Insurance companies won't let their profitability drop, you're right. And thanks to federal regulations, insurance carriers can't sell insurance across state lines. And thanks to state and federal regulations, only properly licensed and bonded companies can sell insurance. So, you can see how this limits competition in the marketplace.
As far as long term ill, that's where charity comes in. If there was not social security and income tax, believe me, I'd be highly inclined to donate more to the poor.
And as far as preexisting conditions go...sometimes you just have to play the hand you were dealt. Unfortunately, some people are born totally blind or deaf. No amount of insurance can fix this.
I totally think that community or state funded hospitals should exist for emergency care. Just like the rescue service is a good idea. Similarly, I think it's my choice to decide to live in a state that offers these services (or a city for that matter), or one that doesn't. However, if another state decides they don't want to have a single payer system, or mandated insurance, they shouldn't have to.
There's a big misconception about American that needs to be corrected. The federal government is NOT SUPERIOR to the states. You can think of the federal government as a mix between NATO and the EU for the states of america. American states are independently sovereign, not districts of the federal government.