Changing Ownership in Australian Private Health Insurance Markets:. What are the economic implications of demutualisation? Luke Connelly ACERH UQ. Some broad-brush on structure. 38 Registered* Private Health Insurers
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What are the economic implications of demutualisation?
* Insurers must be registered under thePrivate Health Insurance Act 2007 by 1 July 2008; existing, registered insurers are required to re-register (PHIAC 2008 “Health Funds”).
The Corporations Law does not anywhere refer to a mutual company. It makes no provision for the creation of such a company. Nor does it contain a definition of what a ‘mutual’ is, or articulate any principles for the management of the affairs of a mutual company...”
(cited in Buckmaster and Davidson 2006, p.21)
Pure demutualisation results in zero value transfer from mutual members to others
members receive full asset value
and any “franchise value”
share appreciates on float if traders consider the new organisational form more efficient
Subscriptions and mergers each are susceptible to value expropriation.
Members are, of course, free to choose not to agree to a particular “scheme of arrangement”, but...Value expropriation
(DoJ, http://www.usdoj.gov/atr/public/testimony/hhi.htm, accessed February 2008.)
Whilst organisations such as Medibank Private Limited and, before it, the Health Insurance Commission hold, or have held the legal interest in Medibank Private Fund assets, whether they hold the beneficial interest in those assets, or whether their interests are subject to the rights of others, are separate questions.
In our view...the provisions of the relevant legislation have the effect that neither the Commonwealth, nor Medibank Private Limited, or its predecessor, the HIC, hold the beneficial interest in the fund or associated assets. It seems difficult to attribute beneficial ownership of an asset to an entity that cannot sell the asset, cannot distribute profits generated by the asset and must give priority to the interest of others (i.e. members) when dealing with the surplus earnings of the asset
(Buckmaster and Davidson2006 p.19, emphasis added).
[The proposed sale of Medibank Private Ltd is] not in any sense of the word a demutualisation...[t]his is not a mutual fund in any sense of the word. It is a government-owned business
[W]hile the government clearly ‘owns’ Medibank Private Limited (the managing organisation of the Medibank Private fund) the fund itself is best characterised as a government controlled not-for-profit entity (not strictly owned by either the Commonwealth or the fund members)”
(Buckmaster and Davidson 2006, p.1).