Australia’s largest private health insurance company, Medibank Private Limited, today reported a $175.5 million loss for the 12 months to June 2002 but says an extensive recovery program has it on track to move towards a break even result this year.
The company said the loss, which followed a surplus of $105.9 million the previous year, was due to a big increase in claims payments and a significant drop in investment income.
Claims increased from $1,636 million to $1,967 million in a year marked by a significant increase in utilisation and in the cost of health services.
Investment income, which has previously supported operating performance, fell from a $26.4 million surplus last year to a $12.9 million loss following a dramatic fall in world equity markets, particularly since September 11, 2001.
“Medibank Private has a detailed recovery program in place to restore profitability while maintaining competitive premiums,” said Chairman Allan Thomson.
Key features include:
- Significant cost cutting, with the company’s management expense ratio (costs expressed as a percentage of contribution income) falling from 12.2% to 10.6% in the year to June, equivalent to a reduction of $25 Million over the year. Costs in this area will continue to fall in the coming year, with an MER target approaching 9%.
- As part of this, a one-third reduction in the number of Medibank Private corporate management positions, with the number of corporate positions reduced by 143 jobs effective from the start of July.
- A significant corporate strategy review and corporate restructure to give greater emphasis to the management of Medibank Private’s $1,967 million benefit payments.
- A change in the management of the company’s $861 million investment portfolio to secure, short term money and fixed interest markets in the second half of the financial year.
- An improved revenue stream this financial year following Medibank Private’s first premium increase in three years, an average increase of 8.9%, which came into effect in mid-April.
- An upgrade of customer service, with the progressive roll out from last month of a new approach to service in retail outlets, strengthening of customer care centres telephone enquiry management, planning for the imminent introduction of a customer relations management system to identify and improve customer products and service delivery, and planned expansion of customer retail contact points. This includes a commitment to increase the number of retail touch points.
In further steps to turn the financial performance around, Medibank Private is this week advising customers:
- It will close one of its unprofitable products, which is now subsidised by members who hold profitable products, and offer affected members two months to plan their migration to other Medibank Private products. The product, one of Medibank Private’s First Choice Saver products, is held by about 4% of members.
- It is removing discounts of between 4% and 6% offered as an incentive for various payment modes such as direct debit or advance payment - - discounts which are not offered by most major competitors. Despite the move, Medibank Private will still have highly competitive premiums - - revenue per member paid by Medibank Private members will still be lower than industry average revenue paid per member.
Longer term, Mr Thomson said Medibank Private is committed to simplifying its product range and presenting its private health insurance products in plain English as a response to customer concerns that private health insurance is too difficult to understand.