People under 30 could be the biggest winners from the Turnbull government's push to make private health insurance more affordable.
The package, which passed parliament's lower house on Thursday, will allow insurers to offer young people a two per cent discount on their premiums every year up to a maximum of 10 per cent.
But Labor argues the measure could drive premiums higher for other policy holders, while giving young people a saving of about 70 cents a week.
"Not enough even to buy a coffee a month - hardly an irresistible incentive," the opposition's health spokeswoman Catherine King told parliament.
The changes will allow some people to increase their excess in exchange for lower premiums - up to $750 for singles and $1500 for families.
People with hospital insurance that does not offer full cover for mental health treatment will be able to upgrade their cover and access mental health services without a waiting period on a once-off basis.
Insurers will be able to offer travel and accommodation benefits for people in regional and rural areas that need to travel for treatment.
Health insurance policies will be categorised into gold, silver and bronze and basic.
Health Minister Greg Hunt said the package would address concerns about affordability and complexity.
"This government continues to take pressure off private health insurance premiums with the introduction of these reforms delivering the lowest annual premium change in almost two decades," Mr Hunt told parliament on Thursday.
Ms King outlined her party's plans to cap premium increases at two per cent a year.
She raised concerns about the government's reforms, which could allow people to raise excesses beyond their means, squeezing them out of the private system.
"The fact the big insurers welcome this package with open arms tells you everything you need to know," Ms King said.
"Their profits will be totally untouched."
Ms King said insurers would be allowed to terminate products and transfer people covered on to new policies.