The price increases planned by the Republic's biggest health insurer for next month will increase PRSI bills for employers who pay for their workers' policies.

Angus Loughlin, head of healthcare and risk at the Irish office of global benefit consultants Watson Wyatt, warned yesterday that State operator VHI's planned 12.5 per cent average increase in its charges will hit employers who partly or fully fund their workers' health insurance.

Mr Loughlin pointed out that as a result of changes in last year's Finance Act, employers who do this have had to pay 10.75 per cent employers' PRSI on these insurance payments for their workers.

Next month's increase in premium charges will mean that they will face a proportionate charge in their employers' PRSI bills.

"The merits of companies reviewing their choice of cover and provider makes prudent business sense," Mr Loughlin said yesterday.

Where businesses pay for workers' health insurance, this is taxed as a benefit in kind. Since the beginning of 2004, the Government has been deducting tax on benefits in kind at the payroll stage.

Before that, employees were expected to declare these benefits to the Revenue themselves. The change resulted in making benefits in kind liable for employers' PRSI, which they were not when workers paid the tax themselves.

He also pointed out that once the price hikes come in next month, it will mean that the real cost of private health insurance with both VHI and its biggest competitor, Bupa, will have increased their charges by an average of 62 per cent over the last five years.

VHI introduces its annual increases in September, while Bupa does so every March.

This year, Bupa's increases were higher than those introduced by VHI for September 2004.

Mr Loughlin predicted that medical inflation could force the market's most recent entrant, the AIB and Dermot Desmond-backed Vivas, to raise its charges as well.

He pointed out that medical inflation is running at four to five times the rate of that in the general economy.

"It is under the same cost pressures as Bupa Ireland and VHI," he said.

VHI has introduced some extra benefits to coincide with its increases, including higher maternity benefits across all plans, higher overseas cover and a new cancer accommodation support benefit.