Based on these calculations insurance actuaries would determine the amount everyone would have to pay in annual premiums to cover the medical costs of those relatively few who would need expensive medical care during that year. 

Premium rates would go up or down based on:

• the overall health of all the policy holders
• the administrative costs of the insurance company, and
• the interest money gained by whatever investment vehicles were used by the insurance company to safely store & grow the funds not needed to pay medical expenses.

As long as there was a free market, health insurance companies:

• Would compete with each other to provide the highest service for the most reasonable premium cost. 
• Would have to keep overhead and administrative expenses low so their premiums would be low to compete with other insurance companies. 
• Would have to pay promised medical expenses to maintain their business reputation.
• Were allowed to charge higher premiums to people who engaged in dangerous activities and unhealthy lifestyles.  

Insurance should be only for the unexpected (worst case) illnesses or injuries.  Expected medical & dental care can be paid for out-of-pocket, or, even better out-of-savings.  If you put money away in a savings account specifically for medical needs, you'll have what you need when you need it.   See "Investment Scenarios"

With high deductible insurance plus cash or savings, the incentive is for real value - and good health.   

Think about it:  you can spend your time & money on fitness and good nutrition while another guy is spending his money on greasy foods, alcohol & tobacco.  Wouldn't it be "fairer" if the other guy had the financial incentive to take better care of himself.   Financial incentive toward living a healthy lifestyle will be more effective than government regulations.   We are a compassionate society but the charity should be for the "can-nots" not the "will-nots"