News National Could Medibank policy holders be set for a windfall?
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Could Medibank policy holders be set for a windfall?

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When Medibank Private was launched in 1976 its assets and operations were  placed in the custody of the Health Insurance Commission (HIC).

This remained the case until December 1997 when the Federal Government directed the HIC to transfer ownership of the fund’s assets to the Commonwealth and its newly established company, Medibank Private Limited.

As reported in The New Daily previously, in September 1988 the chairman of the HIC, Fred Millar, asserted in a letter to then Health Minister Neal Blewett, that the Commonwealth had no legal interest in, or ownership claims to, the assets of the health fund.

Mr Millar wrote:

Medibank Private is a non-profit organisation based solely on its contributors’ funds. The Government has no financial interest in Medibank Private’s assets and reserves. Medibank Private’s assets and reserves are the property of its contributors.

Official recognition

A few years after Mr Millar clarified the ownership status of the fund, an important adjustment was made in the way the Commission accounted for the fund’s assets in the annual financial statements.

Starting with the 1993 financial accounts, the Commission implemented accounting changes to reflect its thinking about the ownership of the fund.

It introduced a new item on the balance sheet that it described as “members’ equity”.

The introduction of this item is important for two reasons:

1. The item described as “members’ equity” indicates that there was more than one owner of the fund’s assets. This meant that a single entity such as the Commonwealth did not own the assets exclusively.

2. It was also the first time that the identity of those holding an equity stake in the business had been disclosed in the accounts.

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As Medibank Private was not a corporate entity at the time, the most reasonable interpretation of “members’ equity” was that it represented the equity interests of members of the fund – the policyholders who were paying premiums for insurance coverage.

Such an interpretation is consistent with Mr Millar’s statement on ownership published by the Commission in its 1988 annual report.

From 1993 until 1996 the value of the equity position of members was reported in Medibank Private’s balance sheets and re-stated in the explanatory notes of the financial statements.

Annual movements in the value of members’ equity were also reported along with tables showing the ownership breakdowns for policyholders in the six Australian states.

According to the 1995 balance sheet, the equity of members was recorded at $378.3 million.

There is no evidence to suggest that the Keating Government disputed the content of Medibank Private’s accounts between 1993 and 1996.

Commonwealth changes its mind

However, in 1997, all references to the equity of members were wiped from the accounts and replaced with the term “fund equity”.

The format and terminology of the 1997 accounts imply that the disclosures made in previous financial statements were either invalid or never existed.

Preparation of the 1997 accounts coincided with a critical period in the history of Medibank Private.

John Howard
Former prime minister John Howard.

It was in that year that the Howard Government introduced special legislation that installed the Commonwealth as the sole owner of the Medibank Private business.

Clearly, the use of a term such as “members’ equity” and, the ownership rights it identified, was not consistent with the Howard Government’s view as to who owned the business.

The Howard legislation was controversial because it obliterated members’ equity claims without compensation.

It required the Commonwealth to pay only $100 to secure exclusive equity rights to the business that had net assets of $282 million.

In 2009, the Rudd Labor Government tried to extinguish any residual rights of members by passing legislation that enabled Medibank Private to become a “for profit” business.

Mutual dismantled

Since 1997, the legislative reforms of Coalition and Labor governments had the combined effect of annihilating the “mutual” characteristics of Medibank Private.

In light of the statements made by Mr Millar and, the subsequent changes to the accounting policies of the Commission, for many years Medibank Private exhibited the characteristics of a member-owned business.

A reading of its accounts between 1993 and 1996 indicate that its equity structure could be likened to a traditional friendly society or credit union.

The official recognition of members’ equity in the business before 1997 raises more questions about the status of the Commonwealth’s interest in the health fund.

Medibank Private

Together with other documents cited by The New Daily in previous articles, the financial accounts published in the four years between 1993 and 1996 demonstrate that members enjoyed property rights over the fund’s assets.

Clearly, the directors of Medibank Private (Mr Millar and the other HIC board members) had held that view for many years.

From 1988, the Commission made its view on the ownership question known to policyholders through official public statements and disclosures in annual reports.

As a result, existing and prospective policyholders were led to believe that they had proprietary entitlements.

Members fleeced

The actions taken by the Howard and Rudd Governments to embed ownership of the fund in the name of the Commonwealth were designed to extinguish such realities and beliefs.

The problem for the Abbott Government – as it now prepares to harvest $4 billion from a float of the business – is that thousands of policyholders are adamant they still enjoy those property rights.

Australian Governments are allowed to acquire private property by passing laws, but this power is circumscribed by the Constitution.

Section 51 of the Constitution permits governments to acquire the private property of citizens, but only on “just terms”.

In other words, the Commonwealth has to stump up compensation for any property it commandeers from others.

If the policyholders who have signed the petition at www.change.org believe that they have been fleeced by the Commonwealth it might serve their interests to examine the relevance of this sliver of the Constitution.

George Lekakis has been an investigative journalist for 20 years. He has worked at the Herald-Sun, the Australian Financial Review and Alan Kohler’s Eureka Report. He currently teaches investigative and business journalism at Monash University.

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