And the Government could no longer be a player and regulator in the health insurance market, Health Minister Mary Harney said.
Both maintained the sale was to protect 'risk equalisation' -- where other providers paid the VHI compensation because it had an older customer base.
Risk equalisation was previously struck down as anti-competitive by the Supreme Court because the VHI is backed by the State.
Mr Cowen also said the sale would make "as certain as humanly possible" that 'community rating' -- where older and younger people paid the same for insurance regardless of age -- would be secure.
Around 2.2 million people have private healthcare, with 340,000 of those over 60.
VHI covers 94pc of insured over-80s, 89pc of over-70s and 77pc of over-60s.
"Many of them have been paying for health insurance all their adult lives," Mr Cowen said. "They have a fair expectation that the health insurance market will not be permitted to evolve to their disadvantage.
"It is entirely right for people to expect that they would not face higher insurance prices just because of their age or just because they have a particular medical condition.
"The whole purpose of these decisions is to provide more security, not less security, to older and sicker people who have private health insurance," Mr Cowen said.
But Fine Gael claimed the move was pushing back full risk equalisation until 2013 -- five years after the Supreme Court struck down Ms Harney's previous effort.
"The minister has had two years since her first attempt at a risk equalisation scheme was struck down by the Supreme Court, which (then) led to the introduction of an interim levy system," FG health spokesman Dr James Reilly said.
"Ludicrously, today she is announcing a transitional arrangement to follow an interim arrangement and the new risk equalisation scheme is pushed off until at least 2013.
"The sale of the VHI will have to be very carefully handled. The only thing worse than a State monopoly is a private monopoly."
And Labour said the latest move was driven by a privatisation agenda typical of the now defunct Progressive Democrats.
Spokesperson Jan O'Sullivan said the plan was not in the interest of "VHI members or a fairer health system".
"Just like the plan for super-private clinics, this is a decision driven by political ideology," she said. "The PDs may have gone as a party, but their political stamp remains on this government."
Sinn Fein said the sale was another step "in the wrong direction".
- Fiach Kelly Political Correspondent
Irish Independent
