SYDNEY -- Consumers with private health insurance can expect their premiums to rise from April 1.

The Australian Financial Review reports that Federal Health Minister Tanya Pilbersek is expected to announce a 5% to 6% increase in health insurance premiums today. Premiums increased by about 5.1% in 2012 and 5.6% in 2011.

The announcement is part of an annual review of private health-insurance premiums, following two months of consultation with industry. Health insurance companies like NIB Holdings (ASX:NHF), Medibank Private, BUPA, and HCF submitted applications for changes to premiums in November.

Consumer Health Forum chief executive Carol Brunett said a 5% to 6% increase would be reasonable. "With a need to maintain a level of support for private health insurance that is reasonable, the government has managed to keep increases fairly low," she said.

With an estimated 10.5 million people already in private health schemes, premium rises need to remain affordable, or we could see many drop out and rely totally on the public Medicare system, which could cause government and taxpayer costs to rise substantially.

That could still happen anyway, with parliament due to debate a bill that will remove the rebate on the Lifetime Health Cover loading, which is designed to penalize those who take out private health insurance after the age of 30 and keep existing members from leaving.

Private Healthcare Australia estimates that removal of this rebate would see premiums for some consumers rise by 27.5%, forcing some consumers to lower or drop private cover altogether.

The government introduced means-testing of the 30% rebate on private health insurance last year, which has been partly blamed for a 7.2% rise in health costs in the year to Sept. 30.

At the time, Ramsay Health Care (ASX:RHC) boss Chris Rex slammed the federal government over the changes, warning that increasing prices could force many to cancel their health insurance. Rex has told the Australian Financial Review that "If private care becomes unaffordable, their health care cost does not disappear, it just transfers back to the public system and is paid by taxpayers."

Foolish takeaway
The government has to walk a fine line between the public and private health systems. Allow premiums to rise too high or make private health insurance unattractive, and consumers will drop back onto the public system. Make it too attractive, and equally the cost to taxpayers rises.

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