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Medibank Private dividend payment

Medibank Private is to pay the Government a special one-off dividend of $300 million according to this statement from the Treasurer.  This is ‘in recognition of Medibank Private Limited’s strong capital position’ due to the build up of its reserves during the period it was a not-for profit health insurer. The dividend will help fund Labor’s election promises.

The Opposition’s Andrew Robb claims that the dividend payment must inevitably result in higher health insurance premiums for consumers. One likely meaure of the impact of this policy would be if premium increases were to rise above the five year average of 6.1 per cent.

A number of factors influence annual premium rises which must be approved annually by the Health Minister. These include, as noted in this Parliamentary paper, changes to the reserve levels of individual funds. Industry expert Brent Walker quoted in this Sydney Morning Herald article argues that Medibank Private’s reserves are already lower than the industry average. And its last annual report showed a 50 per cent decline in profits. As member premiums are the primary revenue source for health insurers it is not clear how Medibank Private could recoup the $300 million otherwise. If Medibank Private raises premiums, rather than recoup the $300 million dividend payment with a large premium rise next year, Walker argues it is more likely that it could seek to spread the premium increases over several years.

However, when the Rudd Government converted Medibank Private to a 'for-profit' in 2009 it gave assurances that the payment of any future dividends would not result in increased health insurance premiums. At stake would be Medibank Private's key role as market leader to act as a restraint on large industry wide premium increases. It would also raise questions about whether there is a conflict between the Government's dual role as regulator of the health insurance sector and owner of a for profit health fund.