Private health insurers will be able to charge higher excesses and offer discounts to under-30s under sweeping Turnbull government changes that will also cut more than a billion dollars from the medical devices sector and scrap coverage for natural therapies such as yoga.
The reform package - to be announced by Health Minister Greg Hunt on Friday - aims to get annual above-inflation premium price rises under control and prevent an exodus of customers that would threaten the entire industry with collapse.
Under the reforms, consumers will be able to choose higher excesses to lower the premiums they pay. The maximum permitted excesses for private hospital insurance will rise from $500 to $750 for singles and from $1000 to $1500 for couples and families.
The new maximum excesses will come into effect in April 2019 but no consumers will be required to move to a product with a higher excess.
From 2019 insurers will also be able to offer discounted private hospital cover to people aged 18 to 29 - something currently prevented under legislation that prohibits offering premium discounts to people on the basis of their age - in a bid to attract more young people into coverage.
Insurers will be able to offer premium discounts of up to two per cent for each year that a person is aged under 30, to a maximum of 10 per cent. These discounts will be gradually phased out once a policy holder turns 40.
The government will also make swingeing cuts to the "Prostheses List" by reducing the minimum benefits for prostheses paid by private health insurers.
The first cut in February next year will be worth $188 million, with further reductions to come in 2019 and 2020.
Total estimated savings to private health insurers over the four premium years will be more than $1 billion dollars, taking huge pressure off premium price rises.
Private health insurers have publicly stated that every $200 million in prostheses benefits reductions will decrease private health insurance premiums by one per cent.
"Consumers in private hospitals have been paying wildly inflated prices for medical devices, sometimes as much as five times what it costs in the public system for exactly the same device," NIB chief executive Mark Fitzgibbon said after Thursday's announcement.
The package will also include a new simplified four-tier premium system - gold, silver, bronze and basic - to make it easier for consumers to select and understand their cover. This will apply to hospital products, while the "basic" tier will be removed for general treatment or extras coverage.
The government will also introduce changes to make it easier for policy holders to access mental health services. Patients with limited mental health cover will be able to upgrade their cover to access in-hospital mental health services without serving a waiting period.
The "benefit limitation periods" sometimes applied to mental health cover will also be removed. The government believes the mental health measures will also help entice more young people into cover, diluting insurers' risks and further bringing down the pressure on premiums.
From 2019, private health insurance will no longer cover natural therapies, including aromatherapy, Bowen therapy, Buteyko, Feldenkrais, herbalism, homeopathy, iridology, kinesiology, naturopathy, Pilates, reflexology, Rolfing, shiatsu, tai chi and yoga.
This move comes after a recent review by the Commonwealth Chief Medical Officer found there was no clear evidence of the efficacy of these therapies.
The government will also move to strengthen the powers and resources of the Private Health Insurance Ombudsman, responsible for looking after consumers' interests.
An expert committee will be established to consider the issue of ballooning and often opaque out-of-pocket costs.
One in seven patients is required to pay out-of-pocket costs which are often large and unexpected. While 86 per cent of services are covered under "no" or "known" gap arrangements, 14 per cent of services incur out-of-pocket costs not covered by insurers.
In an exclusive interview with Fairfax Media last month, Health Minister Greg Hunt said he was targeting "dramatic reductions" in premium price rises with his package.
He warned of a "catastrophe" if the government did not act to stop the insurance exodus, saying this year's 4.84 per cent was too high. It was the lowest rise in a decade but still more than double the inflation rate.
The changes have been welcomed by the private health insurance industry, which had been working with the government on its reforms.
Private Healthcare Australia chief executive Rachel David said discounts for younger people could help address sliding rates of new memberships.
But Thursday's announcement was highly criticised by Labor's shadow health spokeswoman, Catherine King, who described it as "a package of recycled election commitments".
- with Aisha Dow