The Government's forthcoming White Paper on Health Insurance is understood to propose a major cash injection by the State in the VHI.
The White Paper is expected to be approved when the Cabinet meets today and according to a Government spokesman will be published in about a week.
The VHI is seeking up to £60 million to satisfy its solvency requirements. The State is not expected to cover all of this and an outside investor, most likely a bank, is also likely to be brought in as an investor.
VHI's sole competitor in the Republic, BUPA, is expected to fiercely resist any State funding being made available to the VHI. Sources have said the company is likely to argue that such funding would contravene EU competition rules.
The White Paper and the resulting legislation will govern the health insurance sector for the next decade. It will also make a recommendation on the risk equalisation scheme (RES) which involves a complex set of regulations designed to prevent new entrants to the market keeping claims down by cherry-picking customers.
An earlier draft of the White Paper circulated in the industry supported the retention of the RES. This is supported by the VHI and strongly opposed by BUPA. Other entrants are likely to also oppose the retention of the RES.
While BUPA and the VHI are currently the only companies offering health insurance products, other firms like Hibernian Insurance have expressed an interest in entering the market if the regulatory issues are addressed to its satisfaction in the White Paper.
Meanwhile, the first group of VHI subscribers will receive details this morning of a 9.4 per cent price increase from the company.
BUPA has promised not to increase its prices this year.