Medibank Private boss George Savvides has warned rising premiums are forcing customers onto lower levels of cover as the health insurer continues its crackdown on costs.
The formerly government-owned insurer posted a $285 million profit in its first year since listing, easily beating the $258 million result it forecast when it listed in November.
Medibank shares surged more than 13 per cent on the result, finishing the day up 27 cents to $2.28.
The result was driven by higher premiums, which increased 6.6 per cent in April, and the company's efforts to reduce the amount it pays out in claims.
But Mr Savvides said the speed of premium rises across the health insurance sector in recent years was pushing many customers to lower their level of cover.
"We're recognising that customers are concerned about affordability of health cover and we have seen cover reductions during the year," he said.
The revenue Medibank received from premiums rose 5.1 per cent for the year, which was less than the company had forecast - a fact Mr Savvides attributed to the move to lower levels of cover.
Since its listing, Medibank has focused on reining in the amount of money it pays out in claims by playing hardball with hospital operators and cutting down on inappropriate claims.
The cost cutting efforts have drawn it into conflict with hospitals operator Calvary, which has accused Medibank of attempting to bully it with a "take it or leave it" approach in contract negotiations.
But Mr Savvides said the company would continue to focus on costs as it looks to lift its profit margins, which have lagged behind others in the industry.
"As an industry, it is important that we focus on both quality and affordability to ensure that we maintain a strong and sustainable Australian healthcare system," Mr Savvides said.
For the year ahead, the company said it would target an operating profit above $370 million, up from $332 million in 2014/15.
Medibank's public float in November netted the Abbott government $5.7 billion, but after an initial rally, the company's shares have weakened in recent months amid concerns about whether management could pull off the cost-cutting program.
The shares traded as low as $1.99 earlier in the week, falling below the $2 per share retail investors paid in the float and well down from the high of $2.59 it reached in February.
MEDIBANK'S PROFIT SOARS
* Net profit up 118pct to $285.3m
* Revenue up 3pct to $6.5b
* Fully franked final dividend of 5.3 cents
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