News National The Medibank letter that could cost the government

The Medibank letter that could cost the government

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EXCLUSIVE: Medibank Private gave written advice to members in the mid 1990s that they were owners of the health fund’s assets, according to correspondence records obtained by The New Daily.

Letters sent by senior managers in Medibank’s customer service department show that members were induced to renew policies on the understanding that ownership entitlements were among the benefits of remaining in the fund.

The documents demonstrate that the ownership rights ascribed to members by Medibank Private’s directors in 1988 were embedded in the working culture of staff employed in sales, marketing and customer service roles of the organisation.

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The advice given to one fund member in a letter obtained by The New Daily, published at the bottom of this story*, directly contradicts public statements made by senior Abbott government ministers that Medibank Private members were never treated as owners of the fund.

This is what Finance Minister Mathias Cormann told ABC radio last week.

“Well, customers of Medibank Private have been purchasing health insurance not an ownership stake in Medibank … I mean it’s like any other business that somebody purchases a product or service from, you don’t become an owner by purchasing a product or service. You purchase that product and that is the same with Medibank policy holders.”

Senator Cormann’s sweeping assertion is ill-informed.

Letter ‘another smoking gun’

On condition of anomymity, The New Daily has been granted permission by a longstanding Medibank Private member to publish a letter received from the health fund in 1994.

The letter was sent from Medibank’s NSW head office in Erskine Street, Sydney by Marie-Jo Henrisson, a customer services manager.

Ms Henrisson wrote to establish a new payment arrangement with the member who was considering a move to another health insurer at the time.

In the third paragraph, Ms Henrisson highlights the benefits of being a Medibank Private member and warns that membership should “never be given up lightly”.

She then explains that “equity” in the fund was one of the benefits of membership:


“The security and benefits of private cover should never be given up lightly and as a valued member of Medibank Private, we would be very sorry to see you lose the equity you have built up with the fund,” the letter reads.

According to the letter, the ownership rights of individual members had a time value. In other words, the equity of members appeared to increase the longer they stayed in the fund.

The recipient of the letter – who is still a Medibank Private member – was persuaded to stay with the fund so as to retain the ownership entitlement.

“I was told that I had built up equity in the fund and I didn’t want to lose that, so I renewed,” the member said.

“At the time I underlined that part of the letter – I can tell you it swayed my decision.”

The content of this letter, along with other documents revealed by The New Daily in previous news reports, may have legal implications for the Abbott government’s attempt to float Medibank Private.

David Gronow, the organiser of a petition demanding compensation for Medibank members, said the letter was proof that the Commonwealth had potentially misled policyholders and the Australian public.

“It’s another smoking gun,” he said.

“Either we were misled by Medibank Private’s former directors, accountants and staff or the Commonwealth has taken our equity. I believe it is the latter.”

Government needs to come clean

Recognition of members’ ownership rights in the 1994 letter was entirely consistent with disclosures made in the health fund’s financial accounts that year.

Medibank Private’s 1994 balance sheet shows that members had total equity of $350 million in the fund.


If customer service staff gave the correct advice to members, then the current government has an obligation to explain to longstanding policyholders what happened to their ownership entitlements when the Commonwealth installed itself as the sole shareholder in 1998.

Under the Corporations Act, the Abbott government also has a duty to disclose to future shareholders whether the possibility of litigation presents any business risks for a publicly listed Medibank Private.

Disaffected members last week told this publication they would leave the fund unless they were compensated for the loss of their equity.

The Howard government paid only $100 when it claimed exclusive control of Medibank Private in May 1998 even though the fund had net assets of around $282 million at the time.

newdaily_061014_medibank_letter_full* The New Daily has redacted sections of the letter to protect the identity of its recipient

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