The president’s plan to reduce health-care costs mostly depends on reducing the cost of the premiums of those “villainous” insurance companies. This plan is premised on the idea that insurance companies have large profits and administrative expenses that can be pared down without any real impact on the payments to those who provide health care. It also assumes that health-care costs have risen because of the rise in insurance premiums. Unfortunately, logic and data do not support either contention. If Obama’s plan passes, the country may spend the next five years vainly waiting for reduced insurance premiums to control health care costs.

The first obvious problem with this plan is that every incentive exists for for-profit insurance companies to maximize profits, hence their designation as for-profit companies. No publicly traded for-profit company can survive if it loads up on administrative costs to keep down profits. If the profits of health-care insurance companies were very high, then obviously an argument could be made to utilize those windfall profits to underwrite the cost of insuring the uninsured. In fact, the health insurance segment of the insurance business is just not terribly profitable.