IMO, you have to separate the issue into two parts. The first part is the usual market thingy, which is completely private. Then there is the second part, which exists to serve those in need for various reasons, and that one have to be completely under government control, and of such a nature that it won't conflict with the private part.
Trying to merge the two into one privately owned but government controlled entity is doomed to fail, as you said and as we have seen the last year.
Sorry for the very brief reply to a big question, but no time for a longer one right now...
Bookmarks