Public Expenditure & Reform Minister Brendan Howlin has told the Dáil that spending on the health budget will be 26% of total current Government spending.

He said the scale of the resources being invested means the sector must continue to make a significant contribution to closing the deficit.

Minister Howlin said he was allocating €13.644 billion to health next year, with an extra €50m to fund implementation of the Government's commitments on mental health and access to GP care.

He said the health department's cost base must be reduced and its efficiency increased to enable health service provision that delivers its essential services effectively, professionally and compassionately.

Mr Howlin announced a total of €543m in net savings in the health area. He said that €145m will be saved by reducing numbers and containing pay costs. Measures will be introduced to cut the price of drugs, and reduced fees for services to save €112m.

The monthly threshold of the drug payment scheme will be increased from €120 to €132 in an effort to save €12m, while the Government will also ensure efficiencies in procurement by active management and control of both price and volume of usage which will save €50m.

The generation and collection of private income in public hospitals will be improved to save €143m while another €50m will be saved through securing efficiencies in disability, mental health and childrens' services.

The Comprehensive Expenditure Report published by Minister Howlin also indicates that increased charges for health services of €79m are planned for 2012 with further increases of €108m planned for 2013. But the precise details of what these charges will be for are not outlined. These charges will be in addition to the increase in fees for private beds in public hospitals.

Measure will push up premiums, VHI warns

Health insurer VHI has warned that extra charges for private hospitals in public beds would, if implemented in full, double what it pays for customers attending public hospitals.

VHI warned that if was to continue to cover all public hospitals, this would result in a premium increase of at least 50%.

"At a time when an increasing number of people are struggling to maintain their health insurance policies, VHI Healthcare does not believe people can afford this," it said.

VHI chief executive Declan Moran said the change would have a "profound impact" on the private health insurance market and put further pressure on the public system.

He said the VHI would now have to decide whether it would continue to provide cover for all public hospitals in the future.

Health budget could be €800m lower - Reilly

The Minister for Health, Dr James Reilly, said it was possible that up to €800m could be taken out of the health budget this year.

Minister Reilly said there would be some cuts to services and an impact on patient services in the next 12 months. He said reduced personnel and other issues would present a very serious and real challenge.

He said that with the right clinical leadership and the right incentives in place, savings could be made.

The Minister said savings could also be made through new theatre practices, which requires co-operation.

In relation to an early retirement scheme, Minister Reilly said €97m had been put aside for it. He said 1,200 had applied so far and more could do so before the February deadline. Others had expressed an interest.