The Abbott government will dispose of Medibank Private by Christmas.

The Abbott government will dispose of Medibank Private by Christmas. Photo: Glenn Hunt

Mum-and-dad investors and superannuation funds will soon own the bulk of Australia's biggest private health insurer following the government's decision to dispose of Medibank Private by Christmas.

The decision to sell to the public rather than to a single buyer was announced in April, while the move to bring forward the $4 billion sale was announced on Friday.

The position of Medibank policyholders is uncertain. Hundreds of them have petitioned the government demanding free shares on the grounds that their contributions built the fund from its inception in 1976. The government says it will consider their position in coming weeks.

Announcing that he was bringing forward the sale deadline by six months, Finance Minister Mathias Cormann said Medibank Private was a commercial business for which there was ''no compelling reason'' for public ownership.

Privatisation would ''remove the current conflict where the government is both the regulator of the private health insurance market as well as a large market participant''.

Provisions of the Charter of Budget Honesty mean the sale proceeds won't reduce the published budget deficit. Nor in this case will they cut government debt. The government has earmarked the proceeds for investment in ''nationally significant productivity-enhancing economic infrastructure''.

The float will be the biggest since the $4.6 billion privatisation of the Queensland rail freight business QR National in 2010. Australian retail investors will be able to pre-register for a prospectus towards the end of September.

Fund managers said mum-and-dad shareholders usually support government sales, especially when the asset being sold is a well-known brand such as Telstra or the Commonwealth Bank.

Daniel Moore, an equities analyst at fund manager Investors Mutual, said although investors may not have a complete understanding of the sector and its risks, they are familiar with the service.

''Medibank Private obviously is a very well-known brand,'' he said. ''People understand the product, what it costs and the benefits of it.''

There is also an assumption that government floats are often priced cheaply, in order to avoid disappointing shareholders, who are also voters. ''Generally governments tend to be a little bit kinder on pricing than say private equity,'' Mr Moore said. They wouldn't want to ''rip off the mum-and-dad investor just before Christmas''.

Labor said on Friday the decision to privatise Medibank was driven by ideology.

Shadow health minister Catherine King said the Coalition had already spent $2 million on focus groups and advertising to ''spin'' the sale of Medibank.