The European Commission may insist on the Government making a firm commitment to full privatisation of the VHI in return for sanctioning an injection of over £50 million in public money into the State-owned private health insurance company.
A full sale of the company within the next two years would raise "well in excess of £200 million" for the Exchequer, according to industry sources, with the 530 staff members of the VHI sharing in a windfall of about £30 million as part of an employee share ownership scheme.
It is believed that the Minister for Health, Mr Cowen, intends VHI staff to receive the same terms as Telecom Eireann employees. If the allocation to the VHI staff equals the 15 per cent stake given to Telecom staff, each VHI staff member would receive more than £55,000.
The Government, in its White Paper on Private Health Insurance, published yesterday, left open the option of a partial sale. But a full privatisation may be required by the EU Commission if the cash injection is to be permitted.
The White Paper states that the Government will introduce legislation to transform the VHI into a commercial semi-state company. This is ahead of pursuing, "as a matter of urgency, the question of outside investment, in order to enhance the position and prospects of the company".
The £50 million State investment in the VHI will have to be notified to the European Commission's competition directorate for assessment of whether it is compatible with competition law. The Government has already taken informal soundings and is confident that the Commission will not uphold any challenge to the investment.
Mr Cowen said yesterday: "State aids are not excluded by EU law. There are certain criteria that have to be met, usually in the case of a once-off investment, in preparation for a competitive environment".
The chief executive of the VHI, Mr Oliver Tatton, said that the White Paper would "radically change the structure of the VHI and present us with the opportunities to grow our business". Mr Tatton's preference is for a full sale by the State of its entire interest in the VHI.
It is understood that the necessary legislative changes may take more than 18 months, by which time the required investment by the Government to make the VHI solvent would be closer to £60 million than the £50 million mentioned yesterday by Mr Cowen.
BUPA Ireland, the VHI's only competitor in the private health insurance market, is understood to be focusing its attention on securing changes to the proposed risk equalisation scheme.
A BUPA spokeswoman said that the proposed scheme "would require us to write cheques to our competitor". BUPA claims that it would have to pay the VHI "an estimated £20 million over the next three years". The company said that the proposals in the White Paper would "perpetuate inefficiency by hindering progress, innovation and competition".
Fine Gael's health spokesman, Mr Alan Shatter, said that the proposed £50 million investment should come from the private sector rather than from the taxpayer.
The Government is to "proceed with the early establishment of a Health Insurance Authority" to regulate the private health insurance market. Mr Cowen said that this would remove "any potential conflict of interest" which he might have as the sole shareholder in the VHI and as the regulator of the overall market.
The White Paper also proposes changes to encourage more young people to take out private health insurance. People who wait until later in life to join such schemes will be penalised by having to pay higher premiums.
At least two potential competitors to the VHI and BUPA are understood to be evaluating the proposed changes ahead of any decision to enter the Irish market.