief found that while the Commonwealth clearly ‘owns’ Medibank Private Limited

(the managing organization of the Medibank Private fund) the fund itself is best

characterised as a government-controlled, not-for-profit entity which is not strictly owned

by either the Commonwealth or the fund members.

We should note that each year in the annual report that is exactly how Medibank Private

describes itself - as a government-controlled, not-for-profit entity.

A crucial finding of the Brief was that members of the fund have certain statutory rights

to the benefit of the fund and associated assets, and these rights need to be considered in

any scheme for the sale of Medibank Private.

The treatment of the Medibank Private fund as a distinct entity from the registered

organization that operates it derives from the governing legislation.


As the legal owner of the shares in Medibank Private Limited, the Commonwealth is free

to sell that company, provided the enacting legislation is passed by the Parliament.

But the Library came to the view that provisions of the relevant legislation have the effect

that neither the Commonwealth, nor Medibank Private Limited or its predecessor, the

HIC, hold the beneficial interest in the fund or associated assets because these entities

cannot sell the asset, cannot distribute profits generated by the asset, and must give

priority to the interests of others (the members) when dealing with the surplus earnings of

the asset.

However the members of the Medibank Private fund cannot be said to be the owners of

the fund as they have no rights to participate in or exercise control rights over the fund.

But they do have statutory rights to the benefit of residual fund assets. Given that

virtually all the value of Medibank Private, estimated at between $1.5 and $2 billion, has

been contributed by the members, this is appropriate.

The various Ministers in the Howard Government muse daily and differently on how

Medibank Private might be sold. But the members of the fund, the general public, and

even the members of Parliament who must consider the Government’s legislation, remain

in the dark.

In the meantime, here’s what we do know:

Last Saturday Finance Minister Nick Minchin claimed to have a legal opinion that proved

the Parliament Library Research Brief was wrong. If he did have such a legal opinion on

Saturday, then that has never been released.

On Monday, Senator Minchin did release an opinion hurriedly obtained over the

weekend. Clearly, Senator Minchin wanted an opinion saying that the Parliamentary

Library Research Brief was incorrect so that the Government can justify doing whatever

it likes to Medibank Private members.


We know that some years ago Medibank Private Limited received legal advice that cast

doubt on the Commonwealth’s ownership of Medibank Private - and now the Howard

Government is refusing to make that advice available.

We know that however Medibank Private is sold, there will not be increased competition

in the private health insurance market, and the chances are there will be less.

If the Government floats Medibank Private on the share market, there will be exactly the

same number of private health insurers in Australia the day after the float as the day


If the Government offers Medibank in a trade sale there will be the same or possibly even

fewer private health insurers in this nation.

These are the two possible sale scenarios, neither of which would result in increased


Indeed respected economic commentators like Terry McCrann have dismissed the

Howard Government’s claims of increased competition completely. Mr McCrann has

powerfully made the very simple point that a sold Medibank Private will have to make a

profit for its owners, and that puts upwards pressure on premiums.

The Australian Medical Association has made exactly the same point on behalf of their


And we know that the Howard Government is worried about how to spin this issue.

Once again it is expensive consultants to the rescue. Earlier this year we were provided

with a scoping document from Medibank Private for a PR firm to undertake the

wonderfully named ‘Project Good Guys’.


The projected scenario to be managed involved assumptions that :

• The sale of Medibank Private has been announced but with no detail about how this

will be done;

• There is much speculation in the media;

• Julia Gillard and others are arguing that the sale will mean higher premiums for

members; and

• A class action on behalf of members claiming the fund is owned by its members has

been started.

How wonderfully prescient! We can only wonder at how expensive this will all be.

In the end, it is clear that, spin aside, the Howard Government is intent on selling

Medibank Private simply to satisfy its ideology. In the words of the Minister for Health,

Tony Abbott: ‘the Government obviously is instinctively in favour of privatisation’.

In 2006, being blindly driven by ideology is not good enough.

Labor’s approach to real health reform

While the Howard Government pushes to sell Medibank Private, it squibs the health

reform debate. But Labor is at the centre of that debate.

Labor has begun the task of putting some big health reform issues out there for discussion

so that we can build the health care system Australia needs for the 21st century. We see

that system having a real focus on prevention and chronic disease management, on

workforce and on rebuilding our public hospital system.

And a Beazley Labor Government would also look to the long-term and be prepared to

examine the need for big changes. That includes being prepared to genuinely discuss the

arguments for and against a single funder for health care.


As the first step towards reform, Kim Beazley and I have been talking about how the next

Health Care Agreements should build co-operation between the Commonwealth and the


This will support a serious discussion, leading to consensus over time, about the future

division of health responsibilities between the Commonwealth and the States and


We should also be looking for ways to use the Health Care Agreements to better integrate

private hospital services into the provision of publicly-funded health care and the training

of health professionals.

My discussions with the private hospitals leave me in no doubt that they would welcome

such an approach and that they will respond positively to these proposals when put to


The Howard Government currently does not do nearly enough to ensure that private

hospitals are effectively used as a national health resource.

The next Health Care Agreements must recognise that all hospitals are in the health

business. We will maximise the outcomes for our health system and all patients by

working together.


Perhaps you have found it unusual that today I have chosen to focus on the private health


Be assured, that does not mean I have abandoned my strong convictions about the

importance of a universal Medicare system and a strong public hospital system.


But Australia has always had a mixed public private system, and there will always be a

private sector. The Commonwealth makes substantial investments in this system, and so

the Commonwealth must ensure that there are returns on this investment.

Just for the record, Labor in government will continue the private health insurance rebate.

This has been Labor’s policy at the last two federal elections. Unfortunately it has been

often claimed that Labor in government would not continue to support the rebate.

Needless to say this claim has never been based on the facts.

However more will need to be done to ensure that private health insurance is affordable

and provides real value for money.

It is not good enough for the Howard Government - which likes to paint itself as the

private health sector’s key ally - to ignore the macro issues, such as the cost of medical

technologies and future demand, which are the number one issue for the entire health care

sector, let alone the sustainability of private insurers.

We know that private health funds are paying out more in benefits, but at the same time,

out of pockets costs, gaps and other non-insured health costs are growing and placing an

increasing burden on all health consumers. This is also occurring for the non-insured as

the public sector is also moving costs on to individuals or at least not fully meeting new

costs as they arise.

That is why Labor is also committed to addressing the broader structural issues which

affect sustainability, affordability and quality of all health care delivery, public and

private, in the medium and longer term.

Then we can have the health care system Australia wants and deserves.

Thank you.