Legislation is currently going through the Dail and Seanad that will give full commercial freedom to the VHI. The main focus of the legislation has been to protect the VHI in its transition from public ownership to private company.

For the consumer it means the VHI will have the authority to set premiums - this week it emerged that it had sought a further 9 per cent increase in premiums from the Government; increase the number of products it has on offer; sell the company to the highest bidder; and set the remuneration of its management without the constraints of public sector limits. Community rating, the same premium for all, will be largely maintained.

Community rating will be supported by "risk equalisation", where companies with older more expensive patients on their books might seek compensation through a central fund from those companies with younger subscribers.

The consumer does not seem to be considered in the whole process. Previously when State monopolies were being privatised, regulators were put in place to ensure competition and protect the consumer. We have a regulator for supply of electricity and telecommunications. We have a regulator for financial services but we won't have a regulator for private health insurance. The Competition Authority is currently investigating the VHI, yet there is no regulation of this company.

There is an assumption in Ireland that private medicine is a money-making machine. However, in the last few years, five private hospitals have found it too tough to continue providing the service. Auteven in Kilkenny, St Joseph's in Raheny and St Michael's in Dun Laoghaire have opted for transfer into the public sector. Bons Tuam opted to close but might be taken over by the health board, while St Gabriel's in south Dublin has been turned into a housing development.

This means that the number of private health service providers is reducing while the number of private health subscribers is increasing. The shortfall is being taken up by the public sector.

There is a possible solution to assist in the restructuring of the health insurance market. In March the Health Insurance Authority was set up. The main purpose of this body is to review the operation of "risk equalisation" between private health insurers. In the current market it means BUPA, which is approximately one-tenth of the VHI's size, will have to pay approximately £2 million to its larger rival.

The accounts for the year ended February 2000, published on the VHI website, show some interesting trends. Income is up 12 per cent; claims only up 2 per cent; operating costs up 25 per cent; and investment income down £21 million to a loss of £5 million on the previous year. The financial results were proudly announced as a increase in profits, up 35 per cent on the previous year, but there has been no public inquiry into the loss of £5 million of subscribers' money that should have been spent on service provision. There seems to be a rush by the Government to divest itself of this embarrassing problem by privatising the company.

My private health insurance premium was increased on the basis that specific medical health inflation is running at 9 per cent per annum, way above normal price inflation. The claims experience of the VHI does not bear this out, or if it is true the level of service being provided by the VHI is reducing.

The three main reasons for purchasing private health insurance, according to a recent ERSI report, are: fear of large medical bills; being sure of getting into hospital quickly when you need treatment; and being sure of getting good treatment when you are in hospital.

Between 50-60 per cent of acute hospitals beds used by the VHI are in public hospitals. Due to private hospital closures and the number of beds in public hospitals being designated private, you are more likely to receive your treatment in a public hospital. The VHI does not pay the full economic cost for this.

The main conclusions are: firstly, the VHI is not being run prudently ; secondly, the majority of VHI subscribers are paying on the double for access to a bed in a public hospital on the assumption that they will get better treatment if they have the VHI logo on their pajamas; and thirdly, things will not get better for subscribers when the VHI is privatised.

There is a solution. The role of the Health Insurance Authority should be extended to balance the needs of subscribers and health service providers and not just competitors in the health insurance market. This needs to be addressed urgently before the constraints of being a part of the public service are removed.

Robert Nutty is managing director of Magnetic Resonance Imaging Ireland, which provides medical services, including mobile scanning equipment, to the Irish market