CHAIR —I welcome Mr George Savvides, general manager, and officers of Medibank Private. Would you like to make an opening statement?

Mr Savvides —Yes, Madam Chair. The organisation continues to travel well in terms of its commercial path. Business is performing to plan, as we have established with our shareholder, minister and department. We are also in the middle, at the moment, of a very deep integration process. Medibank, in the last few years, has acquired four companies; its workforce has doubled in that period of time. We have started to integrate health services within our health insurance organisation. We have now over 1,500 staff who are health professionals. In that process we are endeavouring not only to pay the claims of our membership but also to be able to treat and service customers who have specific illnesses—in particular chronic diseases, where in providing that attention we improve their health status and also lower the claims burden on the organisation. This benefits not only the individual in those programs but also the overall fund itself in terms of the costs that it bears.

The way we do that is that over 50,000 customers of ours have already been a part of a chronic disease program. We also have broader services in nurse triage around Australia and in New Zealand. We take over two million calls a year from people who need urgent medical attention and health services—that is a seven-day, 24-hour service. We are also developing a telemedicine capability which unlocks a latent part of the workforce in health in Australia, that of people who can work from home—health professionals who are part of our servicing network to meet the needs of the broader population that we service.

It might surprise senators to hear that only two per cent of our nearly four million customers claim 45 per cent of our claims. Our claims this year will approach $4 billion. The two per cent are those who have diseases that are associated with chronic disease in terms of profile. The way we treat these is to coordinate care and support them in various programs such as diabetes and hypertension—programs of that nature. We are committed to do more of this. We are targeting around 200,000 members a year to be a part of this program delivery once we get it up to full speed.

I am happy to conclude at that point and take questions. That is my introduction for this time. Thank you.

Senator CORMANN —When we last met you had not yet paid the $300 million special dividend which the government imposed on you. Has that now happened?

Mr Savvides —No, not at this point. It will be paid prior to the end of this financial year.

Senator CORMANN —Sometime between now and 30 June you will be paying the $300 million?

Mr Savvides —That is correct.

Senator CORMANN —That is on top of a regular dividend this financial year as well? Will that $300 million in special dividend be on top of the regular dividend?

Mr Savvides —Yes, the normal dividend is also programmed and budgeted for this year.

Senator CORMANN —How much is your regular dividend this year?

Mr Savvides —We have not declared the first half of this year but in the last financial year we paid $81 million worth of dividends.

Senator CORMANN —Is the regular dividend determined as part of a percentage formula on your result?

Mr Savvides —Yes, it is, but it is also subject to the prudential oversight that the board has for the health fund to pay its future claims.

Senator CORMANN —There is a formula but, depending on your prudential requirements, there is a floor below which you would not go?

Mr Savvides —Correct.

Senator CORMANN —What is the formula?

Mr Savvides —The solvency formula that we apply—

Senator CORMANN —Not the solvency formula—what is the formula to determine your regular dividend?

Mr Savvides —The distribution percentage?

Senator CORMANN —That is right.

Mr Savvides —If you go back in the year that we just paid dividends, looking in terms of an actual circumstance, around a third of our profit goes to tax, a third of our profit goes to dividends and a third we retain. There is nothing scientific about those ratios but they are the approximation that we think is appropriate.

Senator CORMANN —So now two-thirds of your surplus, of your profit, goes in tax and dividends? When you were not-for-profit you would have retained the lot, wouldn’t you?

Mr Savvides —Correct, we did; that is right.

Senator CORMANN —So you would have retained the lot. If a third goes into dividends and a third goes into tax, and if $81 million was your dividend last financial year, then essentially about $160 million left Medibank Private that you otherwise would have retained?

Mr Savvides —Tax and dividends, yes; that is right.

Senator CORMANN —You would expect the proportions this financial year to be roughly the same?

Mr Savvides —If the profitability is similar, the proportions would be roughly the same.

Senator CORMANN —I assume that you put forward a rate change application towards the end of last year.

Mr Savvides —Yes, we have.

Senator CORMANN —Has the government approved your rate change application, even though it would not have been announced yet?

Mr Savvides —We are in the middle of a process of rate change approval right now. That process is protected by confidentiality.

Senator CORMANN —I am not going to ask you about the detail of what is in your rate change application. Conceptually, was your rate change application in any way influenced by your expected outlay for tax and dividends?

Mr Savvides —No. The thing that drives our rate change is the very dominant expenditure around claims payment. Around 85 per cent to 90 per cent of our revenue that we bring in from customers is paid out in claims. So, when you do a calculation on the future rate, the most important thing to calculate is the ability to pay the future claims of your membership.

Senator CORMANN —Of course the ability to pay future claims is the most important part of it, but having looked at these sorts of forecasts myself in the past, a whole range of issues are taken into consideration when you put forward your pricing into the future. Was the expectation of regular dividend payments at least a consideration when you put forward your rate change application?

Mr Savvides —As we look forward and calculate the premiums that are necessary to cover future claims and also operating costs et cetera, we look at all sorts of things. We are a growing organisation, as I said in my introduction. If we really want to deal with the long-term sustainability of the health plan that we manage—given the burden of health costs as people age we have a multiplier on a multiplier occurring for ageing, as well as consumption rate—we need to invest as an organisation into more health delivery, and that is another cost. We are a transforming and changing organisation that needs technology, acquisitions and expansions. It is not just—

Senator CORMANN —No, I am not suggesting that it is just that. I have already said I suspect that the biggest part is your expectations on future claims growth. There is a whole range of other costs. Obviously you would be looking at how your costs would be tracking. One of those costs is dividend payments to your shareholders.

Mr Savvides —Dividends and tax come out of profit; it is a consequence of running a business, rather than an element of input.

Senator CORMANN —Sure, but given the government is keen to draw a dividend, and sometimes a special dividend, they might take an interest in how profitable you are as the shareholder. You are nodding, so I can see that you are well aware of that.

Mr Savvides —I am glad that people are interested in how profitable we are; it is a good thing.

Senator CORMANN —Yes, but there is potentially a conflict between the finance and the health arms of the government, in that the one part of it will want to keep premiums as low as possible whereas the other part of it might be interested in maximising your profitability. I am just trying to get a sense as to how those tensions are resolved in your relationship with the government.

Mr Savvides —They are beyond my sphere.

Senator CORMANN —Does the shareholder talk to you? Does the shareholder talk to you about your—

Senator Wong —Senator, Mr Savvides has just indicated that that is beyond his sphere. In relation to conflict of interest, which I think you have pursued previously, as you are aware I do not, as the shareholder minister, have a role in approving these premiums.

Senator CORMANN —I was not suggesting you did, Minister.

Senator Wong —That is directly relevant to the issue that you are attempting to put to this witness.

Senator CORMANN —Minister, Mr Savvides has just shared with us that $160 million in profits generated by the members of Medibank Private was handed to the government either in dividends or taxes, so I think it is entirely relevant to pursue this line of questioning. This is a direct result of the decisions that you have made.

Senator Wong —This is an organisation that your party intends to sell.

Senator CORMANN —Indeed, and we will get to what a good policy that was.

Senator Wong —You said ‘was’. Is it no longer the case?

Senator CORMANN —What a very good policy it ‘is’. But it ‘was’ in the lead-up to the last election, as you well know—and, sadly for the Australian people, we were not the government.

CHAIR —Do you have a question, Senator?

Senator CORMANN —Yes, if I stop getting interrupted by the minister I will be very happy to go back to my questions. Mr Savvides, can you give this committee an absolute assurance that at no point did the government put to you the profit expectations that they might have from your organisation in the context of regular revenue from dividends and taxes into government coffers?

Mr Savvides —Absolutely. I can say to you that the way we plan and have our corporate plan approved with our shareholder department and minister is a process of how to best run the company to be the best company it can be for our customers.

Senator CORMANN —Whatever happens in terms of profit, is the government happy to take whatever comes out?

Mr Savvides —The profit is a consequence of us running a business; it is not the horse before the cart.

Senator CORMANN —You mentioned in your opening statement the work you are doing around integrating your several business acquisitions. Have you made any further acquisitions since we last met?

Mr Savvides —No, we have not.

Senator CORMANN —Are you still seeking to acquire other assets that will enhance your core business? Are you still pursuing those?

Mr Savvides —Certainly under that label, yes. Assets that can enhance our core business we will continue to investigate and determine whether they are appropriate for the business and affordable.

Senator CORMANN —Is there anything in train at the moment that you are able to share with us?

Mr Savvides —I would not disclose that given the sensitivities of that.

Senator CORMANN —There is, but you are not yet in a position to share it?

Mr Savvides —No, I am not saying that there is.

Senator CORMANN —Could you describe for us then how the telephone and online health management program services, which you gained in the acquisition of McKesson Asia-Pacific, have been integrated into your core business?

Mr Savvides —There were two objectives initially. One was to internalise the business in terms of internal coms, and the other was alignment in terms of staff, the cultural side. That has moved really well; it has been very positive. The business continues to grow and it is exceeding its corporate plan objectives in terms of its synergies and integration. So it is a healthy business. Telemedicine is the future of health. It will go beyond telephone and online into video. We have never seen so much tendering activity. We are so busy submitting tenders, both state and federal. There is lots of opportunity to grow the ability to reach Australians through virtual and online, so that business is well placed within Medibank. We have four million of our own customers. We want to service them in the chronic disease programs but also extend those services so that we are available for customers beyond the eight hours of a working day.

Senator CORMANN —Very good. Have you reviewed the government’s recent health reform announcement?

Mr Savvides —Yes, I have seen the announcement.

Senator CORMANN —What impact, if any, would it have on your health insurance business?

Mr Savvides —We are aware of commitments in the area of telemedicine. There are quite substantial commitments there. There are tenders actually being let right now. They are part of the planning process the department of health is undertaking to improve the effectiveness of every dollar they spend in health, and telemedicine will improve that. Later on, as broadband starts to become a larger experience in Australian households, the opportunity will grow even further to be able to service people directly in their own homes.

Senator CORMANN —Have you had any discussions with the government since the last election about a possible partial privatisation of Medibank Private?

Mr Savvides —No, I have not.

Senator CORMANN —No discussions at all?

Mr Savvides —It is not our agenda. Our job is to run the business to make it as—

Senator CORMANN —I am sure that you, like me, would have noted the small article on page 18 of the Financial Review back in November where there seemed to be a rather curious change of language from the government when it comes to public ownership of Medibank Private. The commitment now is to ‘majority public ownership’ You would have noted that at the time?

Mr Savvides —I actually do not recall that article.

Senator CORMANN —Is the health minister one of your two shareholder ministers?

Mr Savvides —No.

Senator CORMANN —Not any more; they used to be, though.

Mr Savvides —Yes, several years ago.

Senator Wong —It was to do with the conflict of interest that—

Senator CORMANN —Understood. I am intrigued then about the health minister commenting about the ownership arrangements of Medibank Private. Did she get it wrong, Minister, when she talked about the policy being majority public ownership?

Senator Wong —I do not recall the article to which you are referring.

Senator CORMANN —I am happy to share it with you.

Senator Wong —If you have an issue with the health minister, you should put it to the health minister. The government’s position in relation to the ownership of Medibank Private remains the same.

Senator CORMANN —When you say it remains the same, what is it?

Senator Wong —It remains the same, Senator.

Senator CORMANN —Yes, but what is it, what is the position?

Senator Wong —Government owned.

Senator CORMANN —Fully government owned?

Senator Wong —That is the position. There has been no change in policy, Senator.

Senator CORMANN —So the position is not for Medibank Private to be majority—

Senator Wong —I have just answered that question. As you have of Mr Savvides, you ask the same question—

Senator CORMANN —Given that the minister for health—

Senator Wong —I have not finished my response, Senator.

Senator CORMANN —Given that the minister for health—

Senator Wong —I have not finished my response, Senator. You continue to ask the same question.

Senator CORMANN —But you can get school-masterish with me!

Senator Wong —It is not school-ma’amish, and that is quite sexist, actually.

Senator CORMANN —School-masterish, is what I said.

CHAIR —Minister and Senator Cormann, can I just remind you that it is unhelpful for the chair and for Hansard when you speak over the top of witnesses. You put a question, Senator Cormann; the minister was in the process of answering the question. Can you please give witnesses the courtesy of allowing them to complete their answer? Minister, you have the call.

Senator Wong —Thank you. I would appreciate it, Senator, if you could accept the answers the witnesses give rather than continuing to ask the same question. The government’s position in relation to the ownership of Medibank Private remains the same.

Senator CORMANN —I thought the minister had previously concluded her answer so I certainly did not mean to interrupt you, Minister.

Senator FIFIELD —Governments sometimes have been known to change their mind on things.

Senator CORMANN —Indeed, Senator.

Senator FIFIELD —And not stick to policy.

CHAIR —Senator Cormann, you have the call.

Senator FIFIELD —At climate assemblies and things like that.

Senator CORMANN —Thank you, Madam Chair.

Senator Wong —I am sorry, I did not hear you, Senator Fifield.

Senator FIFIELD —At climate assemblies and things like that, things which—

Senator CORMANN —Carbon taxes, carbon taxes—

Senator Wong —Yes and they are announced.

CHAIR —Senator Cormann has the call. Senator Fifield, it is unhelpful to—

Senator Wong —Sorry, I should respond.

CHAIR —It is very unhelpful for people to continue to have cross-dialogue. Senator Cormann has the call. If any other member of the committee wants the call, can you please make me aware of it.

Senator CORMANN —Minister, you were very vague and cute in the way you were answering the question by saying that the position remained the same. I am trying to find out whether the position that remains the same is the position articulated by the Minister for Health and Ageing, which is that Medibank will be maintained as a majority public fund, or it is your position, which is, as I understand it, that it will be fully in public ownership.

Senator Wong —Senator, it has been some time since anybody called me cute.

Senator CORMANN —I am happy to be the first.

Senator FIFIELD —He was saying that this position was cute.

Senator RONALDSON —Point of order, Madam Chair.

CHAIR —Senator Ronaldson, your point of order is?

Senator RONALDSON —These things tend to be that the laughs stop but the record remains. I just want to make absolutely sure that that is a turn of phrase, that was not a reference to the minister.

Senator CORMANN —I was not referring to your looks.

Senator Wong —I do not know whether to be offended or pleased!

CHAIR —Can I just remind committee members to be mindful of the terminology and the language they use.

Senator CORMANN —I am just a humble immigrant, Madam Chair, so I cannot help that.

CHAIR —I am actually speaking, Senator Cormann. There was a point of order before the chair. There is no point of order, but I will remind committee members that if you use provocative language then you can expect the witnesses to respond accordingly.

Senator FIFIELD —Chair, just on the point of order: the phrase ‘too cute by half’ is a common expression, which relates to someone’s attitude.

CHAIR —The minister has the call.

Senator Wong —For the record, I was not offended.

Senator CORMANN —I am pleased.

Senator Wong —To help you out there.

Senator CORMANN —Because, far be it, I certainly would not want to offend you by referring to your comments as cute.

Senator Wong —There was no intention to be ‘too cute by half.’ I actually have not seen the article to which you refer, Senator. There has been no change in the government’s position.

Senator CORMANN —And the government’s position is?

Senator Wong —Full ownership of Medibank Private.

Senator CORMANN —Thank you very much for clarifying that for us, Minister. Mr Savvides, or Minister, are you able to share with us the current market value of Medibank Private?

Mr Savvides —I do not have that, Senator, no.

Senator CORMANN —Does the department of finance keep that figure?

Ms Mason —The department does undertake valuations of government business enterprises and they are included in the budget papers, although they tend to be rolled together, so not separately identified.

Senator CORMANN —Can you separately identify for us what is the current value of Medibank Private?

Ms Mason —No, Senator.

Senator CORMANN —Why not?

Ms Mason —I do not have that figure with me. We tend to include the valuations of government business enterprises together in the business papers rather than separately.

Senator CORMANN —You are telling me that you are not aware as to the market value of a major asset like Medibank Private, and there is nobody behind you who is able to bring that to you at the table to share that with us?

Ms Mason —We may have people who have an awareness of that figure but I do not think it is probably appropriate to disclose it separately. It is rolled up in the budget papers.

Senator CORMANN —Why is it not appropriate? What is the reason that that is not appropriate?

Ms Mason —The budget papers include a level of disclosure which is acceptable to the Australian National Audit Office and I think that is as far as we want to go in the government’s disclosure of business enterprises.

Senator CORMANN —Ms Mason, the reason we have Senate estimates is so that we can dig beyond what is published in the budget papers. The whole purpose of this process is to go into more detail than what is there. I am asking you the question: what is the current value of Medibank Private?

Senator Wong —We will take that on notice. There may be issues around disaggregating those figures which I would like to consider. I will take it on notice and consider your request.

Senator MOORE —Mr Savvides, I am interested to know the impact on your staff and locations of the floods and other disasters—I should say other disasters generally because there have been so many. I would imagine with your network there has been some impact, both infrastructure and personal. Could you give us some idea of that and how the organisation is coping with that?

Mr Savvides —It was quite a troubling period of time over January as we basically were engaged with trying to keep our operations going and looking after staff and customers. We did lose some facilities, such as in Toowoomba and on the northern coast of Queensland.

Senator MOORE —I was pretty sure Toowoomba had gone from that location, yes.

Mr Savvides —Yes, it was in the shopping mall and it was recovered quickly—we are on the first floor. Everything is back and operating. In fact, our disaster recovery activity and our business continuity plan worked like a charm, with cooperation with other service providers like Telstra, IBM and others. The business got up and running quickly. Some staff lost homes and the company internally has provided assistance and financial aid to staff members.

I do appreciate the senators giving me some time this morning to come here rather than this afternoon when I was originally scheduled, because today and tomorrow I am meeting all of our staff up in Queensland. I am just doing a bit of travelling and getting around to those locations to catch up. We have staff who had neighbours who were drowned, and it has been quite an impactful time. We issued $200 coupons to all of our staff in Queensland and we trusted them to do the right thing with them. Those in need of the money used it obviously for their families; others donated to their colleagues who were actually deeply impacted. It was terrific to see the spirit of care and friendship amongst our organisation up there.

In terms of the broader community, we made a contribution to the Premier’s Disaster Relief Appeal Fund of a quarter of a million dollars. Within a 48-hour period, our nurse triage facility put together a dedicated line to support the nurse on call, the 1300 number for assistance in Queensland for Queensland Health. We backed them up with our own facilities in nurse triage. We also provided assistance to members who were financially impacted by the floods and could not pay their premiums. We sought a special concession from the Private Health Insurance Act 2007. The department of health granted that and we were able to give people relief from having to pay premiums and not lose their cover until they were able to come back and financially support themselves through cover again. So it has been quite a broad base.

We are investigating in Victoria at the moment whether we can provide some assistance there in the impacted areas in Victoria. Overall, the organisation responded fairly well. I am told from those who understand this sort of impact in terms of trauma that it is actually the months ahead that will bear some of the challenges for people. We will connect ourselves on the ground to make sure that, both for the staff and the community, where there is an opportunity for us to offer assistance we will.

Senator MOORE —I just wanted to get some of that on record for the Senate process but, on notice, is the department going to be doing some kind of a report? I am particularly interested in the way the disaster plan kicked in and how computers and the interaction with the other networks locally operated. Is it possible to get a bit of a report for the committee just generally on the way that the organisation was impacted and the various steps that were taken to look at it?

Mr Savvides —I would be delighted to do that, Senator. I will compile the report and send it.

Senator MOORE —Also, the particular impact of the use of the legislation to provide some help for people with their premiums and how that is going to operate. Is it going to be reviewed at certain dates? I will not go into all that detail now, but if we could get that on notice that would be great.

Mr Savvides —I would be happy to do that. On the relief, it actually is capitated so when the money runs out it does not continue. At the moment we are working within the consented cap that was given. We also did the same thing in Victoria when the bushfires hit some of those villages in the Yarra Valley; we provided the same kind of relief then. It was so much easier this time because it was a procedure that we had undertaken before with the Department of Health and Ageing.

CHAIR —There are no further questions. Thank you, Mr Savvides, we will see you next time.

[9.30 am]