Private health insurance premiums will rise by an average of six per cent from Wednesday but policy exclusions are growing.
The federal government gave the premium hike the green light earlier this year.
The Private Health Insurance Ombudsman's report into the state of the industry in 2008 was released on Tuesday.
It shows two funds are stripping away cover for gastric band surgery from some policies as the nation gets fatter.
Maternity benefits have also been removed from some policies as the country's birth rate grows.
About 12.4 per cent of policies have exclusions on some categories of treatment, which is a rise of 3.8 per cent on the previous year.
Private health insurance membership rose 1.2 per cent from July 2007 to June 2008, with customer retention rates ranging from 82 per cent to 95 per cent.
"Over the coming year, the change in the economic outlook will undoubtedly impact on insurers and their members," the report reads.
"Funds will need to focus on member retention strategies and tailoring their policies to meet changing needs, particularly as economic conditions mean consumers might need to reconsider their financial priorities."
