The VHI may have to limit services to members unless it can increase premiums in January, the insurance body is believed to have told the Minister for Health and Children.
Alternatively, it may have to use reserves which are already below the recommended level, the Minister is believed to have been told in a letter.
Last July, the Minister, Mr Martin, vetoed a planned rise in premiums of 9 per cent from September, as part of the Government's anti-inflation initiative. But with medical inflation at 8 to 12 per cent, the VHI is understood to believe it should be allowed to increase premiums.
The 17 per cent increase in health spending announced in the public spending estimates is believed to have strengthened the VHI's position. Unless it gets permission for the increase, it will have to look at other options.
Limiting services to members would not necessarily mean cutting back on what members already get, sources suggest. Instead, the VHI may decide not to cover new treatments such as those provided by new, cutting-edge technology.
This, the VHI is believed to have argued, would put it at a disadvantage with its competitor, BUPA Ireland.
Both provide broadly comparable levels of cover for broadly comparable fees. The VHI, as a State body, is obliged to get permission from the Government for premium increases. BUPA Ireland is under no such constraint.
The alternative to limiting benefits is to dip into reserves. These stand at the equivalent of 26 per cent of the VHI's annual income. However, the industry norm is 40 per cent.
The VHI has dropped a plan to pay GPs an annual fee to treat members of a new scheme which it had intended to introduce in the new year. It was opposed by members of the Irish Medical Organisation who feared it would mean a higher workload without a commensurate rise in income.