Our current private health insurance market is dominated by one-year health insurance policies - not 10-year, 20-year or lifetime policies. Do these short-term policies offer carriers and providers the right financial incentives to improve the health of our population?

Our question starts with this assumption: Providers structure their treatments around their financial incentives. This means that a system that pays more for inpatient care than for outpatient care will probably have more hospitalizations; a system that rewards specialists more lucratively than primary care physicians will generate an excess of specialists.

Our current short-term health care financing system pays for discrete medical interventions; providers are essentially paid piecemeal for their work. The more procedures they perform, the more they get paid. As a result, we have more medical interventions per capita in this country than elsewhere - and as a result, we have the highest health care costs per capita in the world.

Carriers, under pressure to keep short-term costs down, aim to reduce the number of interventions. They often balk at paying much for wellness visits, apparently figuring that a healthy subscriber does not need these services.

But here's the fundamental problem with this incentive system: Some 70% or more of our health care costs go to chronic disease treatment. Chronic diseases are long-term problems that do not necessarily respond well to discrete medical interventions or short-term financial incentives. Thus, our billing and financial incentive systems are poorly aligned with our population's medical conditions.

By contrast, the U.S. Veterans Administration's health care system, which generates better outcomes at lower costs per patient, has a lifetime relationship with its enrollees. It has incentives for investing in prevention and effective chronic disease treatments. "If you know you're going to have your patients for five years, 10 years, 15 years or life, there are both good economic and health reasons" for making certain decisions, according to Dr. Kenneth Kizer, former VA Undersecretary for Health. For example:

* You would choose a drug formulary with lower long-term costs and better long-term patient results, even if the short-term costs were higher.

* You would invest more money up front in a first-class hospital IT system, knowing that you will have a high return on investment over the long term, though not necessarily the short term.

* You would invest more money in hospital safety programs, knowing that the long-term payback is very good.

* You would treat chronically ill patients differently, with a long-term focus instead of today's short-term focus.

* You would provide better preventive health programs, forestalling the need for many expensive interventions.

Long-term - or lifetime - financial incentives could dramatically improve treatment protocols and reduce costs. These would compel providers to invest in better IT systems, take a long-term focus on disease management, and provide better preventive care.

The VA system provides an example of how long-term incentives can lead to an efficient, effective health care delivery system. The VA has developed perhaps the world's best medical IT and safety systems, generated better outcomes than private hospitals, and controlled costs more effectively than our national market-based health care system.

The lesson? A health care system designed around appropriate long-term incentives will almost certainly outperform a health care system using only short-term incentives. It would likely produce better results at lower costs. The evidence for this, based on the VA experience, is quite clear.

So the question we started with has changed. It's no longer "Can we reform health care with one-year insurance policies?" but rather, "Do our politicians and policymakers understand that we cannot do that?"

Editor's Note: A good continuing education course serves two important purposes. First, it complements and enhances the product-specific information brokers receive from carriers; and second, it helps brokers provide the best information to their clients by keeping them up to date on cutting-edge developments in health care. This month, we're launching a new column by Gary Fradin, president and founder of HealthInsuranceCE. Our aim is to serve these two purposes in a quick-read format each month. In addition, EBA readers can get a special discount on HealthInsuranceCE's courses.