The Australian Medical Association says health funds need to get back to insuring for in-hospital services, not covering ancillary and unproven services.
Health insurance funds can't be allowed to get away with gouging consumers on premiums and prices, Australian Medical Association president Brian Owler says.
Dr Owler says the funds need to return to their core business of insuring for in-hospital services, not for ancillary or allied health services or unproven alternative therapies.
He acknowledged there needed to be a strong private health insurance sector.
"But we also need to make sure that they live up to their end of the bargain, that we don't see insurers gouging in terms of premiums and prices," he told ABC radio on Friday.
Health minister Sussan Ley is now considering applications from private health insurers for premium hikes of 6-7 per cent
"If we need to make tough decisions, we will," she told ABC TV.
Dr Owler said affordability should be the key issue of the government's current review but that should not come at the expense of hospital coverage.
He said 70 per cent of premiums related to hospital costs and many of those arrangements were commercial-in-confidence, not public knowledge.
"It's not good enough to say, well, we're going to just let these commercial arrangements go unchecked," he said.
Dr Owler said that was not something the government would normally want to interfere in but it had to remember it had $6 billion of funding in the game in terms of private health insurance rebates.
Shadow health minister Catherine King warned Australians were facing third annual rise above six per cent.
The proposed increases would add $300 a year to family health costs at a time when insurers were making record profits.
"It's hard to see how a rise four times the inflation rate can now be justified," she said in a statement.
"It's long past time the minister stood up to health insurers and only approved increases that can be fully justify as being in the best interest of health fund members."
PREMIUM INCREASES IN THE PAST FIVE YEARS:
2015: 6.18 per cent
THE HIGHEST ANNUAL INCREASE SINCE 2002
THE LOWEST INCREASE