Australia's biggest private health insurer, Medibank Private, continues to lose customers in its core health insurance business as affordability issues pressure the health cover sector.
Higher income from investments has helped Medibank lift its half-year group net profit by 1.9 per cent to $231.9 million.
But operating profit from the health insurance business fell 8.2 per cent to $249.4 million for the six months to December 31.
Medibank said the lower operating profit reflected investment in improving customer service, costs associated with a new IT system and higher growth in treatments provided by hospitals.
Medibank's revenue from health insurance premiums rose 1.2 per cent to $3.12 billion, and the group paid out $2.6 billion in claims.
But the number of policyholders fell by 2.3 per cent to 1.78 million.
The number of policyholders under the Medibank brand dropped 4.1 per cent to 1.48 million, partly reflecting some negative customer reaction to the new IT system.
But the number of policyholders under its cheaper ahm brand lifted eight per cent to 298,300.
Medibank says industry volume growth continues to slow under challenging conditions but the group underperformed relative to the market in both customer acquisition and the number of lapsed policies.
Market share and gross margins also slipped.
Chief executive Craig Drummond said Medibank's focus on improving customer service - including employing more people in the contact centre, introducing 24/7 webchat, and reducing call wait times - is delivering early results.
"While challenges clearly remain, the business is heading in the right direction," he said on Friday.
Mr Drummond said the loss of customers was an industry-wide problem, with health insurers picking up customers aged 70-74 years but were losing younger clients.
Medibank's drive to reduce health costs had allowed the company to limit the premium price increase that takes effect from April 1 to 4.6 per cent, which was below the overall market increase, he said.
"We appreciate that household budgets are under pressure, and we are doing everything we possibly can to drive the best possible outcome for customers in that respect," Mr Drummond said.
He said costs in the healthcare sector were rising much faster than the overall rate of inflation, and the greater use of health services as the population ages was also driving up health insurance premiums.
If reforms were made to the costs of prostheses such as hip and knee replacements, and the shift of costs from the public health system to the private system were addressed, premium increases would not be so high.
Medibank affirmed its guidance for an operating profit of about $490 million for its health insurance business for the full year.
Shares in Medibank Private were 10 cents, or 3.56 per cent, lower at $2.71 at 1451 AEDT.
MEDIBANK PROFIT UP BUT CUSTOMER NUMBERS FALL
* Net profit up 1.9pct to $231.9m
* Revenue from ordinary activities and investments up 2.1pct to $3.48b
* Interim dividend up 0.25 cents to 5.25 cents, fully franked