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Interesting comment about cities being more subsidized. Do you have any evidence? I think that cities are punitively taxed, yet people still move to them because the benefits still outweigh the extra taxes.

For example:
Urban areas pay more than they otherwise would for telecommunications to subsidize rural connectivity
http://yglesias.thinkprogress.org/2010/07/federal-subsidies-for-rural-living/

Fuel used for non-farming purposes cannot claim back tax paid on it. Rebates for an industry primarily situated in rural areas sounds suspiciously like a subsidy to rural areas.
http://www.irs.gov/businesses/small/industries/article/0,,id=98980,00.html

Agricultural subsidies are a giant rip-off for taxpayers, funneling money to the largest producers of wheat, corn, soybeans, rice, and cotton. While rural residents are not typically better off for this, there are a lot more urban taxpayers than rural taxpayers.
http://www.downsizinggovernment.org/agriculture/rural-subsidies

Large cities often impose an additional sales (or wage) tax in addition to what the state already imposes; rural residents avoid paying those taxes.
http://money.cnn.com/pf/features/lists/taxesbycity2005/index.html

Rural areas generally create more CO2 per resident than urban areas, but I feel certain that the costs of CO2 reduction will not be assessed proportionately.
http://www.newscientist.com/article/dn16819-city-dwellers-harm-climate-less.html

As for why urbanites still live in cities, despite all these 'crushing' taxes? One reason might be economic: earnings grow more quickly for individuals who live in cities. The analysis points to the advantages of being close to experience you can learn from.
timharford.com

So this comment might not be conclusive, but at least I have some evidence, rather than just prejudice for holding my opinion.

There is also plenty of local red tape:

http://timharford.com/2004/09/africa-needs-less-red-tape-business-in-africa/

http://timharford.com/2008/10/time-to-drop-the-baggage-that-comes-with-moral-hazard/

Diseases that occur in a statistically reliable fashion can be insured, but you have to have a huge population to do it. A large problem with american health coverage is that it isn't insurance. Dental care, new contact lenses, fashionable glasses, none of these things are insurable, but we want our 'insurance' to cover them.

As far as free markets go, the reason a free market doesn't exist is not because some things aren't profitable to treat(a free market wouldn't treat them), but because the decisions regarding spending are not made locally. So yeah, it probably isn't real desireable to have health care be a free market, that market would let people die all the time.

Tim Hartford makes some interesting guesses about the difference in effectiveness between british and american health care in The Undercover Economist:

http://www.timharford.com/
http://www.amazon.com/gp/product/0195189779/103-53 21114-3043046?v=glance&n=283155

Check out who the author is. I think he probably has a fair idea of what he is talking about.

Check out who the author is. I think he probably has a fair idea of what he is talking about.

...if I simply ask you what you think your life is worth, you may be tempted to exaggerate, so economists judge people based on their actions. Dangerous jobs tend to earn higher pay, while activities such as buying smoke alarms or buckling seat belts carry their own costs as well as bringing safety benefits.

A typical calculation: you might pay up to $6,000 on a safer car that reduced your risk of dying by one in a thousand. Six thousand divided by one in a thousand is six million, so you are valuing your own life at about $6m. This is a typical result for residents of the US.

http://www.timharford.com/deareconomist/2005/10/va lue-of-iraqi-life.html