Medibank Private up for sale in 2014-15

Finance Minister Mathias Cormann has announced the planned sale of Medibank Private. AAP/Alan Porritt

The government has given the green light for Medibank Private to be put up for public sale next financial year.

Although Finance Minister Mathias Cormann would not put any value on the company, it has been widely estimated to be worth around $4 billion. The sale would involve an initial public offering and be subject to market conditions.

Announcing the decision, Cormann said that an independently prepared scoping study had reaffirmed the Coalition’s long-held view that there was “no compelling reason” for the government to continue to own the health insurer.

“Medibank Private is a commercial business operating in a well functioning, well regulated, competitive private health insurance market with 34 competing funds,” he said. There was no market failure.

The scoping study had found no evidence that premiums would increase as a result of the sale. Medibank Private would need to continue to comply with the relevant regulatory requirements under which changes in premiums have to go to the government for approval.

The sale of Medibank Private would remove the inherent conflict of having the government both the market regulator and the owner of a large participant in the market, Cormann said.

The sale will be conducted under legislation passed by the Howard government in 2006, which imposes a 15% limit on an individual ownership level. This stipulation would apply for five years. The existing legislation means that the government does not have to get Senate approval.

Cormann said the government’s stated intention was to recycle the funds from Medibank Private for investment in productivity-enhancing infrastructure.

The precise timing and structure of the initial public offering are yet to be determined. In preparation for the sale and transition to new ownership, the government has appointed three new board members. They are David Fagan, an experienced banking and major projects lawyer with Clayton Utz; Linda Nicholls, director of a number of leading companies; and Christine O'Reilly, a director of companies including CSL Transurban and Energy Australia.

Labor is opposed to the sale of Medibank Private.

An earlier version of this article wrongly said it would improve the budget bottom line.