Media releases

September 26, 2005

Medibank Private's healthy turnaround for three million Australians

Australia's largest health fund, Medibank Private, has recorded an operating surplus of $130.8 million for the year to 30 June 2005, with a record $2.3 billion paid out in benefits on behalf of its nearly three million members.

The financial result marks the most dramatic turnaround in performance of the fund's 29-year history, recording an $86 million bottom line improvement, a 192 per cent increase on the previous year, against gross revenue of $2.8 billion.

Medibank Private Chairman, Mr Peter Kirby, commented that the board was delighted with the impressive turnaround.

"Our enhanced financial position will improve the affordability of private health insurance by taking pressure off future premium increases.

"It's important now that our momentum continues though so that we can deliver increased customer value and reduced premium increases in the future," Mr Kirby said.

Medibank Private, Managing Director, George Savvides, pointed out that whilst the size of Medibank Private's turnaround is substantial, it's important to put this result into perspective - a $130.8 million surplus is equivalent to only three weeks of average benefit outlays paid by the fund.

The 2005 financial year result is the third consecutive year of significant improvement in the financial performance of Medibank Private, and a $306 million improvement on the net loss of $175 million posted for the year to 30 June 2002.

Of most significance for the long-term sustainability of Medibank Private is the strong move to a positive underwriting surplus of $62.5 million - a stark contrast to the historical performance of the fund and finally confirming Medibank Private's competitive underwriting position within the industry.

Key elements in Medibank Private's 2004-05 results:

  • A record $2.3 billion paid in benefits on behalf of members.
  • A 192% improvement in bottom line results on previous year to $130.8 million.
  • Positive underwriting surplus of $62.5 million - an improvement of $67 million from previous financial year.
  • Investment income increased by 39% over the previous year to $68.3 million. Only $9.9 million was due to the $85 million equity injection in July 2004.
  • Management expenses contained to 9.2% of premium income - 16% below the average of other funds on a per membership basis.
  • Return on equity of 25%, up from 11% the prior year.
  • Retained national membership base with 29% market share - including strong market share growth in ancillary cover.
  • A 2% reduction in the growth of benefits paid to health providers - despite increased utilisation of hospital services by members.
  • The introduction of two new health insurance products and new product features.
  • Restructure of IT systems resulting in independence from the Health Insurance Commission (HIC).
  • Credit rating upgraded to A- by Standard and Poors.

Mr Savvides went on to say the result consolidated the achievements of a turnaround journey embarked upon in 2002 by Medibank Private's new senior management team and its 1,400 staff around the country.

"Most importantly, this result allows us to deliver direct benefit to members," he said.

"Our position will contribute to our ability to reduce premium growth next year, continuing the trend established in 2005." Mr Savvides said.

The strong result has been attributed to several factors including: an investment strategy that delivered a 39% increase in investment income compared to last year; prudent management of expenses, which are 16% below the average of other funds on a per membership basis; and a strong focus on improved purchasing of hospital services for members which reduced the growth of aggregate payments made on their behalf from 7% in the prior year to 5% in the 2005 financial year.

"The successful management of the fund has brought us to this point of full recovery from a significant financial setback three years ago. The turnaround provides a strong platform to deliver our medium-term growth plan and unlock the future potential of this business.

"Our strong result has added to capital reserves and so improved our financial strength, however it's important to note our prudential position remains below several of our competitors and will therefore remain a priority in the year ahead.

"The fund has achieved a successful turnaround and will now continue to focus on delivering the best value and service we can to our three million members, and to do everything we can to contain the growth in future premiums.

"Furthermore, I would like to publicly thank Medibank Private's great team of employees for their contribution to this excellent result," Mr Savvides said.

Major initiatives undertaken in 2004-05:
Outlined below are initiatives implemented in the last financial year that continue to enhance our value offering to members and improve the affordability of private health insurance.

New products launched
My Options - launched in May 2005 and specifically designed to be relevant to a younger market, allowing younger members to have private health insurance that only covers what they need and consequently assisting in the management of growing benefit outlays.

Travel insurance pilot - launched in Western Australia in April 2005. Medibank Private partnered with Allianz to provide our members and other customers with an alternative product offering. Sales have sped past targets since the launch, with the latest sales figures dramatically exceeding expectations. The product will be rolled out nationally later in the coming financial year.

Medibank Priority - introduced in May 2005 - a comprehensive corporate health cover and well-being program designed for employers to offer to staff including reference tools to help employees improve their wellbeing. This product has received an excellent response from the corporate sector.

New product features introduced
In March 2005 Medibank Private removed hospital excess charges for all children covered by our Medibank Private 'PackagePlus' products. This was in recognition of the need to keep private health insurance affordable for Australian families, who make up approximately 40% of the Medibank Private membership.

Business Systems Renewal (BSR)
In late 2004 Medibank Private embarked on a BSR program that is fundamental to the fund's future success. The BSR program will renew Medibank's legacy systems and significantly enhance our customer relationship system and data warehousing capabilities. The renewal follows the successful separation of Medibank Private's mainframe infrastructure from the Health Insurance Commission (HIC) and the transition of our outsourced IT applications and infrastructure management to a co-sourced in-house arrangement earlier this year.

Hospital contracting strategy
Medibank Private is addressing its biggest cost, which is what we pay to hospitals to treat our members, through improved contracting with hospitals. In an effort to drive improved efficiency and deliver value to our members, Medibank Private engaged in a competitive tender program in February 2005 with 99 acute overnight private hospitals across metropolitan Adelaide, Melbourne, Sydney, Brisbane and the Gold Coast.

This approach is designed to slow the rate of growth in hospital benefits and take pressure off future premium increases for members by addressing the significant cost anomalies between various hospitals for equivalent services.

Improvement of claiming process for private hospitals
Medibank Private secured a deal with ICS Global and their THELMA e-claims system in March 2005 that offers private hospitals a significant discount on the cost of electronic claims submitted using THELMA. Medibank Private extended its existing User Agreement with THELMA by three years in a bid to help more private hospitals enjoy the benefits of interacting electronically more frequently.

On-line member servicing introduced
With the introduction of On-line Member Servicing in December 2004 Medibank Private members now enjoy the benefits of an excellent range of on-line self-service capabilities - giving members the convenient option of accessing services on-line via the Internet, as an alternative to visiting a retail centre.

The Medibank Private website received 1.6 million visits in the last financial year, which is a 25 per cent growth over the previous year.

Member well-being programs completed
There are pay-offs for both the individual and health fund from working with members to mitigate and even prevent a range of chronic conditions. In terms of cost and health outcomes there is a sound argument for health funds to do what they can to help people with chronic illnesses manage their conditions, prevent deterioration in their health and navigate their way around an often complex health system.

Medibank Private has now completed a number of health management initiatives, including a pilot Member Wellbeing Program that involved a Health Risk Assessment (HRA) and wellness profile, elevated risk and disease programs, and a Complex Care Program. This pilot reduced the cost of claims whilst improving the health of our members. Other pilots have included an on-line HRA and health program offering, and an 'On Track' self-management support program for diabetes sufferers.

Increased marketplace competitiveness
The establishment of our six strategic business units in July 2004 was underpinned by our desire - as the only national health fund - to better understand and engage with our members in diverse market segments. This new structure has resulted in stronger market focus and hence improved competitiveness and agility delivering market share growth in targeted segments such as ancillary cover.

Medibank Private senior executive team:

Mr George Savvides, Managing Director
George has over 17 years experience in the health care industry. After joining Medibank Private in April 2002 George has led the business to the biggest turnaround in its 29 year history - a $306 million improvement compared to the bottom line in 2002.

Mr Simon Blair, Chief Operating Officer
Simon is responsible for marketing, customer services, distribution and our strategic business units. Simon led the successful implementation of our new product suite.

Mr Bruce Levy, Head of Health Services
Bruce manages our claims processing team, hospital and provider relations, and drives our member well-being and quality and safety initiatives. Our goal to take pressure off future premium increases is fast becoming a reality under Bruce's guidance of Medibank Private's hospital contracting strategy.

Mr Cecil Piccinino, Chief Financial Officer
Cecil is responsible for the financial standing of the company including actuarial services vital to our ongoing success. A 39% improvement in investment income and 25% return on equity speaks for itself.

Mr Tony Jones, Group Manager Corporate Strategy and Communications
With a strong background in investment banking, Tony manages the corporate planning, strategy development, and communications division which has been responsible for initiatives such as our diversification into travel insurance.

Ms Heather Parkinson, Group Manager Human Resources
Heather recently joined Medibank Private from Pacifica and leads a strong Human Resource and Continuous Improvement team focused on strengthening the quality of employee engagement and productivity improvement.

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