The Cabinet yesterday approved plans to invest up to £60 million in the VHI as part of a restructuring which will transform it from a statutory board to a commercial semi-state company.
Details of the Government's White Paper containing the proposals were not released yesterday. However, it is believed the State will retain a majority stake in the new company, making the necessary equity investment to put it on a commercial footing. Provision will be made for private investment at a later date.
Community rating, where subscribers are not penalised for their age, will be protected. A modified version of risk equalisation is proposed, recognising a competitive market while ruling out "cherry picking" by health insurance companies.
However, the proposals may be blocked by the European Commission if it decides the state subsidy is in breach of European competition law.
Officials from the Commission's Internal Market Directorate-General are believed to have had discussions with the Department of Health, the VHI and BUPA Ireland in recent weeks.
BUPA Ireland has already sought legal advice on the matter, but is awaiting the details of the White Paper before deciding whether or not it will take legal action.
Up to now the board's statutes required it to be self-financing and it was not required to build up reserves. However, its non-commercial ethos and legal restraints have hindered its operation, with ministerial approval required for every premium price change or product launch.
VHI chief executive Mr Oliver Tattan said the board was seeking commercial freedom and capitalisation from the new restructuring. The restraints it had operated under meant the market was under-developed and it wished to introduce a range of new insurance products.
The White Paper on health insurance is expected to be published within the next fortnight.