Overweight people could pay more for health insurance if the Abbott government adopts a Commission of Audit proposal to allow health funds to charge some customers higher premiums because of their "lifestyle choices".

Under the current system of "community rating", private health insurers are forbidden from charging older or unhealthier people more for cover.

But in its report, released on Thursday, the Commission of Audit recommended health funds be allowed to vary premiums "for a limited number of lifestyle factors, including smoking, which materially increase a person's health risk".

"The community rating of health insurance products means unhealthy lifestyle choices made by some force up premiums for all," the commission's report said.