Health Minister Mark Butler has warned health insurers that if they do not stop using "loophole tactics" to charge Australians more for private health cover, he will consider outlawing the practice.

The Commonwealth Ombudsman has raised concerns about what is known as "product phoenixing" — when some private health insurers close existing "gold" policies to new customers, but then introduce new, almost identical policies at a much higher cost.

Health insurers can not increase premiums outside of an annual rise that must be approved by the health minister and Mr Butler said the report showed insurers were exploiting loopholes to circumvent that process.

He said while the practice was not strictly illegal, it would not be tolerated.

"It is clearly against the spirit of the law. It's an underhanded, largely secret way of health insurers raising their prices outside of the usual approval process," he said.

"I've asked the Commonwealth Ombudsman to continue to monitor this practice … if there has not been a really substantial change to the behaviour of insurers who, quite openly, have admitted that they engage in this practice, and up until now, at least, intend to continue engaging in this practice, then I will reserve the right to consider legislative options to outlaw the practice into the future."

Report compared old and new policies

The ombudsman's report was sparked by analysis from consumer advocacy group Choice, which accused health insurers of using "sneaky tactics" to increase the price of premium hospital cover.

It compared the average premium across Australia for closed gold policies and new gold policies. At one insurer, the 2023 average premium of a new policy was 21 per cent higher than the closed, older policy, it found.

In 2024, the average premium of the new policy was 14 per cent higher than the closed policy.

The ombudsman said its data had indicated some insurers had continued to open and close policies even after the Choice report was released in February this year.

While the behaviour does not breach health regulations, the ombudsman said it restricted consumer choice.

In a statement, the industry's peak representative, Private Healthcare Australia, said health funds would work with the government to "thoroughly examine" problems with gold policies.

"When health funds cancel products, it is usually because those products are making a loss," the statement said.

"When more expensive policies are created, the pricing reflects the underlying cost of health care, which is increasing every year in an inflationary environment.

"Health funds want to deliver affordable gold products that will meet their member's needs without incurring losses that make those products unsustainable.

"This has been a challenge for some time with health inflation surging and health insurance claims rising for an older, sicker population."

Health minister calls on insurers to lower premium increases

Mr Butler also revealed he would write to the 29 health insurers in Australia knocking back their proposals for premium increases for next year.

The next premium hikes are scheduled to take effect on April 1, 2025, with reports insurers had sought an increase of between 5 and 6 per cent — about double the average rise of 3.03 per cent this year.

The timing poses a potential political headache for the government as it prepares for a federal election that will be fought on cost-of-living issues.

Mr Butler said he had received advice from his department and the Australian Prudential Regulation Authority (APRA) to ask the insurers to "sharpen their pencils" and present a lower increase for the products.

"I will be doing precisely that this week. I am determined to arrive at an outcome that is in the interests of fund members themselves," he said.

"Particularly at a time of considerable pressure on household budgets, it is especially important, now more than ever, that I do the best thing by them and make sure that the increases that take place next year to private health insurance products are the lowest that are necessary to ensure an ongoing, viable and sustainable industry."