The free market only really works when a certain set of conditions are met, and two of those conditions are the public having enough information about the product to make an informed choice, and then having the power to cause a negative effect on the companies that are doing wrong. Our system fails to meet either of these conditions. Alex Smith knew that the free market would accomplish all the goals we have as a society, but only when it was well regulated, and people were able to make informed decisions. Remember, when the Wealth of Nations was written, "the market" consisted of landed, informed, noblemen. Ask any Dickens character how the free market works for the poor. The government has to intervene because it is the only way the poor will get enough economic muscle to influence the market towards addressing the needs of people who don't have the economic capital to matter to the insurance industry. Covering the poor is simply unprofitable, and thus contrary to the goals of the free market. This is one of those cases where the free market system, while working perfectly (accomplishing it's goal of maximizing profit without regard to those without the means to participate) is a bad thing. At what point have we reached the "last resort"? I think we can agree that the problems with the insurance industry, and the free market itself aren't going to get better on their own. Why should they? There is no incentive to advance company policy that will undoubtedly lose lots of money. In the interest of providing for the general welfare, the government must "encroach" a little on private insurance industry.
And again, if you think turning a profit is the goal of government corporations, you haven't been listening.