The high number of older customers insured by the VHI cost the State body €33.2 million in the year to the end of June, the Health Insurance Authority (HIA) says.
In a review of the health insurance market given to Minster for Health Mary Harney, the authority found that the disproportionate number of older people insured by the VHI cost it over €16.4 million in the first six months of this year.
It also states that it cost the VHI a total of €33.2 million in the year to the end of June, compared with €23.4 million in the 12 months to the end of June 2004.
The VHI recently increased its charges by 12 per cent, but says it is funding the extra costs of older customers' claims from its €281 million cash reserves.
The authority yesterday told health insurers that it intends recommending that Ms Harney introduce a risk equalisation scheme to the Republic's market.
Under this system, profits from young clients with low claims are used to subsidise losses from older clients. It is designed to ensure that people are charged the same, irrespective of their level of risk.
This will mean that Bupa would have to pay the €33.2 million to the VHI, as the British insurer, with 20 per cent of the market, has a disproportionate number of younger clients.
However, Bupa has warned that it will pull out of the market if it is forced to make the payment to its main competitor.
Following a review of the market during the second half of last year, the HIA recommended that Ms Harney introduce risk equalisation. However, she decided against it and said that she first wanted to make progress with converting the VHI from a statutory body to a commercial company.
The HIA says that, as an example, VHI, with 80 per cent of the market, has 12.5 times the number of over 70s on its books as Bupa.
The document states that the overall imbalance between young and old on both companies' books gives Bupa an extra advantage over the VHI. It confirms that the British company's Irish business is three times as profitable as its home market.
"It is the view of the authority that this significant competitive advantage... has facilitated it in making an operating surplus of 17.3 per cent of earned premium in 2004," the HIA says.
"This compares to Bupa Insurance Ltd's profits of circa 5 per cent of earned premium in the UK. "
