THE EUROPEAN Commission and the Government have agreed proposals to allow for the incorporation of the VHI as a limited company on a phased basis by the end of 2013.

The move comes as the commission warned yesterday that it would open a State aid investigation into the Government’s support of VHI within a month if the State did not end its unlimited guarantee of the health insurance body.

In response, the Department of Health said that, while the State had consistently argued that such a guarantee did not exist, “considerable efforts have been made to allay the commission’s concerns, culminating with a set of proposals which the commission has now accepted”.

The move to incorporate VHI as a company is the latest development in the ongoing battle between the European Commission and the Government over the State’s role in VHI.

The European Court of Justice found last year that the VHI’s exemption from Central Bank authorisation and regulation was in breach of EU directives.

In contrast, its private competitors have to have substantial financial reserves.

Incorporating the VHI as a limited company would give the VHI the same corporate status as its competitors.

Such a step is one part of a process that will eventually see the VHI being authorised by the Central Bank.

However, more than €200 million may be required to bring the VHI’s reserves up to a level which would allow it to secure authorisation.

It is unclear how that capital injection would be provided.

The VHI yesterday welcomed the development, pointing out that the measures “form part of a complex process that will allow VHI Healthcare make an application to the Central Bank in order to be authorised by December 31st, 2013, as per the European Court of Justice ruling”.

Aviva, one of four health insurers operating in the Irish market, said yesterday that it welcomed the development, but it warned that the funding requirements faced by VHI when it comes under Central Bank authorisation should not be funded through an increase in the existing health insurance levy.

The VHI was established in 1957.

According to the European Commission, because its statute does not provide for liquidation or winding up, its creditworthiness is better than it would be otherwise, giving the VHI an undue financial advantage over its competitors.