Medibank Private Ltd

CHAIR: I welcome back the Minister for Finance and Deregulation, Senator Wong. I also welcome Mr George Savvides, the managing director, and other officers of Medibank Private. Before we go any further, however, there were a couple of issues arising out of some questions in relation to non-certified returns of management reports. We have now here a list which has been provided to the committee for tabling. Does the committee agree? It is resolved that we accept that as a tabled document. There is just one more matter—that is, when we recommence at 1.30 after the lunch break, we will be having a private meeting to deal with some issues.

Sorry about that, Mr Savvides. Would you like to make an opening statement?

Mr Savvides : My opening statement is just a summary of what has been happening since our last estimates. Quite a few things have been happening—the MyHealth integrated offering of health insurance and health advice and services has been completed. The national rollout has just gone live in Victoria and New South Wales, so now 100 per cent of Medibank's hospital plan holders have access to a 24-hour health advice line, in-hospital servicing and a hub of health information. They also have digital access to the fund—claiming online and through mobile devices. So we are really excited about that. It is a good time for us to be rolling out this new program of health benefits through the fund.

We have just successfully completed the merger of the AHM and Medibank funds. PHIAC has approved the merger and a lot of work has gone on between the regulator and Medibank to put that in place. That will produce a more efficient aggregation of our capital, but we will retain the distinct brands of AHM and Medibank in the marketplace. It has not affected staff or the commitments we have made to policyholders.

Just last month, we also rolled out the GP after-hours service, a contract that we have through NHCCN to provide 24-hour GP services through telehealth. That went into Victoria just last month, so we have gone nearly across Australia now. That GP service links with our nurse triage service and, again, it has been well received. A couple of hundred doctors now work for the organisation in providing that service to Australians. In April, we launched our reconciliation action plan with a program to provide a meaningful contribution to improving the health of Aboriginal and Torres Strait Islander peoples. Our staff will work through that plan to develop better health solutions for our Indigenous communities and we are looking forward to engaging our staff in that solution process.

It is coming up to winter, and we are recruiting over 400 people at the moment as we build up staffing levels for the various services that we provide in the health contracts that we have, so the business continues to grow and we are very pleased about that.

We have now communicated with all our policyholders about the rate change and have begun rolling out communications about the impact of the means-testing for those who are on incomes above the thresholds. I think a million and a half policyholders have received some communication in the last couple of weeks. We have not been receiving a lot of inquiries over the phone. It has been quite quiet, but we would expect that there are those who would want to prepay prior to 30 June so it will start to get busy in the next few weeks.

Finally, I turn to our joint-venture activity with NEHTA, IBM and the Department of Health and Ageing on the development of a health record. We are one of the wave participants in that program and we are starting to enrol the first 1,000 members in the use of that health record as part of our phase pilot, and it will go live to our whole membership over the next few years. We are really pleased that the construction of the health record for consumers has been successfully completed and we are now going live as we roll it out to test functionality, test user interface and provide some more tweaking before we go to the full membership. That is the summary of what has been happening.

CHAIR: Thank you very much.

Senator CORMANN: Welcome back, Mr Savvides. I want to go through some numbers upfront. Can you share with us how your membership numbers have been tracking?

Mr Savvides : We continue to grow our membership by around a couple of percent a year. We are losing a little bit of share on a quarter-by-quarter basis, but our membership continues to grow. The major influence on our slippage is the impact of aggregators, the likes of iSelect and other online service operators who are offering products through that channel.

Senator CORMANN: Is that across both hospital and ancillary cover, or is there a differentiation in terms of membership trends?

Mr Savvides : I think it is probably more so in hospital than in ancillaries.

Senator CORMANN: You grow more strongly in hospital than in ancillary?

Mr Savvides : The other way around.

Senator CORMANN: So you have more slippage in hospital than in ancillary?

Mr Savvides : Yes.

Senator CORMANN: How is your profitability tracking?

Mr Savvides : To plan.

Senator CORMANN: What does that mean?

Mr Savvides : We have a plan for the year and we try to achieve the plan.

Senator CORMANN: So you are right on target?

Mr Savvides : Close enough to it for me to be reasonably happy.

Senator CORMANN: So is it slightly below or slightly above?

Mr Savvides : It is sort of an action item. We do not normally disclose our actual performance before we close our books for the year and publish our results through the parliament.

Senator CORMANN: What are your current reserves?

Mr Savvides : Was that the question that you asked at the last hearings?

Senator CORMANN: Yes, it was a question on notice last time.

Mr Savvides : We provided that answer on—

Senator CORMANN: That was $2 billion on 30 June 2011. Do you have an updated figure?

Mr Savvides : No I do not have an updated figure. I will take that on notice. It moves around as the cash flows in the business move.

Senator CORMANN: Have you had any discussions with government about this year's dividends?

Mr Savvides : We recommend dividends to the shareholder minister and they are approved, and we pay them as that has occurred in the cycle of dividend payments.

Senator CORMANN: You sent a letter of clarification after evidence at the last estimates that there is no payout ratio for dividends but that they are mutually agreed annually. Last time we discussed a third, a third, a third.

Mr Savvides : Yes.

Senator CORMANN: Has that happened? Have you agreed that dividend?

Mr Savvides : Absolutely—with the department of finance when we develop our rolling plans going forward. We also have an agreement that takes place around the payout ratio.

Senator CORMANN: Is that something that is public?

Mr Savvides : No, it is not public.

Senator CORMANN: You have told us in the past what your annual ordinary dividends were. How are your annual ordinary dividends tracking? What is the most recently available information that you can share with us?

Mr Savvides : The most recent one was the 60 per cent payout ratio.

Senator CORMANN: That is 60 per cent of profits going into tax and dividends? What do you mean by a 60 per cent payout ratio?

Mr Savvides : Profit after tax. The net amount, 60 per cent of that, is then paid out as a dividend to shareholders.

Senator CORMANN: 60 per cent of the—

Mr Savvides : Post tax.

Senator CORMANN: Profit post tax is the annual ordinary dividend?

Mr Savvides : Correct.

Senator CORMANN: Has that been stable at that level for the whole period that you have been paying ordinary dividends or has that been moving around?

Mr Savvides : Our original round of dividends several years ago was at a 50 per cent payout ratio.

Senator CORMANN: So the payout ratio has been going up?

Mr Savvides : Consistent with other GBEs, we have complied to the benchmarking of returns.

Senator CORMANN: How does that impact on Medibank Private?

Mr Savvides : It does not impact on any of the operational areas.

Senator CORMANN: What is a change in the ratio from 50 to 60 per cent on an annual basis, on average, in dollar terms?

Mr Savvides : It could be $10 million, that difference. It is quite a small number compared to the outlays that the fund pays.

Senator CORMANN: I note that Medibank was not one of the government trading enterprises that has to provide a special dividend this time around. Have you had any discussions with government about future special dividends?

Mr Savvides : We do not release any of our discussions about the payout. The board basically takes the view that we review the dividend question when they fall due for review and then make a recommendation at that point.

Senator CORMANN: Has there been any approach about payment of a special dividend by government?

Mr Savvides : You are asking me to disclose a process that is a confidential process. It might be better to ask the department that question.

Senator CORMANN: Do I take that as a yes? Has the department approached Medibank Private for consideration of a special dividend?

Ms Hall : As you are aware, the department undertook a review recently of Medibank in response to a request by the board to review its capital policy. As a part of that review, a number of matters were considered as we have discussed with the committee previously. The review looked at issues around Medibank's corporate plans, its business strategies, its performance and its governance arrangements, and that included its capital structure. That was the Deloitte review.

Senator CORMANN: I have some questions on the Deloitte review. What were the findings of that review on the capital structure?

Ms Hall : The findings of the review are confidential of government and were shared with the Medibank board and the Medibank board is considering those in the context of its corporate planning process.

Senator CORMANN: It is a matter of public interest as to whether the government in general terms, without going to the specifics, is of the view that Medibank's capital reserves are too high or too low. You have to give us an indication as to whether the government is likely to draw on Medibank's reserves by way of special dividends as a result of that review.

Ms Hall : As Mr Savvides indicated, dialogues with Medibank and with other GBEs for that matter about the capital structure are ongoing. They occur on an annual basis. That is in accordance with the governance framework that is applicable to all GBEs. Consideration around dividend payout ratios and dividend policy for particular GBEs takes into account the capital structure at the time the entities need for reinvestment of capital and the history of the dividend payouts.

Senator CORMANN: Sure.

Senator Wong: I have just had a brief discussion with Mr Savvides. I am sure Mr Savvides' competitors would like more information about his capital structure. I am happy to consider some of the issues and have the discussion with Mr Savvides or the chair about what would reasonably be disclosed in a way that would not potentially prejudice Medibank's commercial interest. Do you want to iterate the issues you would like responded to and perhaps we can go away and look at those on notice and have a think about what we think we can properly provide the committee?

Senator CORMANN: Thank you, Minister. Ms Hall, as you said there is the regular process to consider what dividend payments are appropriate, but then of course there has been a more specific process this time around in the context of the Deloitte review. Minister, the capital structure of Medibank is on the public record because we know that at 30 June 2011 Medibank had $2 billion in reserve. The capital adequacy requirements from the regulator are publicly available information. It is publicly available for all funds, so there are no commercial in-confidence issues in relation to those matters. We have previously discussed at this committee the buffer the Medibank board in the past thought was prudent to have in place above the minimum prudential requirements.

Given that Medibank is in public ownership, the public deserves to know whether the government's view now—following this Deloitte review—is that Medibank's capital is too high or too low, and what the implications are in terms of further draw-downs of that capital by government through special dividends. While you may not want to give us specific numbers at this point—until you are able to make an announcement—I want to know is whether, as a result of the review, there is an intention to further draw-down Medibank's capital by the shareholder by virtual of special dividends?

Senator Wong: I am certainly not going to talk about intentions.

Senator CORMANN: You have made some judgments, presumably, as a result that.

Senator Wong: I am not going to talk about what our intention might or might not be and you would not expect me to.

Senator CORMANN: I would expect you to say what your intentions are—absolutely.

Senator Wong: No, you would not. I am not going to talk about what we might do.

Senator CORMANN: No. I am not asking what you might do; I am asking you what decisions have been made and what the outcomes of the review are. Obviously, there has been a review which has now reported. When did that review conclude, by the way?

Ms Hall : The contract with Deloitte is concluding in June. The report was provided to government in October 2011, and the Medibank board responded to the findings of the report in February 2012.

Senator CORMANN: Has the government considered the Deloitte report and made judgments and decisions in relation to the Deloitte report recommendations?

Ms Hall : The government has considered the report.

Senator CORMANN: Has the government made decisions on how to deal with the findings and recommendations out of the Deloitte report?

Senator Wong: Informed—

Senator CORMANN: I just saw a note from Ms Hall.

Senator Wong: I think the better way of responding—she can answer as she wishes but it seems to me the accurate way—would be to say it has informed the shareholder's dialogue with Medibank on a range of issues, including some of the capital structure issues that you have described. That would be reasonable.

Senator CORMANN: What decisions, if any, has the government made in terms of its approach to Medibank Private's capital structure as a result of the Deloitte review?

Senator WONG: That requires us to talk about where Medibank has gone with a corporate plan. This is why I made an offer; I was not trying to be difficult, Senator. I was genuinely saying that I am happy if you put these on notice and we will go away and work out what we think is able to be provided to the committee that is not going to cause Mr Savvides or the board any problems in terms of disclosing commercially sensitive information.

Senator CORMANN: Is it intended that the Deloitte review findings be publicly released?

Ms Hall : No, Senator.

Senator CORMANN: So they will remain in the rack?

Ms Hall : As the minister has indicated, there is a lot of material in the Deloitte report which, if made available publicly, could prejudice Medibank's commercial interests.

Senator CORMANN: I accept that. Does the government intend to, at some point, make a formal, public response about what the government's approach to Medibank is going to be as a result of the findings and recommendations in the Deloitte review? And, if so, when?

Ms Hall : As the minister has indicated, these types of reviews are something that we do in the ordinary course of the shareholder work. The usual process that is adopted in this context is that the government seeks independent advice and then works with the entity to get a response from the entity which, in the case of many of these, involves the entity taking that into consideration in formulating their corporate plan and providing that to government. In terms of the government formally responding, that is, and has been in this case, through the provision of the final report to the company and asking the company to take that into consideration in forming its corporate plan.

Senator CORMANN: Sure, but the thing is—and I am not meaning to be difficult; it is a genuine enquiry—you have had a review which looked at the capital structure of Medibank and a series of other things. You are now going to have a whole series of changes potentially rolling out over the next couple of months outside of any strategic context. Surely if you are going to do a strategic review, like the one that was done through Deloitte, that is going to have implications for a significant Commonwealth-owned organisation then the public deserves to at least get a flavour of where the government is planning to go with this.

Senator WONG: If there were any significant policy decisions of course we would. Perhaps Ms Mason can go through it again. I think you might be treating the Deloitte report as something very unusual.

Senator CORMANN: No, not very unusual.

Senator WONG: In terms of GBEs, this is reasonably normal practice. In the ongoing annual process—obviously it is more often than that for the department—of considering corporate plans and so forth, you would anticipate that from time to time Finance would get external advice to inform that process.

Ms Mason : That is correct and, Senator, I think you suggested these things were done outside of a strategic context.

Senator CORMANN: No, I did not say that

Ms Mason : I apologise; I misheard, then. It is not done outside of a strategic context, it is done—

Senator CORMANN: I would say the public does not understand the strategic context.

Ms Mason : It is done in the context of developing the corporate plan. The Deloitte review was one input to that process. It was commissioned by the department as independent advice to assist the government but it was also provided to the company so that it could consider it in the formulation of the corporate plan.

Senator CORMANN: The issue here of course—and you have got to look at this in the context of the discussions we have had in the past—is that Medibank Private used to be a not-for-profit, government-owned enterprise. At some point it changed into a for-profit where it had to pay tax and dividends. Not only does Medibank now pay ordinary dividends; they have in the past been required to pay $300,000,000 as a special dividend. Over the years Medibank has built up capital reserves on the back of premiums that were obviously generated by its membership. I think that there is a legitimate public interest here that if the government is considering changes to the capital structure of Medibank which potentially involve further special dividend payments, because the government might have come to the view as a result of the Deloitte review that Medibank's capital reserves are too high, then I think that it is quite appropriate for the public and for the members of Medibank to be aware of that. What I was talking about, in terms of the strategic context, was that you might be operating within a strategic context but unless you share it with people across Australia then they might not understand why certain decisions are going to be made. That is why I am putting it to the minister. She might want to consider whether, at some point in the next little while, there would be some sort of statement from government as to what its intentions are. I will leave it there.

Senator Wong: Okay. I cannot agree with everything you have put to me but I will certainly consider—

Senator CORMANN: Sure; I do not expect you to.

Senator Wong: I will certainly consider some of those propositions.

Senator CORMANN: I will move on to the rebate change implementation. When do you expect to see the impact of the government's decision to scrap the rebate for some of your members and reduce it for others? When do you expect that to flow through to your membership?

Mr Savvides : It is effective from 1 July 2012. We have communicated now to all members about introduction of the changes and informing them of the impact of that for them and how they can talk to us about considering other ways of dealing with the costs that come that way for those who have the full increase of the premium, also noting that the Medicare levy surcharge is a consequential impact if they choose to leave the products. We do not want people leaving and then finding they have to pay more tax. I know the tax office has just given out some communication—that is helpful because it means the advisers and others who play in that sector in advisory roles in income tax returns are now better informed. Websites, retail branches and whatever are out there to help customers. We do not know the income of our customers, but around 20 per cent will have some impact as a result of the rebate changes, and we will be working with them to help them understand that and help them with choices that they need to make.

Senator CORMANN: How will that work in practice, though, because in the past you would have offered to your membership to just charge the premium minus the 30 per cent across the board? How will that now work in practice moving forward?

Mr Savvides : People will estimate their income and select the rebate that they are entitled to based on that income if they are in the gradient between zero change and a full loss of the rebate. If they are in arrears and assess that they got that slightly wrong—their income might have been a bit higher or a bit lower—they can make that adjustment in their year-end returns.

Senator CORMANN: Okay. So you get 100 per cent of the premium. For people who get the 30 per cent rebate, do you get that rebate from the tax office? How do you get the 30 per cent that people do not pay at the moment.

Mr Savvides : The way it works is that the member pays the net of the rebate.

Senator CORMANN: That is right, so how do you get the 30 per cent?

Mr Savvides : This happens through the relationship we have with Medicare and the way that that system operates.

Senator CORMANN: Medicare?

Mr Savvides : The person nominates their rebate entitlement—

Senator CORMANN: Let us just stick to this financial year. A member pays you the net amount—that is, the 70 per cent rather than the 100 per cent. How do you currently get your 30 per cent to make sure that you get the full premium?

Mr Savvides : We claim every month the entitlement from Medicare, our relationship that reimburses that every month.

Senator CORMANN: And that is the same for every fund?

Mr Savvides : Yes.

Senator CORMANN: Okay. So how is that going to happen? After 1 July 2012, if somebody thinks they are entitled to a 30 per cent rebate and they nominate to pay the 70 per cent and you claim it back and they get it wrong, what happens?

Mr Savvides : Then we have to make the adjustment when it is—

Senator CORMANN: Where is the adjustment made?

Mr Savvides : You are getting into the detail.

Senator CORMANN: That is because I am trying to understand the complexity of the arrangements.

Mr Savvides : I will have to take it on notice and come back with a—

Senator CORMANN: What is the cost of administering all of that side of it?

Mr Savvides : The front end of our servicing costs as a company would be probably 25 per cent—

Senator CORMANN: More specifically, what is the cost of administering the means-testing? Have you quantified that cost?

Mr Savvides : No, I would not have that in my mind. I will have to take that on notice.

Senator CORMANN: But presumably that is something that you would have done as a business—to cost the administration of the actual mean-testing.

Mr Savvides : Infrastructure does not change. Most of this is hard-wired. It would be in our systems.

Senator CORMANN: Except that you would have a bit of a backwards and forwards situation, wouldn't you?

Mr Savvides : Yes, there may be some extra call load. Remember, it is in our interests to have quite a deep dialogue with our customers.

Senator CORMANN: To up-sell, is it?

Mr Savvides : Some of them may want to change the policies they are on to afford the premium. We need to have a conversation to make sure they do not put themselves into a policy that will not cover their needs.

Senator CORMANN: The government is helping you have more calls, which then increases the opportunity to add value to your members?

Mr Savvides : There is nothing wrong with that—to add value.

Senator CORMANN: Will all your members be subject to the means-testing in practice as of 1 July 2012 or is there some delay in the way that eventually flows through?

Mr Savvides : I do not understand your question.

Senator CORMANN: I am sure you do understand. For example, are members able to advance purchase in order to avoid the means-testing?

Mr Savvides : Okay—the prepayment. Yes, we have communicated to members that it is absolutely legitimate. We have had this checked with the department of health and the ATO, that if individuals or members choose to pay in advance prior to June 30 they can pay up to 18 months in advance.

Senator CORMANN: That is until 31 December 2013?

Mr Savvides : Yes. The way the legislation is written, whatever you have prepaid up until 1 July this year, whatever you have prepaid, is under the old rules. You would be entitled to the 30 per cent rebate irrespective of your income. Those who can afford to prepay, that is obviously a lump sum, they will get the benefit of not having that rebate lost for at least the period of the prepayment.

Senator CORMANN: How many people have taken that opportunity?

Mr Savvides : Very, very few at this point. But the communication is going out right now, so it is quite fresh.

Senator CORMANN: Have you got an expectation as to the sort of percentage?

Mr Savvides : No, it is actually the $64 question in the office—how many people will choose to pay in advance. We will just have to monitor that going through. Not everybody will prepay the same amount of prepayment. Some will choose six months, some will quarter; it is whatever they can afford.

Senator CORMANN: You say you have not had many inquiries since starting to communicate about the changes. Out of the inquiries that you have had, what has been your observation as an organisation on the level of inquiries about downgrading cover?

Mr Savvides : It has been light, but we have captured the comments and queries around changes. They tend to be second-order questions. People are calling for a primary reason being, 'I'm making an inquiry around the rate change that has just gone through' or about the MyHealth communication—there is a lot of other communications that are going out at the same time. We pick up side-stream comments in the conversations, as part of market empathy. There is a second-tier conversation about what will these changes mean. We use that as an opportunity to inform the member of the changing arrangements around the rebate. That all has been reflected in printed matter that has gone to every policyholder.

Senator CORMANN: Have you made any changes to your products to meet the markets in response to rebate changes?

Mr Savvides : Only in the sense that, in a coincidence, we have released the MyHealth product portfolio over the period of all of these changes. We are really pleased that we have been able to invest in significantly more value for customers in the hospital plans. These are all plans, not just top end. All hospital plans have the MyHealth benefit. At least we have a much richer value conversation at this time of change to offset some of the concerns that the proportion of the members who are affected by the means-testing of the rebate might have around costs. We are pleased that they are coincident. I was just in Martin Place yesterday talking to our staff, just popped in to say, 'Hi,' just to get a temporary check. People are buzzing, because we are out there promoting our products at the moment and people are interested ,and also asking questions around the means-testing so that they understand what they have to pay.

Senator CORMANN: They are asking questions about the means-testing?

Mr Savvides : Yes. But I was really pleased to see a positive culture in the major retail centre. Martin Place, our largest retail sector.

Senator CORMANN: Sure, that is your employees, but what, are people saying, 'Yeah, we have got to pay more for health insurance?'

Mr Savvides : The customers were there too..

Senator CORMANN: Are people saying, 'We are so pleased that we no longer get the 30 per cent rebate?'

Mr Savvides : No, they are certainly not saying that.

Senator CORMANN: Have you received criticism?

Mr Savvides : I must say that it is light, but we are likely to go into the more intense period right now as we go through June, also, I suspect, July and August as people realise the changes more materially. There may be some regret that some did not pay in advance, but we are hoping that we have communicated effectively to everyone.

Senator CORMANN: Going back to the administration of the means-testing of the rebate, have you finalised all of the system and operational requirements with the ATO and other government departments?

Mr Savvides : I remember approving an IT project in the middle of last year which produced the changes to our software that administers the health plans in our retail and call centre environment, and that was finished in advance of the rollout. So we are system ready.

Senator CORMANN: So people have to self-select whether they think they are entitled to 30, 20, 10 or none, and they tell you. What is the default position if they do not tell you?

Mr Savvides : Remember, we do not have a relationship with health plan members that is around income.

Senator CORMANN: Sure, I understand that, but you have to know how much you charge and whether you charge them 70, 80, 90 or 100 per cent of the premium. Presumably you make that judgment based on the communication to you from the member.

Mr Savvides : The member makes their own assessment of what they earn and then they ask us, 'On this level of income what is our rebate entitlement?' Then we go through the product suite.

Senator CORMANN: You say 20 per cent of your membership is going to be affected by this. What is your membership right now?

Mr Savvides : There are 1½ million policies out there which cover families and singles.

Senator CORMANN: So that is 300,000 policies, roughly. What is your experience, when there are changes, as to how good people are with making the phone calls and sending in the letters or forms?

Mr Savvides : I think I will be better informed in November to answer that question.

Senator CORMANN: Sure, and we will explore that then, but it is a fair bet, isn't it, that not everybody will be as fastidious, as well organised, as they should be in communicating back to Medibank what their arrangements are likely to be? The question is, if somebody fails to communicate with Medibank about what their expected could/should be, what is going to be your default position? How do you judge how much you charge an individual member who has not communicated with you?

Mr Savvides : We will assume that people have chosen the product that is appropriate. It is the individual who is responsible for their tax position and the eligibility they have for benefits, so we will not be outbound calling to find people to scrub the entire customer base and coach them into making—

Senator CORMANN: Okay, but you, Medibank, have to make a judgment. I understand it is the responsibility of the member to make a judgment as to where they fit but if the member does not communicate to you then you have to make a judgment as to whether you are going to charge them 70, 80, 90 or 100 per cent of the premium.

Mr Savvides : It is business as usual.

Senator CORMANN: So you would charge them 70 per cent?

Mr Savvides : Yes.

Senator CORMANN: Then down the track, if it becomes apparent that the revenue was too high to get the 30 per cent rebate, then what?

Mr Savvides : The obligation sits with the individual. They do their tax return.

Senator CORMANN: When does that resolve itself, though? That is presumably 18 months or two years later.

Mr Savvides : Could be, yes. As they determine whether they have received too much rebate in the light of disclosing their income for that particular year their adviser is likely to say that they have to offset—

Senator CORMANN: Do they then have to pay you back more, or do you do that and pay the tax office?

Mr Savvides : That process of reconciling our receipt of the net premium—net of rebate—and their late travelling is a reconciliation process that we have to enter into with the funding authority.

Senator CORMANN: But in the meantime you have received the 30 per cent rebate. It becomes apparent to the tax office that that person has—

Mr Savvides : No, there must be a reconciliation process in order to—

Senator CORMANN: So does the ATO essentially give you an advance, assuming that what you are assuming is right, and then go after the taxpayer two years later?

Mr Savvides : You obviously know the industry very well from your background so all I can say to you is I will have to take that on notice. They are absolutely excellent questions about how we reconcile the difference between an overclaim on rebate, our position with the funding authority and our position with the tax office. I will bring that back to you and hopefully provide it in a much clearer response than what I have just given you.

Senator CORMANN: Thank you very much for that.

Senator MOORE: My first question is about your Indigenous health strategy. I saw the media release about that, which is really positive. Then you went on in your presentation to talk about the fact that you are on a recruitment drive at the moment. I am interested to know what your current Aboriginal and Islander staff member numbers are, whether you have a core number and whether there is part of your recruitment strategy linked to your new Indigenous health strategy that looks at employing Aboriginal and Islander people.

Mr Savvides : The plan itself requires us to go and find that information, so we do not have it yet. In fact, we are running four payroll systems at the moment because of the acquisitions of the business in the last four years. They are all being renewed into a single platform. So identification in terms of Indigenous and Torres Strait Islander people is not in our workforce data at all, which is not good, but it is not there. Right in the middle of that reconciliation action plan is to lift that information and make it known so that, in a constructive way, we can make sure that the services we provide for our employees, the ability to recruit and have that kind of spread of source of employee in our employment group, is pursued in a strategic and intentional way rather than what we have now, which is quite passive. That is part of our plan, to get intentional about this.

We do a lot of work in the north-west with the mining sector and we are significant to a clinic up in Karratha. Again, we will be exploring ways where the resources that we have there as a corporate are looked at in a way where we can see how we can leverage them and provide services to neighbouring communities and work with, for example, WA Rural Health and others to see where we can come together and come up with some plans. We also have some interests within our staff to volunteer into this area. That is part of our leadership development work.

Senator MOORE: And working with Indigenous health services, which are the core areas. So part of the plan will be to identify your current staff and then also to look at a recruitment strategy as required into the future—

Mr Savvides : Yes, and be intentional about it.

Senator MOORE: particularly in places like North Queensland and the Northern Territory, where I would imagine you would have a particular client group.

Mr Savvides : Also, there is substantial contract business that we are pursuing to provide services for state and territory governments. To be able to respond effectively to those contracts, we have to be resourced appropriately in terms of people and staffing. The reconciliation action plan is not only, I think, a worthy cause; it is also a better way of doing business for us, given where the business is.

Senator MOORE: I saw that you actually drew the strategy together with someone from Reconciliation Australia as well.

Mr Savvides : They were great; they were really helpful. There were a couple of other corporates who had gone through the journey ahead of us, and the staff that had been involved in producing their plans also assisted us, so it has been really positive. When we launched it, we had a lot of our own staff at the docklands look in to the launch, and I was surprised by the amount of staff interest in the process.

Senator MOORE: If you do not have data on people who identify as Aboriginal or Islander, you have data across those four personnel or HR systems on other people, in terms of people with disabilities, people from non-English-speaking backgrounds. Is that going to be a standard process across your new HR system?

Mr Savvides : Yes, the platform that we are investing in has that sophistication. Our legacy platforms do not, so the acquisitions were the trigger point to say 'we have to treat all of our staff consistently'. So payroll systems, which are also human resource systems, needed to come up to speed. That project was committed to about a year ago, and we had the contractors on board and payroll processes are now under reconstruction.

Senator MOORE: And what is the time frame for that?

Mr Savvides : That is a good question.

Senator MOORE: You can take it on notice if you like.

Mr Savvides : Yes, I will take that. It is a year-plus away. It is a large project.

Senator MOORE: Also, your 24/7 hotline, which you opened with today—do you maintain statistics on that?

Mr Savvides : Yes, we do. We are watching it like a hawk, because it has cost us money and we want to see whether it actually creates a difference. We know that the customer service measure for the service, the net promoter score, is exceptionally high, much higher than you would expect to get for a health insurance company. The feedback is much more 'essential service', 'valued', 'highly valued', 'really appreciated'. It is not the kind of thing you would normally say about your health insurer, so we are really pleased that it has moved the indicator into a new range.

Senator MOORE: Will those stats go to the board or will they be made public? For instance, if we wanted to know about the kinds of calls that were coming from regional Queensland, which would be of interest to me, is there a way for us to find that out?

Mr Savvides : Yes, we can find a call code analysis that says, for example, 'For every 100 calls, 20 of them are for this particular kind of treatment or question.' We can provide a mix which could go in a public statement.

Senator MOORE: It will be interesting in the future to ask you about that so I will probably make a note for future estimates.

Mr Savvides : I will capture that.

Senator MOORE: As you know, I am a member and I always identify that. I have not got my letter yet, just so you know. I am looking forward to getting that so I will put that on record. I have been interested in the comments in the media recently about the issue of privatisation of the whole business and we have had these discussions here. Has the issue of privatisation come more into the public area now?

Mr Savvides : I think there are a bunch of investment banks that are getting excited about an idea. The market must be pretty scarce at the moment for their activity, as we know it is. I engage with several of the investment banks on an annual basis. They run conferences for the health care sector and I am a speaker at their conference, along with CEOs from other health organisations. They are not all listed. The purpose of those conferences is that investors look at the sector, and there are a few companies that they can invest in that are listed—CSL, Ramsays and others. They get an appreciation of the sector—where it is going—and then they are better informed. I am a contributor to informing sector dynamics, if you like. Those relationships are often the ones alluded to in the press about privatisation. The relations are not there about privatisation. They are there because we are commentators about our role in the broader health sector.

Senator MOORE: Was the AAP coverage of the business lunch in April this year one of those?

Mr Savvides : Yes. That was an American Chamber of Commerce in Australia lunch. I was talking about the transformation of the company. A sound bite got taken out but they did not talk about the total sentence. The total sentence was that the company has flourished in the last seven or eight years. I have been there about 10½ years. That has happened all under the government business enterprise equity model. I cannot blame being a government enterprise as something that has held the company back. It has actually had an exciting period of growth. I then went on to say that it has other options in the future and it is not my call; it is the owners call. It is not my prerogative to make that call.

Senator MOORE: The sound bite that there is a time for every child to leave the home was an interesting one. Can you tell me a little bit about what that means in that context.

Mr Savvides : There may be a time for this company to be under a different capital structure. But it is not my call.

Senator MOORE: Whose call is it?

Mr Savvides : The owner—the government of the day and the department that advises us.

Senator MOORE: You explained that you had this as a matter of general discussion at the business lunches. Had there been any discussions internally within the business around the issues of privatisation?

Mr Savvides : No, we had to stay focused on running the business. Being distracted on some hypothetical is a silly idea. Bear in mind, however, that under the previous government Medibank was slated for sale. The company did have to start planning that process—the development of documentation, a prospectus et cetera. It is not something that we have not been asked to prepare for before. It is certainly in our memory. But with different policy—the government wants to retain Medibank—we have a job to do and hopefully you can see that the job we are doing is one that creates value.

Senator MOORE: Do you remember the inquiries we had on that legislation—I think in this same room?

Mr Savvides : Yes, that is right.

Senator MOORE: The file is still there on privatisation, within the business, tucked away marked 2000 and—

Mr Savvides : It was 2007 I think.

Senator MOORE: A 2007 file—privatisation of business?

Mr Savvides : Yes. And the preparation work is probably in a big box but the numbers would be pretty stale, I suspect.

Senator MOORE: Have there been any discussions with any parliamentarians about issues around possible privatisation into the future.

Mr Savvides : I have a lot of conversations with parliamentarians. I try to make myself available when they want to ask questions about a GBE. And some of them do ask questions about a sale.

Senator MOORE: In the coverage of the AAP business lunch, which I am sure you have read in detail, it says that taxpayers were examining Medibank's mandate and questioning why the government owned the business. Is that the kind of conversation taxpayers actually have with you?

Mr Savvides : It is not my statement. I did not say that. Somebody must have said that. Is it the author?

Senator MOORE: It is certainly attributed to you, Mr Savvides.

Mr Savvides : I did not say that.

Senator MOORE: It is a good way of finding out.

Mr Savvides : It is. I am glad you raised that. I can put it on the record.

Senator MOORE: It is there in the media release which actually flows on, so I am fascinated. I read your website, so you people can know that, and I frequently ask questions on the website. I look at them. We went through the tax rebate and how that works and that is listed as a frequently asked question. I did not see anything there that talked about whether Medibank Private should be privatised or not. It is not a question that you are asked regularly?

Mr Savvides : No. It does pop up from time to time, but it is not a regular question.

Senator MOORE: So it is not asked.

Mr Savvides : The most regular question is around the dynamics of the marketplace, how we are travelling—products, sales, market share et cetera.

Senator MOORE: The last thing is the electronic health trial rollout.

Mr Savvides : Yes.

Senator MOORE: Now, the process for that is not on the website; it does not give any information about that.

Mr Savvides : That is correct.

Senator MOORE: Can we get some information about that trial in terms of how it is operating? I know you have a number of trials in the early days to see how it works. I am really interested in linking into the electronic health records that we have.

Mr Savvides : Yes. It is a joint collaborative development with NEHTA and the department of health. We have put a considerable amount of dollars into that JV, and we built the product to the specs and it absolutely works. It is designed to go to all members eventually. It is a retail customer-facing health record, whereas all of the other trial projects that NEHTA have funded to date have been internal, between docs and docs et cetera, and in hospitals. It is designed to receive MBS and PBS information as well, once the national grid is established. Initially, it is only designed to run inside the Medibank world—private hospitals, ancillary providers et cetera.

Senator MOORE: I like that term, the Medibank world!

Mr Savvides : The members claiming world.

Senator MOORE: So it is for the areas that you operate in?

Mr Savvides : That is right—where members claim within our own cover. So that record will be populated. We will introduce the first 1,000 members first, and they are members in a class of 28,000 who are people with chronic disease, so they are high-use members of the health system.

Senator MOORE: Yes. They already have that established relationship with you.

Mr Savvides : Yes. And hopefully that record is of benefit to them, as well, because they are high users.

Senator MOORE: And they are all across the country?

Mr Savvides : They are. I am not sure whether the first 1,000 are; we might be doing that through a geographic pilot.

Senator MOORE: Do you have any information you can provide to us on that?

Mr Savvides : Yes. There is nothing competitive about that, so I am happy to do that.

Senator MOORE: We will be talking with NEHTA next week as part of the community affairs estimates, and we will be asking them if it is just part of the overall process. But I am interested in the particular link with Medicare.

Mr Savvides : I am happy to bring that.

Senator MOORE: That would be great. Thank you.

CHAIR: Thank you very much, Mr Savvides, for appearing before us. We will see you at the next estimates. I call back to the table the Department of Finance and Deregulation.