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Restructuring  Health  Care:  
An  Economic  Breakdown  of  Medibank  Privatization  
Student  Name:      Lareina  Devi  Rajah,  214269421  

Background
British Petroleum in the United Kingdom, Électricité de France, the Post
Office Savings Bank in New Zealand and the Canadian National Railway
...

While publicly organized and financed, “contracting out” entails that services and
transactions are now carried out by private sector companies as characterized by
Khemani and Shapiro (1993)
...
According to the Australian Bureau of Statistics, the number of
people aged 65 years and above is estimated to surpass the number of children aged 014 years by the year 2030 in Australia
...
Better quality of health services, shorter
waiting times and more manageable charges are typical objectives that are shared
across the borders of ideology, political affiliation and even personal standpoints
...

Last November 25 of this year, Australians embarked on a major step in their
health care system
...
In retrospect, Hon
...
Hayden discussed that the objective of Medibank was to deliver the 'most
equitable and efficient means of providing health insurance coverage for all
Australians'
...
These
are vital issues that influence both the very heart of households and the marketplace at
large
...
Nevertheless, Medicare does not cover
everything
...

Reflecting on the principle that a dynamic and responsive health care system should
be rooted in a carefully combined system of both insurance and provision, Australia’s
policy shapers and makers have revived the development of private financing and
distribution measures operating in tandem to the public system
...

In a nutshell, the sale of the multibillion dollar public asset has amounted to
contesting views on whether or not it will concretely further its goals of equity and
efficiency with respect to how demand and supply moves in the market
...
According to
Stuart Butler of the Heritage Foundation, this model can cure budget deficits by
loosening up public spending coalitions
...
On the other hand,
we have those who are wary about the possible consequences that could follow by
deregulating health care
...
Not convinced that the ‘asset recycling pool’ can do much, apprehension
comes from juxtaposing Australia to other models of deregulated public sectors such
as the US where inefficacies eventually seep in
...
Take a look at the different economic
scenarios that apply to the privatization of Medibank in the following sections
...
A market that is run by demand and supply allocates resources to its
highest-valued use while serving the interests of consumers (Boyes & Melvin 2006, p
...
The graphs below, consider the market for medical care in relation to the laws
of demand and supply
...

In Figure 1, the blue lines represent the demand shift
...
A larger
demand basically creates a higher price at the end of the day
...
A Demand Shift: The Medical Care Market
7  
6  

Supply  

5  
4  
3  
2  
1  

Demand  

0  
0  

1  

2  

3  

4  

5  

6  

7  

Quantity  of  Medical  Care/year  

 

4  

In Figure 2, the red lines indicate the supply change
...
As revealed, the
aging population of Australia, as in most industrialized countries, naturally stimulates
this demand for medical care (Boyes & Melvin 2006, p
...

Figure 2
...


 

5  

Paradigm: Welfare Maximization by Government
From the state’s perspective, what is really pertinent is ”welfare maximizing
...
Resources are allocated according to the
dynamics of demand and supply of the market players
...
Take a look at the graph below
...
This pricing mechanism
produces a market equilibrium giving the greatest possible allocation of consumer
surplus and producer surplus in the social interests of the market (Colander, 1998)
...
The Competitive Market

Price    (in  dollars)  

3
...
5  
2  

 
Consumer  Surplus  
 
Producer  Surplus  

1
...
5  
0  
0  

0
...
5  

2  

2
...
5  

Quantity/year  

 

6  

Paradigm: Tax Imposition by Government
Taxation is the most essential and recognizable source of financing the
expenditure of government (Rajan & Asher, 1997)
...
To
understand this, let’s analyze the demand function of health care
...
It means that it doesn’t have the tendency to
respond forcefully to price changes
...
The
market interaction of pharmaceuticals and insurers is ultimately affected by tax
because the government understands that they can gain more when goods are less
responsive such as health care
...
Engen and Skinner (1996) elaborate that strong macroeconomic
growth rates do respond to general tax reforms and as a result have an aggregate value
on the cost of living
...
Imposing a Tax

Price    (in  dollars)  

3
...
5  

 
Consumer    
Surplus  

Supply  
 
 
 
 
 
 
   Demand  

2    
1
...
5  

           TAX  
 
 
Producer  
 Surplus  

0  
0  

0
...
5  

2  

2
...
5  

Quantity/year  

 

7  

Paradigm: Profit Maximization in a Monopoly
The absence of market competition is not necessarily a bad thing (Riley,
2006)
...

Economic profits both in the long run and short run are expected in a monopolistic
structure because of the absence of any other firm entries
...
If profit maximization is the goal
of the private firm, Figure 5 presents the relationship between the prices, costs and
resulting profits margins
...
As seen in Figure 5, MC=MR is the profit
maximizing equilibrium that firms will target
...
Profit Maximizing (Monopoly)

Marginal  Cost  
MR=MC  
MARKET  PRICE  

Price  

 

PROFIT  

Demand  

Marginal  
Revenue  

Quantity  

 

8  

Paradigm: Revenue Maximization in a Monopoly
In line with profit maximization, another aspect is to examine total
revenue, which is the total income of a firm (Colander, 1998)
...
The monopoly would drop profit as soon
as they maximize their revenue because a slight increase in the quantity produced
leads to an abrupt fall in price, since the demand is inelastic
...
Figure 6
represents the price charged in revenue maximization of a firm
...


Figure 6
...
These are fundamental concerns that influence
both the very heart of households and the marketplace at large
...

Why privatize? In a welfare system such as Australia, government support
can only go so far and like an anticipated vicious cycle, time will come where budgets
become unsustainable
...
This covers payments for the elderly, the
disabled and those caring for people with disability, those who are frail aged,
pensioners, students and other labor-associated payments
...
Hence, the privatization of Medibank
...
In this framework,
privatization could give the Australian government a common remedy to the waning
expectancies in both political support and economic performance (Starr 1988)
...
635) This is where infrastructure, education and other
supporting services are given attention as a result of privatization
...
For the past ten years at least, government spending on
public hospitals has increased by more than 60% (Sammut, 2013)
...
This is caused by health inflation and increasing demand from an ageing and
diversifying population
...
Through the
financial organization of this new setup, privatization allows a wider scope of choice
for consumers in terms of care provider and accessibility while generally bringing
down costs (Osborne & Gaebler, 1993)
...
Figure 7 provides
an outline of key economic indicators to better establish the standing of Australia,
Singapore and the Philippines
...
An Economic Outline of Australia, Singapore and the Philippines
Country

Australia

Singapore

Philippines

Government Type

Federal

Parliamentary

Republic

Parliamentary

Republic

Democracy
Population

23
...
39 million

98
...
56 trillion

US$297
...
4%

Lowest 10%: 2
...
4%

Government

9% of GDP

10%: Highest 10%: 23
...
6%
4
...
1% of GDP

15
...
3% of GDP

on

Healthcare
Tax

and

other 33
...
Medibank alone holds 3
...
According to the Private Health Insurance Administration Council, the
Private Health Insurance Rebate is a government-covered protection on private health
insurance premiums
...
In Singapore, there are 2 main actors, the regulator (comprising Ministry
of Health and its statutory boards) and the regulated (comprising public and private
providers)
...
These policies also aspire to
educate so that citizens make more informed choices
...
According to the Department of Health, the Philippine Health
Insurance Corporation was formed to generate universal health coverage
...
Economic literacy is still a work in progress (Abesamis,
2010)
...
As health policies are crafted according to the country’s fiscal
sustainability, there is a similarly growing trend towards deregulation
...
If Australia and the Philippines could learn something from
Singapore it would be this city-state’s sound macroeconomic approach to health
...
Profitability and the resulting efficiency will
highly depend  on the extent of government regulation and how liberal these controls
are
...


 

12  

Bibliography
Abesamis C (2010)
...
2nd Philippine Health Outlook Forum
...

Araneta MR (2007)
...
Manila Standard Today
...

(http://www
...
com/2007/nov/10/politics1
...

Boyes W
...
(2006)
...
Houghton Mifflin
Company
...

Colander D
...
Microeconomics, Wall Street Journal Edition
...
20-200
Hans-Herman Hoppe, Ph
...
S
...
M
...

Jeremy Bentham, An Introduction to the Principles of Morals and Legislation
(Oxford:
Clarendon
Press,
1907)
...

...
org/titles/278>
Kuhnle, Stein, ed
...
Survival of the European Welfare State
...

Marcelo A et al
...
Evaluation of a Decentralized Field Health
ServiceInformation System in Selected Infectious Disease Surveillance and
ControlProject Sites in the Philippines
...

Ministry of Health Singapore (2009)
...
(http://www
...
gov
...
aspx, accessed 2009)
...


Ostrom, Elinor
...
“Coping with Tragedies
of the Commons
...

Rajan, R
...
(1997)
...


 

13  

Rothstein B
...
(2002)
...
Palgrave
Macmillan
...
(2005)
...
Studiesin Health Technology and
Informatics Journal, 116:955-60
...
and L
...
Privatization: Not the Only Answer, World
development, 17 (5), pp
...


 

14  



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Title: A Privatization of Medibank
Description: This paper is an economic analysis of what happens when Health Insurance is privatised. It includes different economic concepts and their implications. It is written in intermediate business english language and include economic charts.

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