Annual Report 2018 Contents About Medibank 1 Financial summary 2 Business snapshot 3 Chairman’s message 4 CEO’s message 5 Sustainability 6 Customers 7 Employees 10 Community 13 Environment 16 Operating and financial review 18 Governance 25 Directors 26 Executive Leadership Team 29 Corporate governance statement 31 Directors’ report 42 Remuneration report 47 Financial report 72 Consolidated statement of comprehensive income 73 Consolidated statement of financial position 74 Consolidated statement of changes in equity 75 Consolidated statement of cash flows 76 Notes to the consolidated financial statements 77 Directors’ declaration 123 Auditor’s independence declaration 124 Independent auditor’s report 125 Shareholder information 131 Financial calendar 133 Corporate directory 133 Read Medibank’s Annual Review 2018 to find out more about our business and performance. medibank.com.au/annual-review-2018 Cover – Twenty-one year old Liam from Perth was diagnosed with stage 3 non-Hodgkin lymphoma. Medibank’s Chemotherapy at Home program means he can be treated at home with his best mate Jack the kelpie-cross by his side. About Medibank Our purpose Our values Better Health for Better Lives Ambition To deliver Better Health for Better Lives we will: 1. Broaden the offering of our Medibank and ahm brands to deliver the best combination of products, Our customers are We show compassion. at the centre of We care for each other, service and advice for our customers. everything we do. our customers and our community. 2. Build a market leading health services offering for our customers. Our business Medibank provides private health insurance through our Medibank and ahm brands. During the year we supported customers through more than 1.3 million We are accountable. We work better and hospital admissions, 500,000 surgical procedures and We deliver on our promises, smarter together. 23.8 million extras services. We also delivered a range even when it’s hard. More we, less me. of health services across Australia including telehealth, We make it happen. in home care and care management, and distributed travel, life and pet insurance. Healthier, Effortless, Simple, Proactive Affordable, Easy lth insura ea nce H Better Telehealth e Travel c Support, n insurance Health for a coordination r & navigation u Better Lives s n i H d e e i f a Purpose i l s Pet t r Medibank h e insurance v at Home s i er D Rehab, chemo, vi dialysis & ces palliative care Life insurance Care management Population Chronic disease health programs Targeted health programs Annual Report 2018 1 Financial summary All data is presented on a statutory basis Dividend Group net profit after tax Composition of 2018 segment ($m) operating profit (%) Medibank 2018 $445.1 m Health 12.70 8.1% cents per share Total dividend for 2018 2017 $449.5 m Health (interim and final) Insurance fully franked 0 100 200 300 400 500 91.9% Health Insurance Health Insurance claims expense Health Insurance premium revenue (excluding risk equalisation) operating profit ($m) ($m) ($m) 2018 $6,319.5 m 2018 $5,281.1 m 2018 $535.6 m 2017 $6,244.9 m 2017 $5,276.9 m 2017 $497.5 m 0 2000 4000 6000 8000 0 1000 2000 3000 4000 5000 6000 0 100 200 300 400 500 Health Insurance Health Insurance Health Insurance gross margin management expense ratio operating margin (%) (%) (%) 2018 17.3% 2018 8.8% 2018 8.5% 2017 17.1% 2017 9.1% 2017 8.0% 0 5 10 15 20 0 2 4 6 8 10 0 2 4 6 8 10 2 Medibank Business snapshot ADDITIONAL VALUE 3.7 million committed to customers $35 million customers Includes one-off loyalty bonus, 100% dental give back, Medibank Health Concierge & Medibank at Home 3.88% $ 5.3 billion 26.85% lowest average premium increase benefits paid to customers in 17 years & below industry market share (excluding risk equalisation) at 30 June 2018 average for a second year running Mental health support SUPPORTED Psychology waiting periods removed to help customers hospital Medibank needing urgent support 1.3 million+ admissions Priority On current extras products as at 1 April 2018 2018 $535.6 m Program extras launched to + recognise Medibank at Home 23.8 million services 2017 $497.5 m Expanded to give 10+year customers choice over surgical 0 100 200 300 400 500 how & where they customers procedures receive their care 500,000+ 13,000+ 21,000+ 1.8 million customers supported people living with chronic interactions with the community through Health Concierge conditions supported through via phone, chat & email through during the year CareComplete to date our telehealth services 2018 8.5% including around Community 2017 8.0% 4,155 investment employees 0 2 4 6 8 10 1,500 * Headcount following health acquisition of Home $3.7 million Support Services in professionals August 2018 up from retail stores 45% 85% 81% 84 including 20 in regional areas women senior leaders employee engagement Annual Report 2018 3 Chairman’s message I am pleased to present Medibank’s annual report in a year where we have worked hard to deliver for our customers and progress our transformation into a broader health services company. Our performance helped us to pay What is pleasing is that our focus on our a dividend to shareholders totalling customers is improving key customer 12.70 cents per share fully franked. metrics. Customer numbers have grown, complaints to the Ombudsman Medibank and ahm supported more have decreased, and our Service net than 1.3 million hospital admissions, promoter score has improved. But of 500,000 surgical procedures and course, we are on a journey and there 23.8 million extras services. These is always more to be done. numbers show how we are supporting our customers, and just how important Management continues to be focused private health insurance is. on improving the products and experience Medibank delivers to Australia has one of the best health customers and the health services 12.70 systems in the world due to the strength we offer. This focus is shared by the cents per share of both the public and private systems. Board, whose diversity and range of It is for this reason that we must all expertise and experience continues Total dividend for 2018 continue to work hard to ensure it is to be important. I would like to take (interim and final) sustainable for future generations. this opportunity to thank each of fully franked the directors for their continued Medibank has delivered a range commitment and support. of initiatives this year to improve affordability and transparency for This year we have reported on 1.3 million+ our customers. Whether it is the environmental, social and governance hospital admissions supported introduction of new online customer issues in the annual report for the tools, personalised programs to first time using Medibank’s four provide extra health support, or giving sustainability pillars of Customers, back additional value, we remain Employees, Community and million+ focused on addressing these important Environment. I am pleased to report 23.8 issues. Medibank also expanded the that we moved our international equity extras services supported health services delivered to customers investments to a low carbon portfolio in their homes, which we see as in May 2018, and that we are on track critical to providing our customers with to make a similar transition with our choice as well as alleviating financial domestic equity investments within the 500,000+ pressure within the health system. 2019 financial year. surgical procedures supported Equally important is the role of I wish to thank Craig Drummond and government reform, which is the Executive Leadership Team for fundamental to driving real and their ongoing commitment to our substantive change. Prostheses reform customers and Medibank’s Better allowed us to pass on $50 million in Health for Better Lives purpose. A savings to our customers through our company is only as good as its people lowest average premium increase in and I would like to take this opportunity 17 years. Likewise, recent mental to recognise and thank Medibank’s health reform, and the removal of employees, whose continued focus waiting periods on psychology services has delivered these results. which Medibank introduced on top of this, is making a real difference to customers’ lives. We will continue to actively advocate for further reform, including through the two Federal Government committees reviewing out-of-pocket costs and low value care. Elizabeth Alexander AM Chairman 4 Medibank CEO’s message 2018 has been an important year for our company. Medibank’s continued focus on our customers has seen us make considerable progress, delivering a better customer experience, more value and recognising customer loyalty. We paid $5.3 billion in benefits to We recognise of course, that Medibank and ahm customers, affordability remains a concern and delivered a premium increase that we are working hard to address this was below industry average, improved within our business, which is why we our net promoter score and reduced are committed to removing $60 million our customer complaints to the worth of our own management costs lowest levels since 2014. We have over the next three years. Just as also committed to giving back around important, we have been working with $35 million in additional value to our the Federal Government on reform customers. measures designed to reduce the cost of private healthcare in Australia. This has resulted in a substantial turnaround in our customer advocacy Reform is one of the key things that can $5.3 billion and retention, helping us grow market put downward pressure on premiums, benefits paid to customers share by five basis points in the last and over the past 12 months, we have (excluding risk equalisation) half of 2018, which is the first time in seen more reform than in the last a decade that we have experienced 18 years.