The Health Insurance Authority (HIA) yesterday recommended that the Tánaiste order competitors of State health insurer VHI to subsidise the company.

The controversial recommendation, made because VHI's competitors have a greater proportion of younger, more profitable, clients than the State player, has already sparked a threat from Bupa that it will exit the Irish market.

The HIA is making the recommendation in a report to the Tánaiste and Minister for Health Mary Harney, which it gave to her Department last night.

The move means she has 60 days in which to decide whether to follow the recommendation.

The subsidy, known as risk equalisation, is designed to level the playing field for the 50-year-old VHI, which has an older and more at-risk customer base than its smaller competitors, Bupa and the recently launched Vivas.

It is being introduced because the Government wants health insurance charges to be based on a community rating. This means that two clients with the same level of cover from the same company pay the same premium, no matter what the level of risk.

Only Bupa will be affected initially as Vivas will have a three-year moratorium before it will have to make risk-equalisation payments.

Last night, Bupa Ireland's chief executive, Martin O'Rourke, said that if risk-equalisation payments apply this year, it will have to give a sum equivalent to double its projected profit to VHI.

"We are looking at profits of €17 million for this year, but we will have to hand over €34 million to the VHI," he said. "If that happens, we will have to leave this market and it will be back to the old days of the monopoly."

Bupa has around 20 per cent of the two million Irish people who have health insurance. Vivas, which launched in September, will not reveal the number of clients it has signed up.

VHI chief executive Vincent Sheridan said last night that it was "highly unlikely" that Bupa would leave the Irish market.

Mr Sheridan said that a HIA-commissioned report from the British-based York Health Economic Consultants argued that Bupa would only leave the Irish market if it had based its plans on continually reaping the benefit of a younger customer base.

He pointed out that this was not the case, as Bupa has always known that risk equalisation would eventually be introduced into the market.

Mr Sheridan added that Bupa had taken "windfall profits" amounting to more than €50 million in 2003 and 2004.

He claimed that the British-based business was using its Irish operations to subsidise its UK activities.