CHART OF THE DAY: Medibank Private Sale Will Not Impact Premiums

The Federal Government’s intention to sell Medibank Private has been widely criticised in many quarters as likely to cause an increase in healthcare premiums.

Matthius Cormann, the Federal Finance Minister, has of course refuted this allegations, saying recently on ABC Radio that “the ownership of Medibank has got absolutely no relevance to the level of premium”.

The assumption is that Medibank Private in public hands, owned by the Government, is able to generate a lower return than the new owner would demand when Medibank Private moves into private ownership. That, of course, means premiums must rise to generate that new – higher – return demanded by the new owners.

It’s a topic of great import to many Australian families and one that the ABC’s Fact Checking Unit has looked into.

A comparison of the financials of Medibank Private and the listed NIB suggest that they both already obtain a similar commercial level of return. Return on equity (ROE) is a measure of profitability, demonstrating the relationship between net income and shareholder funds invested. In 2013, NIB’s ROE of 21.65 per cent was higher than Medibank Private’s ROE of 15.4 per cent, but the situation was reversed in 2011 when Medibank Private’s ROE was 18.1 per cent, and NIB’s return was 16.5 per cent.

Screenshot from John Barron’s appearance on ABCBreakfast 6 November 2013

The last 10 years of premium rises shows Medibank Private premiums do not stay lower than privately owned insurers – they rise with the market.

In fact, Medibank Private’s premium increases have been below the industry average for only six of those years and it has never had the lowest increase.

In eight out of those 10 years it increased premiums at a higher rate than the for-profit BUPA fund.

The verdict?

Matthias Cormann is on the money.

You can read more here

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