Medibank Private will be offered for sale next financial year, likely netting the federal government about $4 billion.
But the exact timing and structure of an initial public offering are yet to be determined.
Finance Minister Mathias Cormann, in announcing the decision on Wednesday, said an independent scoping study concluded there was no compelling reason for the government to own Medibank Private.
Nor was there any evidence that premiums would increase as a result of the sale of Australia’s largest private health fund.
Senator Cormann refused to speculate about a possible sale price although analysts have suggested a figure close to $4 billion is possible.
“Our stated intention is to recycle the capital that is freed up from the sale of Medibank to invest in productivity enhancing infrastructure,” he told reporters in Canberra. Laws passed in 2006 allow the government to sell the insurer without the need for parliamentary approval.
The decision has been welcomed by Medibank Private, but not by Labor and the Australian Greens.
Labor health spokeswoman Catherine King said having a government-owned insurer provided a “moderating influence” across the sector.
Finance spokesman Tony Burke warned the government would lose the annual dividend – up to $500 million – it receives from the insurer adding to the budget deficit.
The Greens described the decision as “lazy and short sighted” in light of the government’s “invented” budget emergency.
The government has appointed three new board members before the privatisation: banker/lawyer David Fagan, corporate adviser Linda Nicholls and company director Christine O’Reilly.
Medibank Private was established by the Fraser government in 1976 to increase competition among for-profit health funds.