Any substantial injection of cash into the VHI will have to be notified to the European Commission's Competition Directorate for its assessment of whether it is compatible with competition law. But, Brussels sources say, the Government has already taken informal soundings on the VHI issue and is confident that the Commission will not uphold a BUPA challenge to the aid.
EU competition policy on state aids is aimed at ensuring that the state does not give a commercial advantage to companies competing with the private sector.
State aid is not forbidden, however, if it comes in the form of a cash injection to make a company viable which a normal investor would make. In this case, the State would expect to recover the aid in the course of privatisation.
Rescue and restructuring aid is also allowable although the Commission would want to know that the cash was a one-off injection and part of a programme to create viability. It would also look at whether the aid created a market distortion and in such cases might require a firm to divest itself of some of its activities.
Although the provision of minimum standards of public healthcare would not normally be regarded as subject to state aid rules, the VHI's provision of care that goes beyond the minimum basic requirements means that it is subject to the rules.
Sources say that the Commission, which has only the most limited legal competence in the field of health policy, would not be keen to interfere in such a case for reasons of subsidiarity and proportionality.
But although the public health field has not been the subject of rulings to date, officials say there is no reason why the same basic rules should not apply.
Experts say that the Commission may, in ruling on the issue, choose to unbundle the functions of the VHI, distinguishing between its role as a commercial concern selling in the marketplace and its social function in providing a service that the market would not ordinarily provide.
Aid would be appropriate only in the latter role and would have to be proportionate, so that cross-subsidisation of other functions did not occur.
And the Commission might ask whether, in allocating that social role to the VHI, the Government gave BUPA the opportunity to offer to provide the same service. If it did not, there may be a breach of public procurement rules.
A number of similar cases are being considered in relation to state-aided TV companies in Spain, France, Austria and Ireland (on foot of a complaint from TV3). In the only ruling so far on a similar case the Commission attempted to define narrowly the social role of the company and circumscribe carefully any scope for aid.
In recent years the Competition Directorate under Mr Karel van Miert, and, from today, Mr Mario Monti, has been trying progressively to roll back the state aid bandwagon, with some success.
