Another potential obstacle to the Abbott Government’s planned $4 billion float of Medibank has been uncovered in new documents obtained by The New Daily under Freedom of Information.

The documents show the health insurance regulator may not have observed due process in its 2009 consultations with members of the public on whether the health fund’s move to become a profit-making business constituted a demutualisation.

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The regulator’s decision to recognise Medibank as a profit-making business was a critical moment in the corporate history of the insurer because it confirmed the government’s view that members were not owners of the fund’s assets.

One of the events that is likely to upset many Medibank members is that PHIAC officers actually drafted a press release approving Medibank to become a profit-making business at least a day before the deadline for public submissions.

The release of the FOI documents comes at a sensitive time for the Abbott Government which is expected to issue a prospectus for the $4 billion float of Medibank Private next week.

How it unfolded

On June 11, 2009 the Private Health Insurance Administration Council (PHIAC) was asked by the board of Medibank Private to consider if the health fund could become a ‘for profit’ health insurer.

Nine days later, PHIAC placed an advertisement (left) in some capital city newspapers inviting members of the public to make submissions to help the regulator decide whether a conversion of Medibank  to a for-profit insurer would constitute a “demutualisation”.

The deadline for submissions was 1 July, 2009, giving policyholders and other stakeholders only 11 days to submit their views in writing.

But the newly released documents reveal that a draft press release was sent to PHIAC board members a day before the public consultation had ended.

It was titled: ‘PHIAC Approves Medibank Private Conversion to For-Profit’.

The drafting of the press release also preceded the board’s official decision that was made at a teleconference meeting on July 2.

While the draft press statement was later amended, the final release that was issued to media contained the same rationale for the decision.

If members were able to convince a court that PHIAC did not follow proper procedures for approving the insurer’s move to become a profit-making business, then privatisation could be derailed.

‘Procedural fairness’

In an email sent to PHIAC chairman Jim Dominguez, on June 19, the regulator’s deputy chief executive Paul Groenewegen stated that advertising the consultation process was important to give procedural fairness to policyholders and to ensure that the “Council’s decision is correct – and is seen to be correct”.

However, the draft press release and other internal documents indicate that the call for public submissions might have been viewed only as a formality and not likely to shape the PHIAC board’s deliberations.

In a memo sent by Mr Groenewegen the night before the July 2 meeting, board members were told:

There were 8 submissions received in response to the notice. Each is attached and they are covered by a summary prepared by ourselves. Only one appears that it might deal with the MPL demutualisation question. Common themes are of wanting to share in any distribution and upset at lack of notice to policyholders.

The press release (published below) did not make any reference to the complaints about lack of notice.

It is likely the PHIAC board would have begun to form a view that members did not own Medibank Private well before the deadline for submissions.

This would be understandable to some extent because Mr Dominguez and other board members had been given legal advice by David Jackson QC as early as 23 June that Medibank Private was not a mutual.

The board was also under statutory pressure to make a swift determination because the Private Health Insurance Act required a decision to be made within 30 days of the June 11 application.

Was it fair?

However, the process followed by PHIAC raises issues for policyholders who felt they were owners of the fund.

The most important issue is whether the consultation process was fair and whether the press release should have been drafted while the consultation process was still open.

The New Daily raised some of these concerns with the chief executive of PHIAC, Shaun Gath, who has been the executive in charge of the regulator since 2008. (Read the full transcript of the interview with Shaun Gath here.)

For the record, Mr Gath was overseas when the PHIAC board was deliberating on the question of who owned Medibank Private in July 2009.

Before his appointment to the regulator, Mr Gath had been general counsel at Medibank Private and he had also worked for Blake Dawson Waldron, a top tier legal firm that advised the Howard Government on matters relating to the health fund.

When asked about the press release, Mr Gath told The New Daily that it was only a draft and could have been amended if “there had been reason to do so”.

He said PHIAC was not obliged by law to call for submissions, but decided to do so because “we recognised the potential public interest in the matter”.

“We advertised in all the major newspapers and provided two weeks for anyone who had a view on the issue to express it. The submissions that were received were taken into account,” he said.