Medibank pushes on with cuts as members switch

Australia's biggest health insurer, Medibank Private, is slashing costs as payments increase and growing numbers of members switch or downgrade their policies.

Managing director George Savvides said the government-owned insurer had a "fairly intense program of cost reduction happening at the moment".

"We have been able to meet our [cost cutting] targets for this financial year," Mr Savvides told Senate estimates. "We are continuing that program into next year."

It is the Coalition's policy to sell Medibank.

Grahame Danaher, managing director of non-profit health fund Westfund, said the comments on cost cutting suggested Medibank was preparing for privatisation.

Mr Danaher said Medibank's focus on its lower-cost AHM brand risked devaluing its premium products and bolstering products with exclusions or restrictions.

But Dan O'Brien, general manager, corporate affairs at Medibank, said the cost cutting was part of a broader focus on trimming costs "regardless of ownership".

Mr Savvides told senators that Medibank was seeing "an increased amount of sell-down", as people who prepaid their policies last year to retain the government rebate faced price rises of 40 per cent or more.

"People are asking, 'What cover can I have for less dollars that covers the things that I am looking for?' or "Will I drop my ancillary cover and only stay with my private hospital cover?"' he said.

The comment come as health insurance comparison site

iSelect, through which Medibank Private sells its AHM policies, prepares to list on the sharemarket.

Mr Savvides continued his criticisms of the rise of aggregators, saying they "churn the market, and that is a cost to the sector".

"We think there ought to be some regulation around the discounting that can occur through regulator channels which cannot occur directly through insurance firms."

But iSelect said this week that there had been a thawing in insurers' attitudes over the past year. "Four years ago, there were people who wouldn't even talk to us. We're now seeing more discussions with them."

iSelect tips 2 to 3 per cent market growth and premium increases of 5 to 7 per cent over the next few years. "Combined, these factors point to high single-digit percentage premium growth for the industry, which in turn is supportive of high revenue growth for iSelect as commission and fees are directly linked to premiums."