Health Minister Sussan Ley announced the rise on Wednesday, saying it was the smallest price hike in four years, and called it a win for consumers.

Under federal legislation, private health insurers must apply to the minister for approval of premium changes. The increases usually apply from April 1. The smallest increase in recent years was 5.06 per cent in 2012.

In January, Ms Ley requested insurers resubmit their applications for premium increases, citing her concern that the process did not allow the government to fully scrutinise an insurer's financial position.

Twenty Australian funds subsequently lowered their demands, Ms Ley said. The result is the smallest price hike in four years, and compares to a long-term average of 6.1 per cent a year.

In a statement, the minister said consumers would be $125 million better off, and the average family with hospital and general health cover would save $166 a year, thanks to her intervention.

But private health insurance comparison service iSelect said people should shop around before the premium rise to find a policy that best suited them.

"The upcoming premium increase will hit the hip pocket of the average family by around an extra $200 per year," spokeswoman Laura Crowden said.

"For example, a $4000 per year policy will rise on average by $223 per year, while a $2500 per year policy will rise on average by just under $140 per year."

Ms Ley refused to calculate how much extra the average family would pay due to the premium increase.

"Every health insurer is different, so it's very difficult to say," she told reporters.

The Consumer Health Forum of Australia said the average rise in premiums was more than three times the consumer price inflation rate, and put private health insurance beyond the reach of many families.

"This latest increase highlights the pressing need for fundamental reform of health insurance," the forum's chief executive Leanne Wells said.

"After 16 years of chronic premium increases, it is no longer acceptable for the industry to fall back on the argument that rising health prices are inescapable."

In 2015, the forum proposed the "myCover" plan, which would drive competition and transparency in the private health sector by requiring funds to offer easy-to-compare policies before accessing rebates, Ms Wells said.

MyCover would also create a "one-stop shop" where consumers could compare and choose policies and access information about medical fees.

Ms Ley said it was "not that useful" to compare premium hikes to the general inflation rate because the rate of health inflation was closer to 8 per cent.

Premium increases vary depending on the insurer. Of the largest providers, Medibank will this year lift its rate by 5.64 per cent, BUPA by 5.69 per cent and NIB by 5.5 per cent. The smallest hike, 3.76 per cent, was offered by Doctors Health Fund, which insures healthcare professionals.

Industry weighted average 5.59 per cent