Legislation to force health insurers to pay the gazetted rate for single-bed hospital rooms is expected to be introduced to state parliament on Tuesday.
The proposal, ticked off by state cabinet on Monday, would claw back some of the $140 million NSW says it's losing each year.
It follows months of failed negotiations with Bupa, Medibank, NIB and HCF - which control 74 per cent of the market - over the public hospital rates set by the government.
The industry has accused the state of trying to roll out a "health tax" on policyholders to shore up an ailing hospital system.
About 46 per cent of NSW residents have hospital cover, slightly higher than the national average of 45 per cent.
The legislation would mimic that passed by Mr Mookhey's coalition predecessor Mike Baird in 2013 when the same insurers refused to pay the gazetted single room rate.
"Mike Baird was right 10 years ago when he demanded the insurers pay their fair share, and we are right to enforce that agreement now," Treasurer Daniel Mookhey said.
The government said the extra money could be used to hire up to 1000 nurses, to build a new rural hospital or to reduce the elective surgery wait list by thousands of patients.
"It is unfortunate that it has come to this - but the insurers can resolve the impasse by paying their bills," the treasurer said.
Bupa is among the insurers the NSW government is asking to pay more for hospital stays. (Paul Miller/AAP PHOTOS)
Some 44 of 53 health insurers are either already paying the correct rate or have now agreed to resume paying after discussions with the NSW government.
Private Healthcare Australia, an industry group, said most insurers paid a mandated federal rate for single rooms but NSW wanted a higher "preferred rate" to meet the budget revenue target.
Chief executive Rachel David warned in September that members of big funds, including HCF, would be forced to pay more under a higher private-insurer contribution on rooms.
Some health insurance premiums could go up by $114 per year if changes were made, leading to thousands dropping out of the private system, she said.
Private health insurance premiums rose by an average of 3.03 per cent in April, prompting calling for independent oversight.
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