KEVIN RUDD has warned that the states are being ''overwhelmed'' by rising health costs as he gears up for an election fight over an overhaul of hospital funding.

Citing figures from the coming third intergenerational report, the Prime Minister said yesterday health spending was set to swamp the public purse and he sought to pave the way for a battle with the states over control of funding.

He singled out NSW, where the Treasury estimates spending will more than double over 22 years to 55 per cent of the budget.

''Rapidly rising health costs create a real risk - absent [of] major policy change - state governments will be overwhelmed by their rising health spending obligations,'' he said in a speech in Sydney. ''Without reform, states' ability to provide the services they currently provide will be significantly strained. That is why 2010 must be and will be a year of major health reform.''

Mr Rudd is under pressure to fulfil his election pledge to seek a mandate for a federal takeover of hospital funding if states fail to meet healthcare benchmarks.