Major private insurers have labelled a push to make them pay full public hospital bills as an "opportunistic revenue grab" that will push up premiums for customers.
Accused of "robbing" the public health system by the NSW government, insurers would be forced to pay the gazetted rate for single-bed hospital rooms in legislation introduced to state parliament on Tuesday.
The proposal would claw back some of the $140 million NSW says it's losing each year in subsidised rooms costs.
Health Minister Ryan Park said the state was already footing the bill for 17 per cent of the $1075 it cost to operate a hospital bed each day, but he expected major insurers to pay more than the approximately $400 they were paying.
That figure would leave taxpayers providing a more than 50 per cent subsidy, he said.
"(We) are not going to sit idly by and see $140 million ripped out of our system ... when private health insurance companies are currently receiving some of the largest profits in this country," he said.
But Private Healthcare Australia chief executive Rachel David said all the proposed changes would do was drive up premiums and see people ditch their insurance, putting more demand on the stretched public system.
"This is an opportunistic revenue grab with no justification and we're very perplexed because we can't see how it will actually raise any money when 60 to 100,000 people drop or downgrade their private health insurance in response," she said.
Mr Park hit back, saying if that logic held then premiums should have declined when insurers did not pay the full gazetted $892 per night.
The introduction of legislation follows months of ultimately failed negotiations with Bupa, Medibank, NIB and HCF - which together control 74 per cent of the market - over the public hospital rates.
Some 44 of 53 health insurers are either already paying the full rate or have now agreed to resume paying after discussions with the state.
About 46 per cent of NSW residents have private hospital cover, slightly above than the national average of 45 per cent.
The legislation would mimic that passed by Treasurer Daniel Mookhey's coalition predecessor Mike Baird in 2013, when the same insurers refused to pay the gazetted single-room rate.
"No patient can refuse to pay their bills, no customer could refuse to pay their bills at a business and the big four health funds should simply be paying their bills," Mr Mookhey said.
The extra money could be used to hire up to 1000 nurses, build a new rural hospital or to reduce the elective surgery waitlist by thousands of patients, the government said.
Dr David called for an independent economic analysis of how many private patients should be in NSW's public hospitals, suggesting the current level is double that of other states.
The industry group argued NSW wanted insurers to pay a higher "preferred rate" to meet budget revenue targets, above the mandated federal rate most companies paid.
