Higher private health insurance premiums appear to be forcing more people to either downgrade or dump their policies.

More Australians are downgrading or dumping their private health insurance as they feel the pinch of continually rising premiums.

In its annual review of the private health insurance industry, the competition watchdog found Australians paid out $23.9 billion in premiums last financial year - $834 million more than in 2016/17.

But the number of people with hospital-only or combined health cover fell 0.9 percentage points to 45.1 per cent, while the proportion of policyholders with extras-only cover rose to 9.2 per cent from 8.9 per cent, the Australian Competition and Consumer Commission found.

More people are also choosing policies that are either lower cost with exclusions, or have an excess with co-payments option.

The number of hospital policies with exclusions has risen to 44 per cent from 40 per cent, while hospital policies with excess or co-payments rose on percentage point to 84 per cent.

"People are increasingly feeling the pinch of private health premium increases and growing gap payments," ACCC deputy chair Delia Rickard said.

"In response, many are shifting to cheaper products with reduced coverage, and some are dropping their cover altogether."

During the year, private health insurers paid out $15.1 billion in hospital benefits to policyholders and $5.2 billion in extras treatment benefits.

The ACCC expects many people will update their policies before the federal government's private health insurance reforms come in next April.

The changes are designed to make private health cover simpler and more affordable.

Ms Rickard warned private health insurers to make sure they provide clear and timely information about the changes to their customers.

"Private health insurers need to be transparent about what is and isn't included in their policies or risk losing their customers' trust and ultimately, their business," she said.