The Australian Medical Association says private health insurers should address low quality and sometimes "useless" products instead of attempting to use punitive tax hikes to push people into taking up their policies.

In a submission to the Turnbull government's budget process, Private Healthcare Australia, the sector's peak body, has said the Medicare levy surcharge should be raised for high-income earners who do not have private health insurance.

The representative body said the surcharge should be "recalculated" to boost the incentive for the wealthy, recommending a change that would see the top rate lifted from 1.5 per cent to 2 per cent.

"Bracket creep in combination with premium increases for some people, has resulted in the premium being paid now being less than the additional tax with the result that, over time, individuals and families may choose to pay the surcharge rather than hold [private health insurance]," the pre-budget submission said.