The changes proposed by the Government for the private health insurance sector in the new White Paper represent the most radical overhaul of the area for over 40 years.

There will be clear benefits for the public and over one and a half million subscribers, in terms of a wider variety of health insurance plans, including GP schemes, increased benefit for psychiatric care and the possibility of more, but still limited, competition.

However, there is nothing in the White Paper to suggest that health insurance subscriptions will come down in price. In the last five years, VHI subscriptions have increased by over 40 per cent.

The competition that has emerged in the banking sector will not be replicated in the health insurance market. This is because the main force that drives health insurance is medical inflation. Increased competition forces companies to contain administration, staffing and marketing costs, but as yet no one has found a way of capping healthcare costs, fuelled by patient demand and new technology.

The White Paper, while aiming to facilitate greater competition, is allowing this to occur only in a strictly controlled manner to protect the "common good". Everything in the 106-page document is underpinned by the principle that community rating means that everyone in private health insurance shares the risks.

The controversial and highly complex risk equalisation scheme, to prevent insurers mainly targeting young and healthy low-risk subscribers, is being amended.

The Government believes that the changes, which still prevent so-called "cherry-picking", will make for a more benign regime and will not prove an obstacle to genuine competition.

Some observers believe that the true aim of the risk equalisation system is to protect the dominant position of the VHI and ensure it does not experience a haemorrhage of young members to rivals, thereby leaving it with an ageing subscriber profile and financial crisis.

Even with risk equalisation, insurance companies can still compete on cost, product quality, marketing, claims management and service. Now, under the White Paper proposals, they can also launch new schemes which will not be subject to community rating.

While it may still act as a deterrent to potential new entrants to the health insurance sector, there are new opportunities arising from the White Paper for insurance companies to generate profits.

For example, people from the age of 35 and upwards who take out health insurance for the first time can be penalised with a loading on their premium. This is to stop individuals taking advantage of the system by delaying private health insurance cover until they reach a time in their lives when they are more likely to fall ill and health costs will be high. These are called "hit and stay" subscribers.

For people over 65 years, the loading is 80 per cent. Up to now, insurance companies were not obliged to offer people over 65 cover.

The White Paper notes that cover for family doctor care has been minor, relative to the cover provided for acute hospital services. It urges health insurance companies to develop and promote GP plans, and in particular examine how minor procedures, currently performed in hospital, could be covered under a GP scheme.

These types of schemes would be attractive to the public, though insurance companies may face opposition from consultants concerned at a drift in their business to GPs.

The Government plans to invest at least £50 million in the VHI, to allow it achieve minimum commercial solvency reserves when it enters the open market under its new corporate structure. The exact sum to be invested could be much higher, as the £50 million figure is based on the VHI's 1999 accounts.

The Minister for Health, Mr Cowen, and his officials appeared confident yesterday that the EU will allow the Government subsidy, as a once-off cash injection to allow the VHI compete in a new environment. He emphasised that State aid to companies is not prohibited by the EU and his officials said that their consultations with Europe to date on the issue were positive.

However, VHI's rival, BUPA Ireland, with 110,000 subscribers, is expected to object to the EU Competitions Directorate or may mount a legal challenge.

The 34,000 patients on public waiting lists may be a little aggrieved at the prospect of around £50 million in State funds being allocated to the VHI. However, a sound private health insurance market keeps private patients out of the public sector and successive governments have invested heavily also in reducing public waiting lists.

It may be a year or more before the legislation to implement the proposals is ready. However, the VHI will be pleased that the general thrust of the White Paper gives it much greater commercial freedom. Indeed, one of the first new products it plans to launch is a family doctor scheme, as well as new services for long-term care, occupational health and alternative medicine.

The dramatic increase in the number of Irish people with private health insurance is linked to the economic boom and the provision of health cover as an employee benefit by more companies.

Despite its strong opposition to elements of the existing insurance market and yesterday's White Paper, BUPA Ireland has attracted a large number of people who never considered health insurance before and it is ahead of its business target.

Health insurance is a complex area and with so many vested interests it was always going to be a difficult job to please everyone with the White Paper.

The protection of community rating, whereby risk is shared, is in the public interest. Cover for ill-health cannot be treated like motor insurance, it is too personal and sensitive an area.

Fergal Bowers is news editor of the Irish Medical News