Young Australians will be offered discounted health insurance premiums, while rebates for some natural therapies will be scrapped under sweeping changes to the private health system.

Health Minister Greg Hunt will on Friday announce an overhaul aimed at protecting the private health system from future collapse and curbing above-inflation premium price increases.

To entice young Australians to take out a policy, funds will offer discounts of up to 10 per cent to Australians under 30, at 2 per cent per year for a maximum of five years, with those cheaper premiums remaining in place until the consumer reaches 40 years of age.

Health fund policies will be classed ‘Gold’, ‘Silver’ and ‘Bronze’ to assist customers to find the policy that best suits them, while the private health insurance ombudsman will be given more powers. Its website will also be updated to let consumers to compare policies.

But the government is not expected to not dump low-cost, so-called ‘junk policies’, a decision labelled “toxic” on Thursday by consumer group CHOICE.

The government will ban rebates for a list of unproven natural therapies – including naturopathy, Pilates, reflexology, shiatsu, yoga and aromatherapy – and it will regulate the cost of certain procedures and benefits.

That move – in the form of a four-year $1 billion cut to the so-called “Prostheses List” – is expected to keep premium rate rises in check.

The private health industry is likely to welcome the decision, having said in September that inflated prices for benefits such as pacemakers and implanted defibrillators and hip and knee implants were pushing up premium rate rises above inflation.

Greg Hunt will announce the reforms on Friday. Photo: AAP

The government will also lift the cap on excesses from $500 to $750 for singles and from $1000 to $1500 for families, allowing people to pay less for their premiums.

In a boost to mental health access, patients that enter hospital for a mental health treatment will be able to upgrade their policy to cover such services immediately without serving a waiting period.

The government’s reforms package comes amid a drop in private health insurance coverage, which some say threatens the sustainability of the system.

The Australian Medical Association on Thursday welcomed moves to scrap rebates for unproven natural therapies and increased mental health access.

But CHOICE spokeswoman Erin Turner told The New Daily the consumer group was concerned that young people were being encouraged to take out insurance while ‘junk policies’ remained on the market.

Such policies cover only 1 per cent of treatments in private hospitals, Ms Turner said, meaning people who bought them were still likely to end up in public hospitals.

“This is a toxic combination,” she said.

“You’re going to be having a lot of young people buying policies that are worth very little to them.

“The people who benefit here are insurers who get more people on the books without having to offer a quality product.”

Labor said the reform package would do “nothing to address” the soaring health insurance premiums already being felt by consumers.

“This package is designed to help the government stem the exodus of people dumping private health insurance on their watch,” said Labor’s health spokeswoman Catherine King.

Ms King said Labor did support the cut to the “protheses list”, but labelled any move to keep ‘junk policies’ a “broken election promise”.

Consumers Health Forum chief executive Leanne Wells said the reforms would “appear likely to deliver lower premium increases in the medium term”.

Ms Wells welcomed a number of the changes but warned that discounts for young people could be problematic.

“Discounts for younger members threaten to undermine the community rating principle fundamental to Australian health insurance which is meant to treat everybody equally regardless of age or health status,” she said.