The Department of Health and the Department of Finance are believed to be in talks on a deal which would see the new chief executive of the VHI paid a total package of about €500,000 a year.
It emerged last month that the State-owned private health insurance company had sought sought Government permission to pay its new chief executive about €650,000 a year.
This was more than twice the salary level recently approved by the Cabinet for the post.
Informed sources said the Department of Finance had been in correspondence with the Department of Health in recent weeks regarding the remuneration package for the new VHI chief executive.
Sources said that while a final deal has not been concluded, the contacts centred on a total package of about €500,000.
The VHI, which is the largest health insurer in the State, is currently recruiting a new chief executive.
The current chief executive, Vincent Sheridan, is due to retire shortly.
A report drawn up by the Hay Group consultancy firm, and accepted by the Cabinet recently, recommended the VHI chief executive should be paid a yearly salary of between €237,660 and €297,024.
However, Mr Sheridan's total package in 2006 was worth €339,000, and this had increased to €422,000 in the year to February 2007, according to the company's latest annual accounts.
The Hay report said the position of the VHI chief executive had a "median" market value of €452,100.
It found that overall pay levels of chief executives in some of the larger commercial State bodies were lagging nearly 20 per cent behind the average in the private sector.
It also stated that, in practice, the pay of chief executives in the commercial State sector was 14 per cent behind the market average.
The Hay report concluded that only two chief executives in the commercial State sector out of 14 were being paid close to the average salary enjoyed by their private-sector peers.
It said that both of those executives - in An Post and the Dublin Airport Authority - had been recruited from private business.
The VHI has had difficulties before with State pay rates.
In 1998 the cabinet of the day vetoed its attempt to recruit Ray Bates, the then chief executive of the National Lottery, and to pay him approximately £150,000 a year.