An average premium increase of 4.41 per cent was approved by Health Minister Mark Butler on Tuesday, which experts say could trigger many policyholders to look at downgrading their cover to save money.
The increase will kick in from April 1 and is up from a 3.73 per cent price rise the year before.
It's the largest single-year rise in premiums since 2017, when they rose by 4.84 per cent.
Health economist Stephen Duckett said inflation and the steady use of private hospital services were driving up premiums.
"Prices are going up everywhere, so there's no surprise they're also going up in the health sector," he told AAP.
Many people would drop their levels of cover as a result of the increase, Mr Duckett said.
"But the people expecting to use hospital services will stay to the bitter end with their health insurance," he said.
Finder personal finance expert Sarah Megginson said the increase was another blow to families off the back of an interest rate hike and the federal energy rebate finishing at the end of 2025.
"It just feels like there's pressure coming from any corner," she said.
The impacts of cancelling or downgrading insurance could be dire if people weren't advised properly, Ms Megginson said.
"My father-in-law was with a major health insurer for decades and downgraded his premium as it was getting too expensive," she said.
"He then had a really significant heart issue and he wasn't covered for it. The bill was going to be over $25,000."
About one-in-seven people indicated they wouldn't be renewing their health insurance premiums in 2026, according to the financial comparison website's research.
The federal health minister said the rise in premiums reflected a rising cost for medical and hospital services, which rose five per cent in 2025.
"The government understands the pressure health insurance premium changes put on Australians and decisions about private health insurance premiums must put consumers first," he said.
Private Healthcare Australia chief executive Rachel David said health funds were working to balance the affordability of insurance with the rising costs of providing care.
"More people are using their health insurance for high-cost hospital care such as joint replacements and cancer treatment, and the cost of delivering care continues to rise," Dr David said.
"If health funds could keep premiums the same without jeopardising their ability to pay claims, they would."
It's estimated more than 15 million people have private health insurance in Australia.
Mr Butler said he rejected previous requests by private health insurance companies for larger increases, but called for the firms to do right by their customers.
"I expect private health insurers and hospitals to work hard to bring down costs and keep future price increases to a minimum," he said.
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