The one sure thing about privatising a mutual and floating it off is that the senior executives end up being paid a lot more. Directors fees have a way of going up as well and there’s no need to mention the millions extracted by the various advisors and investment bankers pushing the barrow along.

Which leaves Australia’s second-largest health fund, MBF, hopelessly conflicted when considering a merger offer from British provident fund BUPA as an alternative to MBF’s announced privatisation plan.

In quick order and amidst plenty of self-interest, the majority of Australia’s private health insurance industry is being taken out of the hands of state and mutual ownership and being sold to the capitalists in stove-pipe hats and puffing the fat cigars.

If the investment bankers and senior executives get their way, Medibank Private, MBF and NIB will all soon change from being organisations primarily concerned with providing the most affordable health insurance for members to companies primarily interested in extracting a double-digit return on capital invested. Taking them one at a time:

  • The $500 million NIB float process is already underway and not without plenty of problems as various members believe they have been dudded over the number of shares they will be issued. ASIC seems to have washed its hands of the matter, but perhaps the watchpuppy should have a closer look. One NIB member of 20 years standing has shown me very straightforward paperwork that indicates she should be allocated 2,000 shares but the NIB machine is only offering 1,100. Her complaint received a rejection letter that offered no explanation, just wording to the effect of “go jump”.
  • Medibank Private could yet be a minor election issue if anyone remembers that John Howard will flog it if he retains Kirribilli House. Or maybe most folks just assume Kevin Rudd has said “me too” on that as well.
  • MBF’s planned float will be a 10-digit job with attendant fees running into scores of millions of dollars. The privatisation of the mutual represents a windfall for the present members, which is why it’s generally fairly easy to get them to go along with it. How much the CEO’s salary will subsequently rise we can only speculate about, but if, say, AMP and NRMA Insurance are any guide, it tends to be by a very large amount. And the bloke running MBF is Eric Dodd – who was the CEO of NRMA Insurance.

The fans of demutualising make all sorts of arguments about greater efficiency and profit-motive and capital markets, but there is another model to consider: how the mutual industry superannuation funds consistently outperform the for-profit outfits. I’m waiting for someone without a vested interest to explain why a mutual health fund with good management couldn’t do the same thing.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey