The nation's largest private health insurer, Medibank Private Limited, today announced a $44.8 million profit for the 2003-04 financial year on $2.4 billion of revenue, consolidating the fund's recent financial turnaround with a four-fold improvement on the previous year's profit result.
Medibank Private Chairman Peter Kirby said he was pleased with the continuing improvement in the fund's performance, in what has been a challenging year of volatility in benefit claims growth.
"I am delighted that the business improvement strategy pursued by the management team of Medibank Private has resulted in the achievement of a respectable profit," Mr Kirby said.
"This positive result is a firm indication that the fund has turned the corner in its recovery efforts, and is confirmation that the strategic path the Board has endorsed for Medibank Private is right for the company, as it aims to build a sustainable future for the fund and its members."
The key elements of Medibank Private's 2003-04 annual results were:
- A $34.4 million improvement in operating profit to $44.8 million;
- A $30.9 million improvement in underwriting position to ($4.5 million);
- Return on equity (shareholder funds) of 11.4%, up from 2.7% prior year; and
- A reduction in Management Expense Ratio (MER) from 9.3% to 8.7%, which compares favourably to the industry average of 10.4%.
The Managing Director of Medibank Private, Mr George Savvides, attributed the result to prudent management of business risk, and a strong focus on improved purchasing performance, complemented by further management expense ratio reductions, and an investment strategy that delivered secure returns."Our operating profit was driven in part through a further reduction in our management expense ratio to 8.7%, some 22% below the industry average on a membership basis. This puts Medibank Private among the most efficient of all the health funds," he said.
"We have also seen a modest improvement in our investment income, which grew to $49.3 million. This was complemented by a strong improvement in the fund's underwriting profit by $30.9 million, resulting in a significantly reduced underwriting loss of $4.5 million."
Mr Savvides said that management's ability to continue to improve the fund's performance in a market that is characterised by rising health costs, was a major factor in the fund delivering a second consecutive year of improved profits.
"Health costs in Australia are rising at a rate that is double the consumer price index, which puts pressure on funds to reach commercial agreements with hospital and ancillary service providers that are sustainable for industry and represent good value for members."
Mr Savvides said Medibank Private members are the largest users of private hospital and ancillary services nationally, and the fund therefore is the biggest purchaser in Australia of these services.
"Medibank Private contracts with over 90% of private hospitals in Australia and over 3,150 ancillary service providers, and last year funded claims for over 550,000 individual hospital episodes, 5.1 million medical claims and 13.6 million ancillary services," Mr Savvides said.
"Benefit claims covering these services for the same period rose $156.4 million to $2.2 billion, which represents 91.5% of member contributions being used to cover member claims. This compares to an industry average of 87.2%."
Private health insurance industry figures show Medibank Private pays, on average, higher benefits than the rest of the industry. Mr Savvides said this explained the need for the fund to be commercially focused, containing cost increases when negotiating contract rates with health care providers to ensure member affordability of future health insurance premiums.
"We will therefore continue to review our hospital purchasing strategy to ensure we are obtaining the best possible value for our members, balanced against maintaining appropriate access to the best medical facilities in Australia," Mr Savvides said.
"Medibank Private and health funds generally face very real challenges in continuing to deliver high-value products and services to their members at affordable prices, and overcoming the consequences of rising health costs and associated benefit outlay increases � managing these pressures holds the key to sustainability. We're firmly committed to achieving this by offering exceptional products and services, at prices that are affordable for our members on a commercially sustainable basis."
Medibank Private financial performance (F'04 vs F'03)
Comparison
F'04 against
F'03
Income (memberships)
$2,415 million
↑ 8.5%
Benefit Outlays
$2,210 million
↑ 7.6%
Management Expense Ratio
8.7%
↓ 6.8%
Investment Income
$49.8 million
↑ $3.5m
Underwriting Loss
($4.5 million)
↑ $30.9m
Membership (market share)*
29.1%
↓ 0.6%
Profit after Investment Income
$44.8 million
↑ $34.4m
Return on Equity
11.4%
↑ 318%
Key
- ↑ = Increase on prior year
- ↓ = Decrease on prior yearEditor's note:
- A copy of Medibank Private's 2003-04 annual report is available here or by contacting Medibank Private Public Affairs on 03 8622 5163.
- The Fact Sheet below details key initiatives undertaken in 2003-04
Initiatives undertaken in 2003-04 to reinforce member value and deliver improved member servicesMedibank Private is committed to delivering outstanding products and services to its three million members, and in 2003-04 introduced many initiatives that reinforce for members the value of their Medibank Private health cover:
Member Wellbeing Programs
In 2004, Medibank Private, in partnership with CareLink, successfully piloted a Member Wellbeing Program for its Queensland members. Medibank offered 23,000 members a health risk assessment. From this offer 3,400 members were offered further health interventions, aimed at addressing identified health risks and improving management of disease, in conjunction with their GP.
Partnerships with the International Diabetes Institute, the Juvenile Diabetes Research Foundation, the National Heart Foundation and depressioNet are further examples of how Medibank Private works with third-party healthcare partners to provide members with information about health and wellbeing solutions.
Families with Adult Children
In April, the fund introduced Families with Adult Children, a new cover option that allows parents to retain their adult children on their family cover until the age of 25.
Medibank Private Managing Director George Savvides said: "Our research told us children are increasingly being supported by their parents until well into their twenties as they prepare to enter the workforce, so it made sense to give parents the choice to keep their children on their family cover for longer. The new cover option has been warmly embraced by our members, to the extent that take-up in the first four months exceeded our full first year expectations."
Feelbetter Rewards Loyalty Program
A new Medibank Private feelbetter rewards program is an initiative that reinforces the value of Medibank Private health cover. The program rewards close to 1.5 million members who have hospital cover with Medibank Private, offering savings at cinemas, gyms, hotels and resorts across Australia. It is funded without any additional spending of members' contributions, or the 30% private health insurance rebate. Members only need to show their Medibank Private membership card to access the benefits.
Retail Store Refurbishment Program
A retail store refurbishment and renewal program that Medibank Private initiated as part of its brand refresh made significant progress in the past year, with 41 of Medibank Private's 104 retail stores completed to date, many of which offer more accessible locations and improved member serviceability.
Member Transactions
Almost six million customer transactions were processed at Medibank Private retail stores and via the company's Customer Care Line last year, and over 1.2 million website visits were recorded at www.medibank.com.au making it the most visited private health insurance website in Australia.