Health minister Greg Hunt has announced the rules for the reform that will see all private health insurance policies categorised as gold, silver, bronze or basic.
The new rules will mean the adoption of minimum and standard clinical categories for all product tiers.
"The Basic and Bronze cover levels are affordable options supporting choice for millions of Australians accessing key health services. Basic policies are especially valued by regional and rural patients," said Mr Hunt.
"Silver and Gold policies provide more comprehensive cover – providing peace of mind for services that are needed at different stages of life."
Mr Hunt said the reform will be in place from 1 April 2019, the day the 2019 premium increase takes effect, with the requirement that all products must be compliant from 1 April 2020.
The transition period, which has been welcomed by the Consumers Health Forum, was largely expected and follows strong advocacy by medical device companies, small insurers and some medical groups.
It is understood the transition period has been put in place to give more time for smaller private health insurers to comply with the new rules. However, it is anticipated the majority of products will comply from 1 April 2019.
The Medical Technology Association, which was arguing for an across-the-board delay, said it remains broadly supportive of the reforms but that it is "disappointing" consumers needing to access some important medical devices will in "most cases need a gold level policy to do so."
"There is only one definite winner today – big private health insurers," it said CEO Ian Burgess in a statement.
"MTAA has simply been seeking a 12-month delay to these changes, accompanied by a 12-month information campaign, to ensure consumers can make an informed choice."
He continued, "We believe access to a full range of medical technology is the most valuable component of a private health insurance policy and we’re committed to doing what we do best – assist patients lead healthier and more productive lives."
According to Private Healthcare Australia chief executive Dr Rachel David, "The system is designed to reflect as much as is possible the spread of products already in the market, however it will eliminate features of the system that consumers have found confusing, improve transparency and make it simpler for consumers to use their PHI.
“The Private Health Ministerial Advisory Committee (PHMAC) developed this system so consumers would have access to products which are both affordable and provide value for money across all life-stages."
Dr David also rejected any suggestion the reform would result in a dramatic increase in private health insurance premiums.
“Despite media speculation, this reform will be premium neutral on average, as was always the intention," she said.
"More than 13.5 million Australians hold PHI and over half of those have disposable incomes under $50,000 per annum. Many of these are full pensioners and superannuants who are making considerable sacrifices to maintain their health cover."