VHI has reported an after tax loss of almost €42 million for 2009 but said it remains "financially strong".
The State-owned health insurer, which has 1.36 million customers, said its losses narrowed from €65 million in 2008 as premium revenue rose and operating expenses fell.
More than 120,000 customers left the insurer over the year, with the majority moving to rival providers and an estimated 30 per cent leaving the private health insurance market.
VHI chief executive, Jimmy Tolan, estimated the cost of providing healthcare will rise by 6 per cent to 7 per cent a-year for the next 10 years as the population gets older and therefore sicker.
The company has 510,000 people on its books aged over 65 and said that total is set to increase to 798,000 over the next decade.
It is currently losing €170 million a-year on meeting the healthcare needs of its older customers, a problem it hopes that a revised risk equalisation mechanism - designed to spread the risk of insuring older patients across the market as a whole - will address when it is finalized over the next three years.
VHI is likely to ask the Government to allow it increase premium charges next year, the last one was applied to policies in February, but has yet to decide how much it will look for.
Its total earned premium for the 12-month period ended December 31st 2009 was €1.3 billion, compared to €1 billion for the 10 months to December 2008.
Operating expenses fell to 6.4 per cent of earned premium compared to 7.6 per cent the previous year.
VHI paid out 14 per cent more in claims last year, spending more than €1.3 billion with an average of €900 per customer. Claims from older customers accounted for 50 per cent of this.
"Healthcare is primarily age related, particularly in the critical areas of cancer care, cardiac, chronic conditions and orthopaedic care," the company said in a statement.
The current market environment encourages newer entrants to pursue younger customers as they are highly profitable, while avoiding insuring older customers who are significantly loss making."
It said support mechanisms would need to be "significantly strengthened" next year or older health insurance customers would end up paying significantly more for health insurance as the sector became effectively risk rated.
An ageing population and an expected increase in chronic healthcare conditions will have a "major consequences" for healthcare funding, the company said.
Mr Tolan also said the firm plans to develop screening programmes and a chronic disease management programme.
"Financially the strategy should result in real savings in the cost of managing our customers long term healthcare needs," he said.
The company has liquid financial assets of €705 million and retained reserves of €306 million. Its solvency ratio, which measures the ratio of free reserves to premium income, currently stands at 22.3 per cent, falling from 27.7 per cent.
VHI said it was currently examining how to meet its legal obligations and ensure that income matches its expenditure next year.
Preparing VHI for sale would be complex, and the process could take up to two years, Mr Tolan said.
"Achieving financial regulation is very important for VHI Healthcare as it will allow us to grow the business and diversify our product range to the benefit of all our customers," he said.
“VHI Healthcare will need to satisfy both the Financial Regulator and the European Commission that it has a sustainable business which will require us to generate a net underwriting margin of 3 per cent to 4 per cent in 2012.”