The EU Commission has approved a scheme proposed by the Government last year aimed at making health insurance more affordable for older people.

Under the proposals, the Government is to provide increased tax relief for private health insurance premiums for everyone aged 50 years and older.

But it is also to apply a levy of €160 a year on all health insurance companies for each adult they have on their books and €53 for each child, which may be passed on to customers.

The Department of Health said this was an interim solution for around three years while a new risk equalisation scheme is devised. The Supreme Court ruled last year that the current risk equalisation system should be set aside. It was aimed at preventing health insurance companies from 'cherry-picking' younger, lower-risk, customers at the expense of older people.

The Commission found that, although the measure constituted State aid, as it was a form of compensation for a public service, and that no insurance company would be over-compensated under the scheme.

Health insurer VHI welcomed the decision, but Hibernian Aviva Health has criticised it, calling the proposals an 'unnecessary tax that is designed to subsidise VHI'.

The EU is still investigating the overall Irish health insurance market, in particular the position of the VHI.