Minister for Health James Reilly has said that health insurance companies are making profits and did not have to pass on an increase in the Government health insurance levy to their younger policy holders.
Mr Reilly said the Government move was necessary to keep health insurance affordable for older people who are often more sick.
He said the Government wanted to move away from a two-tier system.
The core problem is that charges for procedures are too high across the health system, he added.
However, the country's second largest private health insurer, Laya Healthcare, has said it is not possible to avoid passing on the proposed levy increase to customers.
Laya Managing Director Dónal Clancy said the suggestion by Minister Reilly that private health insurers absorb the increase themselves was "unsustainable".
He said the companies simply did not make enough profit to cover a levy that he estimated would cost between €20m and €30m.
He said: "There's no doubt that if we have to pay out that money, we will have to collect that money.
"We do not have profits within any region of that number. There's no way an insurance company could operate in that way and what the minister is suggesting is not sustainable."
Mr Clancy also accused the Government of driving its young and healthy customers out of the market.
He said that the levy increase, combined with a reduction in the tax relief on insurance premiums, and the public hospital bed charges, was forcing young people to give up health insurance and undermining the principle of community rating.
He said the only fair way was to introduce community rating on a standard product, and not the advance product that most members have.
Mr Clancy also rejected claims by Mr Reilly that companies such as Laya "cherrypick" young and healthy customers who do not need healthcare and let VHI have other customers.
Opposition parties complain about increase
In the Dáil, Opposition parties have complained about the expected rise in the cost of health insurance premiums.
Fianna Fáil and Sinn Féin were responding to claims that changes in the Government health insurance levy would lead to increases in the order of 15% to premium costs.
During Leaders' Questions, Fianna Fáil leader Micheál Martin said there was incoherence in Government policy in relation to health and health insurance.
Taoiseach Enda Kenny said the clear objective was to introduce a single-tier health system.
He said the Government would maintain community rating and risk equalisation "so older people in society are not abandoned"
Yesterday, Minister Reilly announced increases in the levy on health insurance.
The levy, known as risk equalisation, is designed to ensure that everyone pays the same price for the same level of cover, regardless of age or health status.
Health insurance companies estimate the increase, coupled with budget cuts in tax relief, will result in the average payment for a family with two children increasing by €328 a year.
While the levy is paid directly by insurers, it is believed the hike will affect many of the two million people who have medical cover.