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Sheeple




09 October 2014

Minister to Medibank members: It’s not yours

Finance Minister says the government was the ultimate owner of Medibank Private.

Finance Minister Mathias Cormann has responded to reports in this publication which have raised doubts about the Commonwealth Government’s claim to full ownership of Medibank Private.

Senator Cormann stands by the view held by successive Coalition and Labor governments since 1997 that members do not have equity in the insurer.

Directors of Medibank Private in the 1990s reported the net assets of the business as “members’ equity” in the financial accounts of the Health Insurance Commission, but the minister rejects suggestions that such balance sheet items recognised policyholders as owners.

“The item in its balance sheets for ‘members’ equity” refers to equity in the sense of total assets minus total liabilities and not in the sense of an ownership entitlement through an equity contribution,” Senator Cormann said in an email.

“This balance sheet treatment reflects the applicable Accounting Standards at the time.”

A former chairman of the Health Insurance Commission, Fred Millar, told the Hawke government in 1988 that Medibank Private was owned by the fund’s contributors, not the government.
Mr Millar stated in the annual report that:

“Medibank Private is a non-profit organisation based solely on its contributors’ funds. The Government has no financial interest in Medibank Private’s assets and reserves. Medibank Private’s assets and reserves are the property of its contributors.”

However, Senator Cormann appeared to dismiss Mr Millar’s assertion, saying that members never had equity in the sense of an ownership entitlement.

“The ownership of Medibank Private is very clear. All of the shares in Medibank Private are owned by the Commonwealth,” said the minister.
“Medibank’s policyholders purchase private health cover, they don’t purchase a share in Medibank Private.”

Senator Cormann also challenged the meaning of the term “equity” used by a Medibank Private manager in a letter sent to a member in 1994. The Medibank member told The New Daily that the wording of the letter led him to believe that he had an ownership stake in the insurer.

The letter stated the following:

“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.”

Senator Cormann rejects suggestions that memberships in the fund were sold on the basis that policyholders had equity in the business.

“Medibank Private has advised that its practice at the time of the letter was to refer to policyholders building up ‘equity” in some extras products where the benefit limits increased over time,’’ he said.
“The product concept was similar to how car insurance customers build up ‘rating one’ status over time.
“A letter sent from a marketing perspective is also not indicative of an ownership entitlement.”

* Below is a full copy of Minister Cormann’s response to questions asked, that was relayed by his media representative, Karen Wu.

Hi George,

Thank you for your email below.

In response to your questions, please find the following comments, which can be attributed to the Minister for Finance, Mathias Cormann:

1. Why did Medibank Private recognise members’ equity in the balance sheets of the fund between 1993 and 1996?

“Prior to 1998, Medibank Private was a business unit of the Health Insurance Commission. The Health Insurance Commission was a statutory authority, not a company. It did not have equity in the sense of shares and it did not have members in the sense of shareholders or company members. The item in its balance sheets for ‘members’ equity’ refers to equity in the sense of total assets minus total liabilities and not in the sense of an ownership entitlement through an equity contribution. This balance sheet treatment reflects the applicable Accounting Standards at the time.”

2. What compensation was made to members by the Commonwealth for acquiring members’ equity?

“Medibank policyholders have never held members’ equity in the sense of an ownership entitlement through an equity contribution. The ownership of Medibank Private is very clear. All of the shares in Medibank Private are owned by the Commonwealth. Medibank Private’s policyholders purchase private health cover, they don’t purchase a share in Medibank Private.”

3. How would you characterise disclosures made in the financial statements between 1993 and 1996? Were errors made by the accountants at the time? Or the directors? Or even the auditors?

“The financial statements reflect the position described in the response to question 1.”

4. A website has published a 1994 letter from a customer service manager to a Medibank Private member. The member was told in the letter that equity in Medibank Private was a benefit of membership. What consolation can you give to members who were sold memberships on the basis that they had equity in the fund?

“Medibank Private has advised that its practice at the time of the letter was to refer to policyholders building up ‘equity’ in some extras products where the benefit limits increased over time. The product concept was similar to how car insurance customers build up ‘rating one’ status over time. A letter sent from a marketing perspective is also not indicative of an ownership entitlement.”

5. A Medibank Private member has stated on a website (Change.org) that he is seeking legal advice in relation to equity rights that were ascribed to members by past directors of the Medibank Private fund. Are you worried that the IPO carries growing litigation risks for prospective investors?

“No.”

6. Is the litigation risk a residual concern for the Commonwealth after the IPO is completed?

“No.”

Please let me know if I can assist with anything else.

Kind regards
Karen