The Minister for Health, Ms Harney, has told private health insurance companies that a controversial risk equalisation scheme which would see millions of euro transferred from BUPA to VHI will not be introduced for the present.

The decision follows a definitive recommendation from the Health Insurance Authority, (HIA) based on the situation in the market for the first six months of the year, which was delivered to the Minister last week.

Risk equalisation is a form of compensation fund under which health insurance companies with predominantly older members (who claim more frequently) would receive payments from their rivals with a younger subscriber base.

VHI has estimated that it could receive up to €20 million from BUPA Ireland if the risk equalisation scheme was introduced.

VHI chief executive, Mr Vincent Sheridan last night criticised the HIA decision which he said was "bad news for Irish consumers and good news for those who seek to hijack community rating for the pursuit of profit".

"The introduction of risk equalisation would in fact reduce the cost of health insurance in Ireland and the HIA's failure to grasp this is incomprehensible."

"The absence of risk equalisation, which all independent experts agree is essential in a community-rated market with competition, has been a driver of price increases over the last eight years," Mr Sheridan said.

BUPA has strongly opposed risk equalisation.

The Government believes that risk equalisation is a key component of a community-rated market where everyone pays the same, regardless of age.

The HIA assesses accounts submitted by the main insurers in the market every six months. It has to make a recommendation on the introduction of risk equalisation based on the level of risk difference it identifies between companies.