Labor has seized on reports the Turnbull government plans to take a tough line with states demanding big boosts to public hospital funding, labelling it an insult to patients, doctors and nurses.

A leaked draft of a proposal, obtained by Fairfax Media, outlines a post-2020, five-year plan to keep a lid on hospital funding.

Canberra will continue to pay 45 per cent of the cost of hospital funding and keep growth in spending by the Commonwealth capped at 6.5 per cent per year.

The proposal will be submitted to a meeting of the nation's leaders on Friday with the aim of settling a final agreement by the end of 2018.

But the opposition says the plan will lock in seven years of public hospital cuts, leaving patients languishing on waiting lists and public hospitals underfunded.

"Our public hospitals, our emergency departments are absolutely stretched to the maximum," opposition health spokeswoman Catherine King told reporters.

"It's a deal the states should reject."

Asked where Labor would find the money to boost the commonwealth's share, Ms King said the party would have more to say in the lead up to the next election.

The Australian Medical Association's latest public hospital report card showed only three of 48 targets had been met.

Health Minister Greg Hunt said the proposal was a genuine and generous offer through until 2025.

Liberal Democrat David Leyonhjelm called for a profound change in the health system, warning its funding was on an unsustainable path.

"We need to increase personal responsibility for healthcare, deregulate the insurance market so we can cover ourselves and not be stuck with big bills unexpectedly, but pay more for it by our insurance premiums," he told reporters.