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A govt that controls your healthcare holds the power of life and death in one more way. That's not something you'll ever be able to convince me is a good thing.
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When you describe it that way it makes it seem like you go before a panel and make a case for healthcare, after which the government overlords decide if you are worthy. We have public healthcare in Canada and the government does not actually hold life and death in their hands. They just put a portion of the government revenue towards paying for people's healthcare needs and paying the staff that do the work (not every in and out of healthcare, only the essential stuff - aka no dentistry or anything stupid like that). If I get sick Stephen Harper or any of his cronies are not allowed to withhold publicly funded treatment from me.
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Furthermore, I would submit that you're indirectly making the case for this being done at the smaller/local level as smaller organizations are more agile, controllable and accountable.
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I think if the funds were allocated at a local level it might work (granted, I have never been shown any evidence that a small government is actually as great as people crack it up to be); however, I would not want funds to be taken only from the region in which the care is being provided. I don't know how the money is spread in the US, but in Canada there are certain areas that do not have enough money to be able to fund local healthcare independently. I still prefer a national budget on which to draw the funds.