The VHI has taken the first step towards privatisation by seeking discussions with the Department of Health on its commercial future. The State-owned private health insurer could raise up to €300 million for the Government if sold.
VHI's chief executive, Mr Vincent Sheridan, said it was time for these discussions to begin.
"We are very optimistic we can get this discussion going because it makes sense."
The group has 1.6 million policyholders or about 80 per cent of the private health insurance market. It is one of Europe's top 15 health insurers and the €300 million figure is said to be conservative.
If the Minister for Health, Mr Martin, approves the VHI proposal, it could be put on the market and a trade sale process, inviting bids, would begin. Companies such as Irish Life & Permanent, AIB and Bank of Ireland or foreign-owned financial services groups would be likely to consider buying the business.
Selling VHI would not yield windfall payments for its policyholders. While they are called members, the VHI is not mutually-owned and the proceeds would revert to the Exchequer. Its staff could gain financial benefits as the VHI has said it would support the establishment of an employee share option scheme in the event of a full sale.
A change in ownership would grant greater commercial freedom to the VHI, allowing it to offer a broader range of services, and would remove the many conflicts of interests that currently exist while it operates within the State sector.
"We haven't had a serious discussion with the Government. We see the need for it. We see it as essential," Mr Sheridan told The Irish Times.
The move would not necessarily result in lower health insurance costs. This week the VHI announced that its premiums would rise by 8.5 per cent from September 1st to reflect increased costs.
Mr Sheridan said it had done well to contain the price rise at this level and signalled that as further new treatments, technologies and drugs were developed to treat various illnesses, the underlying cost of health insurance would continue to rise.
Mr Sheridan said that even if the VHI was sold, the Government would still have to consider some form of price control of private health insurance. "It's a nonsense if the Government can control the price the VHI charges and not the price charged by its competitors. If the structure of the VHI was changed, the Government would have to consider some form of price control," he said.
He said it was "scandalous" that the introduction of competition into the private health insurance sector actually triggered price increases rather than reducing costs for consumers. He claimed it was the Government's failure to regulate the market properly which caused this anomaly.
The privatisation of the VHI was first mooted in a White Paper prepared in 1999 for the then minister for health, Mr Cowen, which acknowledged the VHI's business needed greater commercial freedom.
However, progress on the issue was delayed by lengthy deliberations about introducing risk equalisation, a system which would require all insurers to share the cost of claims.
Legislation which could usher in risk equalisation was passed last year, but the Government must now await a recommendation from the statutory Health Insurance Authority (HIA) before it can be implemented. The HIA will shortly begin to examine the VHI's financial performance and its main competitor, BUPA Ireland, with a recommendation expected around this time next year.
The VHI believes that now the matter of risk equalisation is being dealt with, it is time to examine putting the large private health insurer on a more commercial footing.