Having been involved in picking health plans for my startup, I am not optimistic. It was a giant pain in the ass. The number of variables seems much larger than car insurance, and the consequences murkier and more severe.
I agree with parents' feeling that were the regs to be fixed (or a new regulation enacted that stopped this bundling) a better market (as exists in car insurance etc) would develop.
It's especially not good in cases where the feedback loops are long and highly variable in outcome. Humans are very good at optimizing frequent choices with readily visible consequences, but are terrible otherwise.