Health insurance premiums could rise by about $50 a year due to a move accepted by Australia's biggest private health funds despite being labelled a blatant revenue grab.
Bupa, Medibank and NIB - which along with HCF control 74 per cent of the market - on Monday agreed to pay higher hospital fees in NSW.
It came after a stand-off with the state treasurer over who copped a $140 million annual bill for single hospital rooms.
Private Healthcare Australia described the resolution as "less harmful" for consumers than threatened higher taxes but warned NSW residents would be unnecessarily paying 2.5 per cent more from April.
That rise amounts to $48 a year for the average single-person cover, based on comparison website Finder's estimates.
"The NSW government has clearly recognised their citizens are against this tax hike during the worst cost-of-living crisis most people have ever lived through," Private Healthcare chief executive Rachel David said on Monday.
"It will prevent about 75,000 people dropping their health cover due to cost next year and it should therefore reduce the chance of thousands of people flocking to busy public hospitals for medical care."
Some insurers in recent years opted against paying the NSW single-room rate of $897 in favour of the federal government's shared-bed rate - about $400 less.
Negotiations with Treasurer Daniel Mookhey to lift the rate swayed most of the 53 private health funds but Bupa, Medibank and NIB held out, warning of bill shock if they were forced to pay more.
Underlining the gravity of the issue, the federal health department in November unusually asked funds to spell out the impact of the NSW measures when making their case to lift premiums in April.
Dr David had dubbed the state's hospital room fee campaign as an "opportunistic revenue grab" bound to hurt consumers.
But the NSW government has argued, by that logic, premiums should have declined when insurers did not pay the full rate.
The state treasurer welcomed the resolution after months of negotiations.
"We now have an agreement that's good for our public hospitals and the millions of people who rely on them every day," Mr Mookhey said.
The state government had threatened in response to increase its health insurance levy on all adult policies from $1.77 to $3.27 per week from early 2025.
About 46 per cent of NSW residents have private hospital coverage, slightly above the national average of 45 per cent.
