Around 330,000 health insurance customers on the cheapest plans are to lose full cover for procedures in private hospitals from the beginning of April onwards.
The shake-up in plans will have to come into effect in a matter of weeks to comply with the terms of the Government's new risk equalisation scheme.
The executives of the country's main health insurance companies said yesterday that cheaper plans will no longer be able to offer cover of more than 66pc for the cost of a day-case procedure in a private hospital.
The lower price of these plans means most of the subscriber's care is confined to the public system, but they could previously have included a benefit, such as access to an MRI scan, in a private hospital.
However, this will change once the new risk equalisation scheme – aimed at ensuring older or sicker people do not pay higher premiums – comes into effect.
"It effectively takes important benefits from those plans with the least coverage while introducing a shortfall for those who can least afford it," Jim Dowdall, chief executive of GloHealth, told the committee.
Subscribers of these plans will be informed of the reduced private hospital cover as their subscriptions come up for renewal.
Donal Clancy, chief executive of Laya Healthcare, warned that the cost of health insurance premiums will rise by between 20pc and 40pc as a result of the government's plan to charge all insured patients who are placed in public beds.
The plan, which will be phased in over three years, threatens to mark a tipping point for the industry, he warned. Currently, companies are not required to pay if one of their members is put in a public bed – but that will change.
"Irish health insurance is in the early stages of an upwards premium rate spiral which, if not reversed, will result in the market shrinking to a fraction of its current size."
He said if the private health insurance market shrinks significantly, the proposed transition to universal health insurance, promised by the Government, will become much more difficult. John O'Dwyer, agreed that that the rise in public bed charges will push up premiums but defended the risk equalisation scheme.
He said the cost of providing cover for a member aged 35 years was €700 a year on average. However, it is €4,000 for a 75-year-old. If the 75-year-old needs to make a claim it will be costly and without risk equalisation the premium would be unaffordable.
Aviva chairman Brian Dunne said given the continued pressure on household budgets it was inevitable people will continue to abandon their health insurance.