Business Opinion: You could be forgiven for thinking that the board of the Voluntary Heath Insurance Board either don't read the papers or else all live in Belgium, writes John McManus.

What other explanation can there be for the decision to lobby for the privatisation of the VHI in the middle of biggest crisis of confidence in the health service in living memory?

The Minister for Health and his advisers must need the request from the VHI for talks about its future like they need a hole in the head. Yet for some reason the board of the VHI, which is not short of people with political experience such as Derry Hussey and Pat Farrell, has made just such a request.

To be fair to the VHI, there has been a certain amount clarification needed as to what it is actually seeking to talk to the Government about. The board has, in fact, been careful to avoid the word privatisation preferring instead the term commercial freedom in any on-the-record comment.

What is the difference you might ask? Well in the case of the VHI quite a lot apparently.

The VHI is currently a statutory body, which is a notch or so down from a commercial semi-state company in the complex world of Irish quangos. This means that pretty much every major management decision on prices, products and new business ventures has to be cleared with the Department of Health, which, of course, sees Government policy as the primary reference.

What the VHI is looking for now is a structure that would give it more autonomy, the most obvious of which would be to incorporate itself as a company.

This seems perfectly reasonable in the current climate. And as it is keen to point out, this is a long way from a stock market flotation or even a trade sale, but it makes such an outcome very likely, if not quite an inevitability.

Of course it is not that simple. Because the VHI is an insurance provider, commercial freedom has a significant price tag attached to it. Before the business could be established as stand-alone entity, its financial reserves, which underpin the policies its writes, will have to be boosted by something in the region of €50 million.

This would not be a problem if the re-capitalisation were part of a sale of the VHI, which could raise €300 million, but is a very significant hurdle if this money has to come out of an already strapped health budget.

Assuming they do get their audience with the Minister, one would not envy Vincent Sheridan, the VHI chief executive, and Derry Hussey, his chairman, the job of trying to sell the idea of commercial freedom for the VHI to the Minister when it has this sort of price tag attached.

From the Minister's perspective, it is not much of a proposition. The health service is in meltdown and one of the things propping it up at the moment is a profitable, well-run health insurance company, which, despite big price rises in recent years, enjoys tremendous goodwill from its customers and the taxpayer.

Why should the Minister pump €50 million he doesn't have into the VHI merely so that it can continue to do what it's doing for him, but enjoy some commercial freedom?

It seems a doubly stupid thing to do, from the Minister's point of view, if the company really is not interested in privatisation or sale that would at least see €300 million flowing back to him.

It seems a pretty clear-cut case if "if it ain't broke don't fix it". And no doubt a letter will issue from Mr Martin's office in due course along the lines of "thanks for coming to see me Mr Sheridan and Mr Hussey. I found the discussion very informative. Now go off and get real!".

But of course the reality is that the VHI is badly broken. It was established in 1957 to provide a "financing system for private health care on a mutual assistance basis". As an instrument of social/economic policy, it was a great success and now has a record 1.55 million members.

As a business it is in trouble. The market for private healthcare - its only business - is close to saturation. While it lumbers along, with every important decision having to be cleared with the Department of Health from a policy point of view, its smaller rival is running rings around it.

BUPA Ireland has all the commercial freedom it needs. While it does not make any financial information available, it is safe to assume that it would not continue to operate in the Irish market unless it was making a satisfactory return. More competition can be expected with the introduction next year of risk-equalisation legislation, which ensures that the cost of insuring older people is spread across all the players in the market.

If the VHI wants to grow in this background, it needs to be able to move into other businesses, forge alliances and so forth on the basis of what is best for the business, not Department policy. Failure to do so will see the company die on its feet.

It is a cogent argument, but in the current climate it will be a very hard sell. Good luck to Mr Sheridan and Mr Hussey.