Fiddler,
You're a generous man and your employees are lucky to have someone like you.
Right now we have insurance hacks denying coverage. Policies that appear to cover you but don't. An 'agent of the state' wouldn't go to work in drab grey overalls and a Mao cap with the express purpose of replicating and exceeding the denial rate that insurance companies do now. Coverage would expand. Doctors would still make killer salaries. You could go to any doctor you want which would make them better healers otherwise you'd go somewhere else.
As for state lines, all that would do it cause a giant sucking sound as all the insurers would go to the state with the least restrictive operating requirements. They would be able to screw someone from the other side of the country without fear of legal reprisals.
There is a middle ground that would work. The sky wouldn't fall, the earth wouldn't open up, mass hysteria wouldn't ensue. It would be so quite as to make one wonder what all the fuss was about.
Check out Wendell Potter, former corporate vice president of communications for CIGNA and what he has to say about the business he used to work for. It will give you pause.