Plans to sell off the VHI will move a step closer today with the publication of the Government's White Paper on Private Health Insurance.
The White Paper, which recommends an injection of between £50-£60 million of public money into the VHI, is also expected to contain recommendations to increase competition in the private health insurance market.
As part of the process of moving the VHI into private ownership the White Paper is understood to propose changing its legal structure from a statutory board to that of a commercial semi-State company. The new structure would mean that the VHI would no longer require ministerial approval to increase premiums paid by its customers.
Over 1 1/2 million Irish people have private health insurance, the majority with the State-owned VHI. Its only competitor, BUPA Ireland, entered the market in 1997 and currently has over 100,000 members. A Government source said last night that the White Paper would ensure that the VHI "remained competitive as other private health providers entered the market".
The injection of public money into the VHI is likely to provoke opposition from BUPA. An industry source said: "This will create a situation where the dominant player is being helped with public money in what is supposed to be an open, competitive market."
It is expected that the Government will have to seek EU approval for investment in the VHI. It remains unclear whether the European Commission will sanction what could be seen as a public subsidy to the VHI, which could constitute a breach of EU competition law.
The second controversial proposal in the White Paper is likely to be its recommendation for a "risk equalisation scheme" to ensure that new entrants to the market do not sign up only young, healthy people as members. Companies such as BUPA would be required to pay a levy to the VHI to "equalise" membership profiles in terms of the overall annual cost of healthcare.
The introduction of such a scheme is understood to have delayed the entry of at least one other company into the Irish private health insurance market. An industry source said: "The private health market here should be like what we see for mobile phones. Certainly the number of subscribers are there."
It is understood that the White Paper proposes a two-year "grace period" before the equalisation scheme comes into operation. A Government source said: "Some form of risk equalisation is necessary to stop `cherry-picking' by new entrants."
The White Paper is expected to recommend retention of the community rating principle whereby private health insurers cannot discriminate between customers on the basis of age. It is illegal under the 1994 Health Insurance Act for private health insurers to "cherry-pick" customers.
The proposals are understood to provide for people aged over 65 to take out private health insurance for the first time if they pay a once-off premium. Up to now, private health insurance companies could decline to accept membership from applicants aged over 65.
The White Paper, which will be published today by the Minister for Health, Mr Cowen, includes an overview of the private health insurance market; an assessment of the State's role in the market; how to preserve the principle of community rating; changes in the regulatory framework; and the proposed structural changes to the VHI.
The current anomaly whereby the Department of Health acts as shareholder in the VHI and is also the regulator of the market is likely to be addressed with the establishment of an independent health insurance advisory board.