The State-owned VHI said last night that the Government's proposals to reform the health insurance market created potential for "large price increases" for consumers.

The proposal from Minister for Health Mary Harney was also criticised by VHI's biggest rival Quinn Healthcare, the former Bupa Ireland, which said the 20 per cent reduction in risk equalisation payments that it must make to the State company did not go far enough.

In a statement, VHI said Ms Harney's proposals would lead to price increases in the longer term and "will seriously undermine" community rating, the system that guarantees equal health insurance premiums for all consumers regardless of their age or risk profile.

Finding fault with the decision to dilute risk equalisation payments, it said the existing formula for risk equalisation was already very weak. "A further dilution of risk equalisation will serve to increase the profits of such insurers without any requirement for them to generate increased efficiency in their own operations or in the delivery of healthcare," it said. "Competition in such circumstances is of no benefit to the market and is on the contrary, as one expert has commented, 'socially undesirable'."

VHI said the move to impose a "normal solvency requirement" on the company next year had serious implications - "not least for the continuation of the not-for-profit ethos" of the company - as this was four years earlier than it expected. It said the dilution of the risk equalisation formula ran counter to the intention to impose normal capital requirements on the company, "and may well render it impossible".

VHI chairman Bernard Collins and chief executive Vincent Sheridan will meet Ms Harney today in advance of a board meeting.

Quinn Healthcare said it would review the new measures and the Barrington report in the coming days, but it hoped the measures would make it easier for consumers to switch to its service.

"However, we are disappointed with the 20 per cent risk equalisation scheme reduction . . . We do not believe that this goes anywhere close to levelling the playing pitch in the health insurance market," a spokesman said.