The government began the process on Friday of searching for private sector players to take over $29 billion in Medicare and pharmaceutical benefits currently undertaken by Human Services, the government’s largest department.

Up to 20,000 public servants could either lose their jobs or be farmed out to the private sector under the plan and it looks likely there is more pain to come for the bureaucracy.

The sell-off is a recommendation of the federal government’s National Commission of Audit, one of many that did not make it into May’s federal budget. Departments and agencies are now braced for announcements of more of the commission’s ideas.

These include the sell-off of Centrelink payments, big cuts to Defence Department staffing in Canberra, the abolition of the Australian Public Service Commission and the establishment of a shared services department.

Commission head Tony Shepherd also wanted parts of the Commonwealth workplace insurer Comcare sold off.

Finance Minister Mathias Cormann was coy on Friday about his plans but more announcements on the future of the public service are expected in the mid-year economic update expected in November.

''We will continue to methodically consider and review the other issues raised in the National Commission of Audit report that are not addressed in the 2014-15 budget,'' the Minister said on Friday.

The DHS outsourcing decisions will see $29 billion annually in Medicare and pharmaceutical benefits scheme payments farmed out to the private sector, in a decision which would cut the 30,000-strong department in half.

Jobs in the Department of Veterans Affairs will also be in the gun as the Health Department looks to outsource nearly $2.5 billion in veterans’ benefits currently administered by DVA

The Department of Health advertised on Friday morning in Fairfax’s financial press for private sector players to express interest in taking over claims and payment service for the Medicare Benefits Schedule and the pharmaceutical benefits scheme.

The privatisation of the functions, DHS’s second-largest after Centrelink, might see up to 20,000 public servants – nearly 10 per cent of the Commonwealth bureaucracy – going to the private sector or being made redundant, according to the CPSU.

Health Minister Peter Dutton said on Friday that Medicare’s face-to-face services would not be included in the privatisation.

''The [expressions of interest] process will inform the government whether the commercial sector can deliver greater efficiency, flexibility and agility to the MBS and PBS processes,'' Mr Dutton said.

Labor was furious about the move, with human services spokesman Doug Cameron saying it would mean ''even more cuts to frontline public services and Australian jobs''.

''People receiving healthcare and targeted government support deserve to be treated with dignity and respect,'' Senator Cameron said.

''They shouldn't have to stand in line at Australia Post, at some private company’s shopfront or spend hours on hold to some international call centre, just to lodge a claim or hand in a form.''