Highlights
We faced a number of challenges and opportunities in the past year which tested the underlying strength of the organisation and the adaptability of its management and staff. I am pleased to report we were able to meet each of these tests and have emerged a much stronger organisation in all aspects at year’s end.
The year’s highlights were undoubtedly:
- acceptance of our merger proposal by Manchester Unity members and the subsequent successful integration of the two businesses;
- our strong underwriting performance in both the health and life insurance businesses;
- continued strong organic growth in the number of people insured by HCF; and
- launching “MyHealth Guardian”, our well being and chronic disease management program.
How We Performed
The merger with Manchester Unity brought immediate benefits to the HCF Group, adding $116 million to total health insurance premiums in the second half year and increasing the number of persons covered by our health insurance policies by over 179,000 to 1.3 million.
The health and life insurance businesses achieved a consolidated underwriting profit of $38 million, 14% higher than last year. Total premiums increased by 21% to $1.3 billion and total claims paid increased by 20% to $1.2 billion. We continued to improve productivity reducing the HCF health fund management expense ratio (MER) from the previous year’s record low of 7.9% to 7.8%. Once again, our MER is much lower than the industry average of 10% and the published ratios of our major competitors.
In the health insurance sector, the Australian Government’s changes to the Medicare Levy Surcharge from January 2009, together with their planned introduction of means testing eligibility for the Private Health Insurance Rebate and consumer concern about the economic outlook saw the growth in the number of people covered by private hospital policie slow from its five year peak of 4.3% in 2007/2008 to 2.2%. In the face of this threat and a substantial increase in marketing expenditure by our major competitors I am pleased to report HCF hospital membership grew by 3.8% for the year and our national market share to 10%. With the addition of Manchester Unity members in December 2008 our national market share increased to 11.7%, making your fund the third largest health insurer in Australia and the largest not for profit fund in our industry.
The Global Financial Crisis has been far reaching in its effect on all businesses and HCF was not immune from reductions in the value of its conservative investment portfolio in the first half of 2008/09. Net investment income for the Group was $24.2 million negative for the year. This was offset by the underlying strength of our operating businesses each of which exceeded Board expectations to produce a consolidated net profit after tax of $21.5 million. Whilst most pundits remain cautious about the strength and speed of the recovery, we note investment returns in the first quarter of the current financial year are positive.
Long Term Change to Australia’s Health System?
The formation of the National Health and Hospitals Reform Commission, (NHHRC) was one of the first major initiatives of the new Australian
Government. The Commission’s final report has been released and the wide range of recommendations it made for reform of the health system, 123 in all, are being considered by the government. Those that will have the most impact on HCF and other private health insurers, if they are adopted, are:
- Denticare – a proposed national insurance scheme for basic dental care;
- the Healthy Australia Accord, which would see Australia move to one health system of primary, basic dental, public hospital and aged care funded by the Commonwealth over time; and
- Medicare Select, a proposed model to open the health system to greater consumer choice and competition with the ultimate aim of achieving high quality and efficient delivery of health care services.
The reform program presented by the NHHRC is ambitious and controversial, which is best demonstrated by the long lead-time allocated for consultation and debate before any decisions are announced. An even longer time frame, stretching into years, would be required to plan and then implement the changes implicit in the Healthy Australia Accord and the Medicare Select initiative. HCF has participated in the consultation process and will continue to do so as a
strong advocate of its members’ interests.
Our assessment is the industry will need
some fundamental rethinking of the
nature of its business if Medicare Select
goes ahead. An assessment of HCF’s
current and planned strategic capability
is that we are well positioned to contribute
to and participate effectively in these
reforms. Should they not eventuate
the steps we are taking to increase
our strategic capability will be beneficial
to developing our core business.
More for Our Members
As a not-for-profit organisation, our prime
focus will continue to be on delivering
outstanding value for members, rather
than building wealth for shareholders.
Our long standing policy of returning
around 90 cents in the dollar of premiums
to HCF members by way of better health
care benefits was maintained. This year’s
return was 89.4 cents compared with
the average return for all other funds
of 87.0 cents.
HCF member satisfaction remains
among the highest in the industry at
95%. Our private hospital and health
insurance packages were accorded
“5 Star” recognition this year by the
prestigious financial services rating
organisation, Canstar Cannex.
It is pleasing to note HCF members
are now taking advantage of the
excellent Manchester Unity retirement
villages and aged health care facilities.
Conversely Manchester Unity members
now have full access to all HCF
branches, dental centres, eyecare clinics
and health care provider networks as
well as improved benefits by aligning
their policies with HCF’s “more for
members” policy.
In May, HCF launched “MyHealth
Guardian”, the $100 million preventative
health and chronic disease management
program for our members. This is aligned
with key recommendations of the
Commonwealth National Preventative
Health Taskforce, recently released by
Health Minister, Nicola Roxon.
Meeting Our Social
Responsibility
The Group’s operations this year generated
$146.1 million in gross economic value
added. From this we paid $47.1 million in
federal and state taxes, ambulance levies
and staff superannuation and $76.6 million
in salaries to our 1,238 employees.
HCF believes that our activities should
be economically viable, environmentally
sound and socially responsible. The
health and life insurance services we
provide contribute to social wellbeing
as they help to share risk and create
financial security. Even though returns
on our investment funds were down we
donated $1 million to the HCF Health
and Medical Research Foundation,
increasing its corpus to $26 million.
The Foundation approved research
grants to benefit all Australians of
$1.2 million this year.
In 2007 Manchester Unity initiated a
five year funding agreement to support
research by HeartKids Australia into the
single biggest cause of death amongst
Australian children, congenital heart
disease. HCF willingly agreed to
maintain this very worthwhile initiative.
Looking Ahead
The outlook for HCF and the private health insurance market remains positive. We are confident our financial strength will ensure our long-term viability and allow us to take advantage of opportunities or meet threats which may emerge.
The proposed changes by government will present increased challenges and we will continue to represent our members’ welfare and their rights to access private care health benefits at an appropriate cost. HCF will play an increasing role in sourcing and funding disease management programs which are effective in slowing the onset of disease and improving the health of members suffering from chronic disease.
We are on track to achieve the full value of the considerable synergies from our merger with Manchester Unity this year and expect the combined group to provide increased member benefits which would not otherwise be available.
I have appreciated the strong support of my fellow directors since I assumed the role of Chairman, and I pay tribute to the Chief Executive and his management team, who work so effectively to maintain our progress.
The critical factor in our continuing success is our people; they demonstrate dedication, strength of purpose and produce quality service. My fellow directors join with me in thanking all of our people, including those who have joined us from Manchester Unity, for their enthusiasm, ability to produce excellence in performance and commitment to providing more for our members.
John Dunlop AM
Chairman
28 September 2009
Sydney
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Greg. J. Gardiner
It was with deep regret that we reported the passing of our former Chairman, Greg Gardiner, on 14 May 2009, after a brief illness. |
Merger proposal
accepted by
Manchester Unity
and transition
strategy succesfully
implemented
Strong underwriting
performance In
both health and life
insurance businesses
Continued strong
organic growth in
number of people
insured by HCF
Well being and chronic
disease management program, 'MyHealth Guardian' launched
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