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The IRS and the USGOV in general is much more lax on preventing citizens from having free money. I get tax return refunds I shouldn't, plenty of people cheat the system and get away with it. For profit insurance companies are harder to cheat. If an insurance company refuses a claim, what are you going to do? go to another insurance company that will do the same thing? If the government refuses a claim, you can vote for the other guy. The government is comprised of "we the people", so it is in the best interest of the people for it to take place of insurance companies, which are certainly not comprised of "we the people".

You should also understand that I am not suggesting that insurance companies should be banned. If you don't like the USGOV subsidy, you or your employer can still subsidize private insurance for you. But now, insurance companies have to compete with the government!