Junk hospital policies would be excluded from rebates and consumers would be encouraged to save for extras like dental and optical under a plan put to Health Minister Sussan Ley to overhaul private health insurance.
The MyCover proposal submitted to the federal government review of the industry by the Consumers Health Forum on Friday would establish nationally standardised hospital policies allowing consumers to compare prices and understand what they're covered for.
Packages would be tailored to different life stages and only MyCover packages would attract the government rebate.
And while insurers would be free to offer all sorts of products, the rebate for general or ancillary cover would be limited to items with a "sound evidence base" - excluding some alternative therapies.
The consumer group has suggested the government offer support to insurers that conduct evidence-based disease management and prevention programs, reduce its role in prostheses price-setting and promote preventative health programs.
It's also calling for legislation to enforce plain language and financial disclosure standards so consumers can understand what they're buying and a one-stop-shop portal where they can find out about actual fees doctors and hospitals charge.
The group's chief executive Leanne Wells says the government should consider replacing or limiting rebates for general or ancillary cover policies, and instead encourage people to self-insure via a health savings account that both government and consumers would contribute to.
She said a recent consumer survey found only half of respondents understood what their policy covered and overall satisfaction with policies was just 38 per cent.
On average, families are forking out $4337 each year for premiums, while couples are paying $3955 and singles $1935.
That's on top of the $6 billion worth of taxpayer funds paid in rebates each year.
"This is a poor result for health insurance which exists on the back of huge government financial and regulatory support," she said.
"By making payment of the government's rebate contingent on funds meeting reasonable policy standards, MyCover will ensure the rebate is delivering performance benefits to policy holders."
Ms Ley announced the review in October, along with an online consumer survey to inform its promised shake-up of the troubled system, which received 40,000 responses within a month.
