The Federal Government has confirmed it will approve an increase in the cost of private health insurance.

But the rise in premiums will be less than the 13 per cent that the nation's largest insurer, Medibank Private, requested.

And Labor yesterday said it was considering abolishing or changing the 30 per cent private health insurance rebate as part of its policy review, despite its firm election promise not to alter the $2.3 billion-a-year scheme.

Federal Health Minister Kay Patterson said yesterday that higher premiums were inevitable, but she was fighting to keep them as low as possible.

"Of course there'll be increases, we can't expect premiums not to rise," she told ABC radio.

"We need to ensure that the premiums are as low as possible because we pay 30 per cent of those premiums and those premiums are influenced by all sorts of factors and I'll be constantly looking at them."

Industry analysts believe the government could approve a rise of around 5 per cent for Medibank, but said it meant a higher price for consumers and an extra blow for the already wafer-thin federal budget surplus as the government picks up 30per cent of the price rise.

Senator Patterson yesterday was forced to give an absolute guarantee that the government would not means-test the rebate, cap the cost of the program or remove extras cover from the scheme.

In the last financial year the rebate, introduced on January 1, 1999, cost the budget $2.3 billion - at least $1 billion more than expected. The latest round of health insurance price rises will add a cost to the May budget.

Senator Patterson said the rebate would be constantly reviewed to keep costs down.

A spokesman for Senator Patterson later said the government would not cut health spending to pay for any higher-than-expected cost of the rebate.

"It comes from consolidated revenue and not any program areas," the spokesman said.

In Jakarta, Prime Minister John Howard said the government would not meet rising costs by excluding services such as physiotherapy and optometry from the cover.

"Look, there's been no change to the amplitude of the cover," he said.

The Federal Government must approve health insurance price rises. Medibank Private is seeking a 13 per cent increase.

Treasurer Peter Costello said a rise in line with inflation would be acceptable, but he could see no justification for a 13 per cent increase.

"I can't see why you would need a 13 per cent rise in a situation where the numbers who are taking out insurance is increasing, not decreasing ... where (the inflation rate) is nowhere near 13per cent," Mr Costello told ABC radio.

Labor health spokesman Stephen Smith claimed the government had abandoned a promise that the scheme would keep health insurance costs down.

He said Labor was considering a range of policy options including ending the rebate altogether.

"Various options have been and will no doubt be presented to us in the course of our review, which will range from keeping the rebate in its entirety, abolishing the rebate and making modest or minor changes to it," Mr Smith said.

On Tuesday, Opposition Leader Simon Crean said Labor would keep the rebate because it was "now a big part of people's budgets".

"We won't be changing that but what we've got to do is to ensure that ... premiums are kept down," he said.