Southern Cross Medical Society is concerned at the number of its members who are downgrading their policies.
The society says more than 25,000 members reduced their level of cover in the year to June - 33% more than the year before.
Members aged over 65 were the most likely to downgrade their policy.
It says people who keep reducing their cover are liable to drop their insurance altogether, putting more strain on the public health system.
Southern Cross says it paid 94 cents in claims for every dollar paid in premiums in the year to June.
Claims worth $562.2 million were processed and a deficit of $7.1 million was recorded.